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on Macroeconomics |
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Issue of 2014‒09‒05
118 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Yasuo Hirose (Faculty of Economics, Keio University,) |
| Abstract: | Benhabib, Schmitt-Grohé, and Uribe (2001) argue for the existence of a deflation steady state when the zero lower bound on the nominal interest rate is considered in a Taylor-type monetary policy rule. This paper estimates a medium-scale DSGE model with a deflation steady state for the Japanese economy during the period from 1999 to 2013, when the Bank of Japan conducted a zero interest rate policy and the inflation rate was almost always negative. Although the model exhibits equilibrium indeterminacy around the deflation steady state, a set of specific equilibria is selected by Bayesian methods. According to the estimated model, shocks to households' preferences, investment adjustment costs, and external demand do not necessarily have an inflationary effect, in contrast to a standard model with a targeted-inflation steady state. An economy in the deflation equilibrium could experience unexpected volatility because of sunspot fluctuations, but it turns out that the effect of sunspot shocks on Japan's business cycles is marginal and that macroeconomic stability during the period was a result of good luck. |
| Keywords: | Deflation, Zero interest rate, Japanese economy, Indeterminacy, Bayesian estimation |
| JEL: | E31 E32 E52 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:025&r=mac |
| By: | Mati Dubrovinsky |
| Abstract: | The Bank of Canada (BoC) should carefully monitor the money supply to better predict inflation and track the effectiveness of its monetary policy, according to a new C.D. Howe Institute report. In “Money Still Matters: How the Bank of Canada Might Better Monitor Inflation,” author Mati Dubrovinsky suggests the BoC should also pay particular attention to the possibility that the public’s inflation expectations will shift below targeted inflation, and should be prepared to adjust policy if and when such a shift occurs. |
| Keywords: | Monetary Policy |
| JEL: | E51 E58 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:180&r=mac |
| By: | Cooke, Dudley (University of Exeter) |
| Abstract: | I study optimal interest rate policy in a small open economy with consumer search in the product market. When there are search frictions, firms price-to-market, with implications for the design of monetary policy. Country-specific shocks generate deviations from the law of one price for traded goods which monetary policy acts to stabilize by influencing firm markups. However, stabilizing law of one price deviations results in greater fluctuations in output. |
| Keywords: | interest rates; monetary policy; price |
| JEL: | E31 E52 F41 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:187&r=mac |
| By: | COMBEY, Adama; NUBUKPO, Kako |
| Abstract: | The recent economic and financial crisis in the euro area seems to question the theoretical solutions to coordinate economic policies in monetary unions. In this paper, we adress the current system of economic policy coordination within the WAEMU during 1994-2010. Using game theory and econometric techniques, we analyze the prospects of this framework. Thus, the effects of the coordination of the Central Bank and the WAEMU Commission on key macroeconomic variables are analyzed and the effects of fiscal policy coordination on intermediate goals including budget deficits and inflation. It appears that a mechanism for coordinating policies to strengthen the foundations for institutional convergence to support economic growth in the long term and that clearly specifies the set of monetary and fiscal contracts between on one side the monetary authority and fiscal authorities of the other, is a must for the optimality of the effects of monetary and fiscal policy item. |
| Keywords: | policy coordination, monetary policy, fiscal policy, game theory,WAEMU |
| JEL: | C70 E50 E62 P11 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58118&r=mac |
| By: | Markku Lanne (University of Helsinki and CREATES); Jani Luoto (University of Helsinki); Henri Nyberg (University of Helsinki) |
| Abstract: | We propose a new simple model incorporating the implication of the quantity theory of money that money growth and inflation should move one for one in the long run, and, hence, inflation should be predictable by money growth. The model fits postwar U.S. data well, and beats common univariate benchmark models in forecasting inflation. Moreover, this evidence is quite robust, and predictability is found also in the Great moderation period. The detected predictability of inflation by money growth lends support to the quantity theory. |
| Keywords: | Money growth, transfer function model, low-pass filter |
| JEL: | C22 E31 E40 E51 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2014-26&r=mac |
| By: | Koch, Christoffer (Federal Reserve Bank of Dallas) |
| Abstract: | Shocks emanating from and propagating through the banking system have recently gained interest in the macroeconomics literature, yet they are not a feature unique to the 2008/09 financial crisis. Banking disintermediation shocks occured frequently during the Great Inflation era due to fixed deposit rate ceilings. I estimate the effect of deposit rate ceilings inscribed in Regulation Q on the transmission of federal funds rate changes to bank level credit growth using a historic bank level data set spanning half a century from 1959 to 2013 with about two million observations. Measures of the degree of bindingness of Regulation Q suggest that individual banks’ lending growth was smaller the more binding the legally fixed rate ceiling. Interaction terms with monetary policy suggest that the policy impact on bank level credit growth was non-linear at the ceiling “kink” and significantly larger when rate ceilings were in place. At the bank level, short-term interest rates exceeding the legally fixed deposit rate ceilings identify bank loan supply shifts that disappeared with deposit rate deregulation and thus weakened the credit channel of monetary transmission since the early 1980s. |
| Keywords: | Monetary Transmission; Lending Channel; Regulation Q; Deregulation; Great Moderation |
| JEL: | E51 E52 E58 G18 G21 |
| Date: | 2014–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1406&r=mac |
| By: | Maria Teresa Punzi (Department of Economics, Vienna University of Economics and Business); Caterina Mendicino (Economics and Research Department, Bank of Portugal) |
| Abstract: | This paper evaluates the monetary and macroprudential policies that mitigate the procyclicality arising from the interlinkages between current account deficits and financial vulnerabilities. We develop a two-country dynamic stochastic general equilibrium (DSGE) model with heterogeneous households and collateralised debt. The model predicts that external shocks are important in driving current account deficits that are coupled with run-ups in house prices and household debt. In this context, optimal policy features an interest-rate response to credit and a LTV ratio that countercyclically responds to house price dynamics. By allowing an interest-rate response to changes in financial variables, the monetary policy authority improves social welfare, because of the large welfare gains accrued to the savers. The additional use of a countercyclical LTV ratio that responds to house prices, increases the ability of borrowers to smooth consumption over the cycle and is Pareto improving. Domestic and foreign shocks account for a similar fraction of the welfare gains delivered by such a policy. |
| Keywords: | house prices, financial frictions, global imbalances, saving glut, dynamic loan-to value ratios, monetary policy, optimized simple rules |
| JEL: | C33 E51 F32 G21 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp180&r=mac |
| By: | Giraitis, Liudas (Queen Mary, University of London); Kapetanios, George (Queen Mary, University of London); Theodoridis, Konstantinos (Bank of England); Yates, Tony (University of Bristol and Centre for Macroeconomics) |
| Abstract: | This paper uses kernel methods to estimate a seven variable time-varying (TV) vector autoregressive (VAR) model on the US data set constructed by Smets and Wouters. We use an indirect inference method to map from this TV VAR to time variation in implied dynamic stochastic general equilibrium (DSGE) parameters. We find that many parameters change substantially, particularly those defining nominal rigidities, habits and investment adjustment costs. In contrast to the ‘Great Moderation’ literature our monetary policy parameter estimates suggest that authorities tried to deliver a low and stable inflation from 1975 onwards. However, the severe adverse supply shocks in the 70s could have caused these policies to fail. |
| Keywords: | DSGE; structural change; kernel estimation; time-varying VAR; monetary policy shocks |
| JEL: | C14 C18 E52 E61 E66 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0507&r=mac |
| By: | Akande, Emmanuel |
| Abstract: | This paper contributes to the existing Real Business Cycle (RBC) literature by introducing Marginal Efficiency of Investment (MEI) shocks into small open economic model. Investment shocks are the most important drivers of business cycle fluctuations in small open economy because the fluctuations in all the macroeconomic variables showed a significant response to MEI shocks than productivity shocks. The anticipation of pro-cyclical behavior of the external accounts when the model was augmented with the form of share of consumption in the household utility function, μ, and an appealing, but complex, concave adjustment cost function becomes a standpoint that differentiates this study from other investment shocks literatures. The pattern of the rise in investment in both shocks explains why investment shocks is so important in times of recession and it reveals the main source of fluctuations in a small open economy. |
| Keywords: | Real Business Cycle, Marginal Efficiency of Investment, productivity shocks, adjustment cost. |
| JEL: | E32 E37 F4 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52159&r=mac |
| By: | Fajar Oktiyanto; Harmanta; Nur M. Adhi Purwanto; Aditya Rachmanto |
| Abstract: | The experience from the recent global financial crisis on 2008/2009 showed that most macroeconomic instabilities came from the financial/banking sector. The condition of the financial system may affect monetary stability, through excessive pro-cyclicality in the financial system. Agung et al (2010) stated that pro-cyclicality level of financial sector in Indonesia is quite high. The evidence can be seen from the real credit which grew faster than GDP in the period of expansion, and vice versa. On the other hand, monetary policy may also affect the company's risk-taking behavior in financial markets, by affecting the company’s balance sheet as well as bank (credit portfolio, asset, etc.), which in turn will affect the stability of the financial system. Bernanke and Gertler (2001) stated that an aggressive monetary policy will not provide a significant advantage to regulate the movement of asset prices, due to the large volatility of financial variables. Hence, it is necessary to establish a combination of policy instruments to achieve price stability and financial stability. To formulate policies for price stability and financial market, we built a DSGE model that has the ability to simulate the effects of monetary and macroprudential policies in Indonesia. We incorporated a credit channel and financial intermediation mechanism in the model to capture pro-cyclicality in the financial sector, which will influence the dynamics of the business cycle, as suggested by Roger and Vleck (2011). The model is built on the basis of Gerali et al (2010) who have entered the banking sector with collateral constraint in the New Keynesian DSGE models a la Christiano et al (2005), and also adding a model of the financial accelerator approach a la Bernanke et al (1999) which has been modified by Zhang (2009). We used two approaches to model financial frictions in the financial sector: (i) collateral constraint, imposed on bank lending to households; and (ii) financial accelerator, imposed on lending to entrepreneurs. Collateral constraints mechanism in the household borrowing allows simulation of macroprudential policies such as the LTV ratio, which has been implemented in Indonesia for the last few years. On the other hand, the financial accelerator mechanism imposed on the entrepreneurs affected their decision to borrow from the bank to purchase their capital needs. The model that we developed is a small open economy DSGE model that has economic agents such as households (patient and impatient) conducting consumption, labor supply, savings to and borrowings from banks and paying taxes to the government. In addition there are entrepreneurs, intermediate good producers, capital good producers, housing producers and final good producers associated with the production of goods, the production of capital, as well as the final goods aggregator. This model also has a wide range of retailers, namely domestic retailers, importer retailers and exporter retailers that served to differentiate homogenous goods at no cost and sell them at a certain profit, with the opportunity to change the selling price following the usual mechanism from Calvo (1983). The condition of the financial system may affect monetary stability, through excessive pro-cyclicality in the financial system. The evidence can be seen from the real credit which grew faster than GDP in the period of expansion, and vice versa. On the other hand, monetary policy may also affect the company's risk-taking behavior in financial markets, by affecting the company’s balance sheet as well as bank (credit portfolio, asset, etc.), which in turn will affect the stability of the financial system. Hence, it is necessary to establish a combination of policy instruments to achieve price stability and financial stability. This model should describe the economic condition under monetary and macro prudential policy mix response if there are any shock happened. As the result, the model has detail treatment of banking sector according to Indonesia context. The transmission of macro-prudential policy shock is studied by analyzing the impulse responses to shock some variable, especially LTV. We find that macro-prudential policy plays an important role to dampen excessive economic and financial cycles in Indonesia. We also find that the results are better when macro-prudential instruments are exercised together with appropriate monetary policy responses. Therefore coordination between monetary policy and macro-prudential policy is critical In order to obtain optimum results in achieving macroeconomic stability and financial system stability. |
| Keywords: | Indonesia, General equilibrium modeling, Agent-based modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6840&r=mac |
| By: | Antonio Ribba; Antonella Cavallo |
| Abstract: | This paper investigates the dynamic effects of common macroeconomic shocks in shaping business cycle fluctuations in a group of Euro-area countries. In particular, by using the structural (Near)VAR methodology, we investigate the effect of area-wide shocks, with particular attention to monetary policy shocks, on the evolution of inflation and output of the national economies. Preliminary results show that there are two distinct groups of countries: a first group, including the biggest European economies, in which business cycle fluctuations are mainly explained by common, areawide shocks; a second one, including Greece, Ireland and Portugal, in which the national shocks play, instead, a much greater role. |
| Keywords: | Euro-area countries , Business cycles, Macroeconometric modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6739&r=mac |
| By: | Samuel Hurtado (Banco de España); Pablo Manzano (Banco de España); Eva Ortega (Banco de España); Alberto Urtasun (Banco de España) |
| Abstract: | The Quarterly Model of Banco de España (MTBE, Modelo Trimestral del Banco de España) is a large-scale macro-econometric model used for medium term macroeconomic forecasting of the Spanish economy, as well as for evaluating the staff projections and performing scenario simulations. The model is specified as a large set of error correction mechanism equations, and, especially in the short run, is mostly demand driven. This paper presents an update of the model, estimated with data from 1995-2012. In this new version, private productive investment and employment react more to output, capturing the higher sensitivity of these variables observed during the crisis, and prices and wages react less both to each other and to the evolution of real variables. Credit is now an endogenous variable in the model and it also helps explain the behaviour of the main demand components. As a result of all these changes, simulations now generally display a somewhat stronger demand channel and show nominal effects that are both smaller and with less inertia. The updated model describes an economy that is more reactive to financial shocks other than changes in interest rates, where wage moderation can generate growth and employment if it is followed by price moderation and where fiscal consolidation reduces public deficit and has negative but moderate effects on GDP. |
| Keywords: | Spanish economy, macroeconometric model |
| JEL: | E10 E17 E20 E60 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1403&r=mac |
| By: | Bulat Mukhamediyev; Bulat MUKHAMEDIYEV |
| Abstract: | Favorable period of 2000-2007 years with a high rates of GDP growth in Kazakhstan after the global economic crisis was replaced by a period of its moderate growth. According to estimates of monetary policy rules the National Bank of Kazakhstan concentrated focus on inflation targeting after the surge to 18.7 percent in 2008 and on stabilizing of the exchange rate. In this report an analysis of the different variants of monetary policy based on a small model of the dynamic stochastic general equilibrium was performed. The results show that the higher exchange rate leads to lower levels of inflation, and the weaker GDP fluctuations in response to shocks of oil prices. |
| Keywords: | Kazakhstan, General equilibrium modeling, Macroeconometric modeling |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5330&r=mac |
| By: | Laureys, Lien (Bank of England) |
| Abstract: | Skill erosion during unemployment was of particular concern as unemployment duration increased in the Great Recession. I argue that it generates an externality in job creation: firms ignore how their hiring decisions affect the unemployment pool’s skill composition, and hence the output produced by other firms' new hires. As a consequence, job creation is too low from a social point of view. But the extent to which it is too low varies over the cycle. This is because the externality’s magnitude, which depends on the impact of job creation on the pool’s skill composition, reduces when the share of unemployed workers who already have eroded skills increases. |
| Keywords: | Long-term unemployment; skill erosion; inefficiency |
| JEL: | E24 E31 E52 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0505&r=mac |
| By: | Leyla Baştav |
| Abstract: | This study aims to analyse Turkish economy for the 2000-2012 term with emphasis on inflation dynamics within the framework of New Keynesian Phillips Curve (NKPC). The aim is to capture whether the inflation dynamics is explained by output gap and/or growth of output explanatory variables or alternatively by level or the rate of change of employment (and unemployment). Price equations are estimated in the form of New Keynesian Phillips Curve (NKPC) by GMM methodology following unit root tests. There is hysteresis effect in price dynamics and past levels of output effect current inflation. There is hardly any supporting pattern for employment/unemployment level or rate of change variables upto second order lags having any explanatory power for the price inflation dynamics of Turkey. However the study will be extended by new explanatory variables (like marginal cost index, different expected inflation proxy variables etc). |
| Keywords: | Turkey, Macroeconometric modeling, Monetary issues |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6955&r=mac |
| By: | Justine Nannyonjo; Wilson Asiimwe |
| Abstract: | The East African Community member states of Kenya, Uganda, Tanzania. Rwanda and Burundi have over the years, established closer economic links through a Free Trade Area, a Customs Union, and a Common Market. These efforts have led to a deeper regional integration and trade within the EAC and have contributed to East Africa’s overall fast growth. Given the progress with intra-regional trade, the objective of the EAC countries is establishment of the East African Monetary Union (EAMU), with the circulation of the single currency in 2021. The establishment of the EAMU has gained momentum with the signing of the EAMU Protocol in November 2013. Successful implementation of the proposed monetary union would yield several economic and social benefits including promotion of trade through the enhancement of the payments system for goods and services in the region; creation of a larger regional market and broadening of business and trade-related income earning opportunities for the sub-region; and promotion of competitiveness and efficiency in production leading to increased Gross Domestic Product (GDP). However, there are also costs linked to the unification, including loss of national autonomy in the monetary policy, possibility of increased inflation and unemployment, loss of exchange policy and fiscal independence (Schuberth and Wehinger, 1998; Bean, 1992; Calmfors, 2001). The magnitude of this loss depends on how well individual countries were conducting monetary policy prior to joining the currency union. But in order to reap the maximum benefits and minimize costs, there ought to be a sufficient degree of macro-economic convergence, and financial integration among the aspiring economies preceding the union. Thus the EAC countries have put in place macro convergence criteria to be met by the each country prior to entry into the monetary union. These have included three phases: first phase (2007-2010), second phase (2011-2014); which was revised in 2013 and to be achieved within period of eight years (2013-20). The revised performance convergence criteria which each of the EAC countries must achieve are the following macroeconomic status: (a) headline inflation of no more than 8%; (b) fiscal deficit, including grants of no more than 3% of GDP; (c) gross public debt of no more than 50% of GDP in Net Present Value terms; and (d) maintenance of official foreign reserves of at 4.5 months of imports. But how far the nations will progress in aligning their economies to the set bench marks remains a question given the discrepancies in institutional mechanisms, social and economic structures. The prospective impact of (i.e. macroeconomic, sectoral and welfare effects) of the macroeconomic convergence criteria on the economies have also not been ascertained. For example, what would be the impact of adjustment of fiscal policy to meet the thresholds in the convergence criteria on GDP, sectoral performance and house welfare? Which mixture of fiscal policy adjustment (i.e. what percentage change in capital and/or recurrent expenditure) would maximize benefits for the economies? Therefore, the above issues call for a careful assessment of the prospective impacts of the macroeconomic convergence criteria on the economies. Objectives of the study The study aims to assess the prospective impact of the macroeconomic convergence criteria on the Ugandan economy. The specific objectives are: i. To critically examine the prospects of Uganda achieving the macroeconomic convergence criteria. ii. To assess the prospective macroeconomic, sectoral and welfare effects of the macroeconomic convergence criteria on the Ugandan economy. iii. To draws policy implications for achieving the convergence criteria. This paper addresses the above objectives using a Dynamic CGE Model. The data is obtained from the 2009/10 Social Accounting Matrix. The model is composed of the behavior of households, investors, industries, government and exporters that are based on the theoretical structure of the ORANI-G model (Dixon et al., 1982). Dynamic equations are extracted from ORANIGRD model to produce a Recursive Dynamic (forecasting) model. The dynamic equations are used to derive the capital accumulation and investment allocation as well as real wage and employment adjustment mechanisms. Households are assumed to maximize utility whereas firms minimize costs subject to input prices. Domestic and imported commodities are assumed to be imperfect substitutes and are combined using a constant elasticity of substitution (CES). Production for domestic market and export is captured using the Constant Elasticity of Transformation (CET). Additional variables and behavioral and/or identity equations are included in this model to capture the additional data from the Social Accounting Matrix (SAM). Simulation design The convergence simulation hinges on the adjustment of the fiscal policy to meet the thresholds in the EAC macroeconomic convergence criteria. Given that the debt sustainability analysis (DSA) for FY 2013/14 reveals that Uganda external debt is highly sustainable, the simulation mainly focuses on meeting the thresholds on inflation (8 %) and fiscal deficit as a percentage to GDP (3 %). The simulation is developed in such a way that, fiscal policy is expanded until the EAC thresholds are met. Two simulations are developed including a) Simulation in which both government development and recurrent expenditures are equally shocked with the same percentage expansion, b) In simulation 2 we shock fiscal policy in proportions of 60:40, for development and recurrent expenditure. The paper analyzes the prospective macroeconomic, sectoral and welfare effects of the East African Community macroeconomic convergence criteria, on the Ugandan economy using a Dynamic CGE model. The results indicate that the impact of the convergence criteria is positive on the aggregate demand throughout the simulation period, mainly attributed to strong performance in government and private consumption. FY 2014/15 the consumer prices would increase by 2.84 percent higher than it would be without the EAC convergence criteria. This positive deviation would break in FY 2018/19 to -1.23% less than it would be without the EAC convergence. The key drivers for the consumer prices are for sectors whose investment follows government investment and have government as the biggest consumer of their products including social sectors. Achieving the convergence criteria would lead to a deterioration of the competiveness of the Ugandan exports in the medium term, but lead to improvement of Uganda’s competiveness in the export market in long run, as fiscal policy subsides and external debt forex inflows reduce. While achieving the convergence criteria targets, the growth in government revenue (mainly indirect taxes) would be outstripped by fiscal expansion and this leads to an increase in the fiscal deficit thus having negative implications for debt sustainability. As regards to sectoral performance, sectors whose investment is not mainly driven by profit but follow aggregate investment are those that would perform much better compared to the rest of the sectors. Sectors producing traded goods would be the most negatively affected, mainly due to their loss of competitiveness in the external market. Fiscal policy adjustments post a positive effect on household income throughout the simulation period, mainly due to an increase in increase in nominal wage and transfers to households. However, this improvement can only be sustained in the medium term but collapses in the long run as the EAC macroeconomic thresholds are reached. In the long-run debt accumulates and fiscal deficit percentage to GDP hits the threshold of 3%, fiscal policy is forced to contract to keep within the EAC Macroeconomic criteria. Similarly, household savings would improve in the medium term but deteriorate in the long term, due to the unsustainable household consumption patterns. This simulation reveals that to improve national savings, there is a need to enhance factor payments and employment as well as creating a good macroeconomic environment to enable profitable international transactions. The results justify the existence of the impossible macroeconomic trinity. That is, it’s not possible to have low fiscal deficit, low inflation and a sustainable high growth at the same time. For the economy to clear, one of these aggregates must be compromised to attain the two. For instance, if the high economic growth is to be attained, inflation and deficit need to be allowed to adjust upwards by expanding the fiscal space. However, GDP would grow faster if the fiscal space is focused on the government investment. This would improve technical and production efficiency in the economy as well as sustaining a low inflation as shown in Table 5 above. Since government investment has a mild impact on inflation, this would generate more fiscal space than when the fiscal policy in geared towards recurrent expenditure. In addition, the speed of expansion of the fiscal policy determines the nature of the sectoral impacts. If government spending rises quickly to exhaust the fiscal space created as seen above, aggregate demand outstrips the supply capacity for non traded goods. This generates a construction boom with increasing construction and falling quality. The results also postulate that faster fiscal policy expansion would have a negative impact on Uganda’s competiveness through appreciating the real exchange rate and speedy improvements in the terms of trade. The best economic results would be attained by a gradual fiscal policy expansion mainly focusing infrastructure (investment). |
| Keywords: | Uganda, General equilibrium modeling, Impact and scenario analysis |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:7143&r=mac |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Currencies and Exchange Rates Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19314&r=mac |
| By: | Marlene Amstad; Simon Potter; Robert Rich |
| Abstract: | Monetary policymakers and long-term investors would benefit greatly from a measure of underlying inflation that uses all relevant information, is available in real-time, and forecasts inflation better than traditional underlying inflation measures such as core inflation measures. This paper presents the "Federal Reserve Bank of New York (FRBNY) Staff Underlying Inflation Gauge (UIG)" for CPI and PCE. Using a dynamic factor model approach, the UIG is derived from a broad data set that extends beyond price series to include a wide range of nominal, real, and financial variables. It also considers the specific and time-varying persistence of individual subcomponents of an inflation series. An attractive feature of the UIG is that it can be updated on a daily basis, which allows for a close monitoring of changes in underlying inflation. This capability can be very useful when large and sudden economic fluctuations occur, as at the end of 2008. In addition, the UIG displays greater forecast accuracy than traditional measures of core inflation. |
| Keywords: | Inflation, Dynamic Factor Models, Core Inflation, Monetary Policy, Forecasting |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:453&r=mac |
| By: | Yuliya Rychalovska; Massimiliano Marcellino (EUI) |
| Abstract: | In this paper we build and estimate a two-region DSGE model of a small open economy within the European Monetary Union. We evaluate the properties of the estimated model and assess its forecasting performance (point and density) relative to reduced form models such as VARs. In addition, we study the empirical validity of the DSGE model restrictions (based on micro-foundations) by applying a DSGE-VAR approach. Finally, the estimated model is used to analyze the sources of macroeconomic fluctuations and examine the We allow for a sufficiently rich specification which enables us to include unemployment as well as open economy variables such as the real exchange rate into the estimation procedure, along with the standard macroeconomic and labor market indicators. The model contains a set of frictions and structural shocks typically used in the DSGE literature. We evaluate the properties of the estimated model and assess its forecasting performance relative to reduced form models such as VARs. In addition, we study the empirical validity of the DSGE model restrictions by applying a DSGE-VAR approach. Finally, the estimated model is used to analyze the sources of macroeconomic fluctuations and examine the responses of the economy to structural shocks. The model is built in the New Keynesian tradition and contains real and nominal rigidities such as habit formation in consumption, price and wage stickiness as well as rich stochastic structure. The framework also incorporates the theory of unemployment as in Gali et al. (2011), small open economy aspects and a nominal interest rate that is set exogenously by the area-wide monetary authority. The model is estimated using Bayesian techniques. We demonstrate that the estimated DSGE model is relatively well identified, has good data fit and reasonably estimated parameters. In addition, the model shows a competitive forecasting performance (in terms of both point and density) compared to reduced form models such as VARs. In this respect, our results are in line with the conclusions reached in previous studies that the new generation of DSGE models no longer faces the tension between rigor and fit. In particular, we illustrate that the DSGE model produces sizable one-step-ahead forecasting gains in terms of RMSE and the Score over the unrestricted VAR, especially for such variables as GDP, real exchange rate, unemployment and real wages. The predictions stay competitive at longer forecasting horizons. DSGE-VAR analysis demonstrates that the optimal weight on the DSGE restrictions is significant and the VAR(2) correction is not helpful in improving the DSGE model fit. At the same time, the DSGE-based prior significantly improves the short term forecast accuracy of the unrestricted VAR for output, and also determines a superior performance of the DSGE-VAR model in predicting exchange rate, unemployment and wages over all the forecast horizons considered here. When compared to an atheoretical Minnesota-style prior, the DSGE restrictions appear to be more useful in forecasting output and REER, whereas the opposite is true for employment. Application of the model to the analysis of the business cycle fluctuations demonstrates that "open economy" disturbances such as relative price, foreign demand and interest rate shocks explain a significant portion of the variation of output growth, inflation, real exchange rate and employment. Price and wage markup shocks are important determinants of inflation and real wages dynamics respectively. |
| Keywords: | Euro Area, Luxembourg, General equilibrium modeling, Forecasting and projection methods |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5302&r=mac |
| By: | Iskandar Simorangkir; Harmanta; Nur M. Adhi Purwanto; Fajar Oktiyanto |
| Abstract: | A well-functioning financial system is necessary for an effective monetary policy transmission. Simultaneously, monetary policy can also influence financial system stability through its effect on financial condition and behavior of the financial market. Changes in policy rate will have an effect on how agents in financial markets perceived the future prospect of the economy and will influence their spending/investment decisions. Despite this, Blanchard et al (2010) argues that the policy rate is not an appropriate tool to deal with many financial system imbalances, such as excess leverage, excessive risk taking, or apparent deviations of asset prices from fundamentals. As an example, they stated that increasing policy rate to deal with excessively high asset price will result in undesirably higher output gap. They proposed that macroprudential policy such as cap on loan-to-value ratio to be employed to address these specific financial system imbalances. We develop a small open economy DSGE model with financial frictions and banking sector as in Gerali (2010). We modified the banking sector balance sheet from Gerali’s model to include risk free assets and reserves, in addition to bank’s loan to households and entrepreneur, as part of bank’s asset portfolio choices. This is in accordance to the current condition of Indonesian (aggregate) bank’s balance sheet which includes a significant amount of excess liquidity held in a form of risk free asset such as Bank Indonesia’s Certificates (SBI) and Government’s Bonds (SBN). The main focus of the research is to understand the transmission mechanism of loan to value (LTV) ratio requirement policy and how it will interact with monetary policy. Based on the model simulation, an increase in LTV ratio requirement for households’ lending will lead to an increase in consumption and housing asset accumulation of the constrained households. This will lead to a higher growth of aggregate demand and inflation. In order to increase households’ lending, the bank reduces the amount of risk free asset from its portfolio and will cause an increase in its loan to deposit ratio (LDR). In addition, allocating more assets with higher interest rate will also increase bank’s profit that will lead to an increase in its capital. A higher growth in aggregate demand will increase inflationary pressure and will prompt central bank to increase the policy rate. The same dynamics applied to an increase in entrepreneur’s LTV ratio requirement. Entrepreneurs will increase their consumption and investment because of the increase in funding they acquired from the bank. This will lead to an increase in GDP. Because the increase in GDP is mostly comes from the higher growth of investment, inflationary pressures is not as significant as in the previous case but central bank still need to respond by increasing policy rate. See above See above |
| Keywords: | Indonesia , Macroeconometric modeling, Finance |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5678&r=mac |
| By: | Bedri Kamil Onur Tas |
| Abstract: | Although there are many studies that empirically investigate the impact of Inflation Targeting (IT) on several aspects of the economy, the mechanisms through which IT improves the economic conditions are not studied extensively. A theoretical study is needed to present the dynamics of IT and uncover the reasons behind the success of IT. In this paper, we theoretically investigate the mechanisms through which IT effects the expectations of the public and achieve desired levels of inflation, inflation uncertainty and credibility. The study considers two mechanisms through which IT achieves its goals: (1) improvement in the credibility of the Central Bank (CB) (2) improvement in the ability of the central bank to alter the expectations of the public. To analyze these mechanisms, we construct and solve a model of asymmetric information and learning between the CB and the public. The source of the asymmetric information is the time-varying inflation targets of the CB. This paper theoretically investigates the effect of IT on the information dynamics between the Central Bank (CB) and the public. The paper introduces time-varying implicit inflation targets of the CB as the potential source of asymmetric information. Then, the model shows that IT central banks attain the desired outcomes because IT eliminates the asymmetric information about the implicit inflation targets of the CB and the frictions caused by that asymmetric information. Following the empirical findings of Ireland (2007) and Leigh (2008), we construct a model of asymmetric information and learning where the CB has an implicit inflation target and that target is unknown to the public. The model features two agents, the Central Bank (CB) and a representative private-sector agent. The information structure is hierarchical since the CB is assumed to possess private information that the private-sector agent tries to deduce by observing the CB’s actions. Hierarchical information structure is modeled as in Townsend (1983). The information structure consists of two steps: • The CB determines its inflation target of time t and uses a simple Taylor rule to determine the interest rate. . The CB follows an AR(1) rule for the inflation target as in Gurkaynak et al. (2005). (This target is announced to the public in the inflation targeting case). • The representative private-sector agent observes the interest rate and the inflation target.(in the inflation targeting case) and revises her inflation and output expectations. To analyze these mechanisms, we construct and solve a model of asymmetric information and learning between the CB and the public. The source of the asymmetric information is the time-varying inflation targets of the CB. The model depends on unobserved-components modelling with state-space representations. The model is solved using the Kalman filtering algorithm. The results present that IT countries attain the desired outcomes because IT eliminates the asymmetric information and the frictions caused by that asymmetric information. As a result, we propose and theoretically show that in non-IT countries the private agents are uncertain about the implicit inflation target of the CB and they construct their expectations about the target by following the actions of the CB. That learning dynamics increases the uncertainty and the level of inflation significantly. IT eliminates that uncertainty about the inflation target since the target is announced and becomes public information. The announcement of a credible target anchors inflation expectations as empirically shown by Gurkaynak et al. (2010) and lower levels of inflation and inflation uncertainty are achieved as a result. There are three main results of this paper. First, inflation and output expectations of the public are significantly affected by the inflation target under the case of IT. In other words, we theoretically present the mechanism through which IT anchors inflation and output expectations. Second, in the discretionary CB case, the private sector agent uses a filtered estimate of the inflation target of the CB to form her expectations which increases the variance (stability) of inflation expectations of the public. Finally, credibility of the CB is significantly affected by the target under the IT case. The CB can improve its credibility by announcing a credible target. |
| Keywords: | Calibration with US parameters. , Monetary issues, Impact and scenario analysis |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6725&r=mac |
| By: | Neil Mehrotra |
| Abstract: | Both government purchases and transfers figure prominently in the use of fiscal policy for counteracting recessions. However, existing representative agent models including the neoclassical and New Keynesian benchmark rule out transfers by assumption. This paper provides a role for transfers by building a borrower-lender model with equilibrium credit spreads and monopolistic competition. The model demonstrates that a broad class of deficit-financed government expenditures can be expressed in terms of purchases and transfers. With exible prices and in the absence of wealth effects on labor supply, transfers and purchases have no effect on aggregate output and employment. Under sticky prices and no wealth effects, fiscal policy is redundant to monetary policy. Alternatively, in the presence of wealth effects, multipliers for both purchases and transfers will depend on the behavior of credit spreads, but purchases are preferred to transfers under reasonable calibrations due to its larger wealth effect on labor supply. When the zero lower bound is binding, both purchases and transfers are effective in counteracting a recession, but the size of the transfer multiplier relative to the purchases multiplier is increasing in the debt elasticity of the credit spread. |
| Keywords: | State history, comparative development |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bro:econwp:2014-9&r=mac |
| By: | Idham Idham; Rizki E. Wimanda; Tarsidin; Tri Winarno |
| Abstract: | Indonesia’s economy is getting more integrated with the global economy. Potential impact of global economy shocks to domestic economy propagated through trade channel and financial channel are increasingly pronounced. Risk of sudden reversal following large capital inflows poses a serious threat to Indonesia’s economy. Meanwhile, Indonesia’s own domestic concerns regarding high current account deficit as a result of high growth of imports have yet to abate. To cope with these growing concerns on external sector, Bank Indonesia’s FPAS needs to be equipped with macroeconomic model with a more complete features of external sector. This paper explores modelling of the dynamics of current account and capital flows, and its incorporation into existing ARIMBI + Macroprudential model (a Semi Structural New Keynesian Model). Here we add external block to ARIMBI + Macroprudential model. This extension consists of two equations, i.e. current account gap and capital flows gap. In addition, output gap equation is modified to accomodate current account linkage to GDP. Meanwhile credit growth gap equation is modified to account for impact of BOP surplus/deficit to domestic liquidity. Simulation of the model shows that its impulse response function is in line with theoretical background while the behaviour of main variables is maintained to be similar with ARIMBI + Macroprudential. Through financial accelerator mechanism, procyclicality of real and financial sector is revealed. The simulation shows that policy mix can mitigate unintended impact of business cycle and financial cycle, as well as shocks from external sector. Its forecasting performance is also improved. |
| Keywords: | Indonesia, Agent-based modeling, Modeling: new developments |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6902&r=mac |
| By: | Asian Development Bank (ADB); (Office of Regional Economic Integration, ADB); ; |
| Abstract: | Given the catastrophe in the world’s largest economy and the subsequent unprecedented ultra-easy money policies, policy makers around the world have to face a new environment. The resulting capital flows in emerging market economies were huge and volatile. These flows have been intermediated through the banking sector (Phase One), and through the capital market, especially the fast growing bond market (Phase Two). Benefits and risks arise with these flows. The risks came to the fore after some signs emerged that the quantitative-easing policy in the US may slow down or even reverse, causing a reversal of capital flows. The analysis in this monograph expands on the implications of such a trend for emerging Asia, where financial cycles are falling out of sync with business cycles, reducing the effectiveness of monetary policy and thereby requiring a separate macroprudential policy. |
| Keywords: | capital, liquidity, bond market, regional safety nets, macroprudential, phases of liquidity, capital flows, balance sheet, quantitative easing, QE tapering, procyclicality, non-core liabilities, money, money printing, money supply |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:asd:wpaper:rpt136042-3&r=mac |
| By: | Yulia Vymyatnina |
| Abstract: | A Common Economic Area (CEA) formed by Russia, Kazakhstan and Belarus since January 1st 2012, following creation of the Customs Union between these countries in 2007 (and in operation since mid-2010), raises a number of topical questions on whether it can be sustainable, trade-stimulating, efficient in terms of long-run economic growth etc. However, an important part in the effects of inter-country influence within such a union is played by the degree the countries are connected through other than trade policies - monetary policy in general and exchange rate policy in particular. The nature of such inter-connectedness is influenced by the proneness of these countries to ‘resource curse' (or ‘Dutch disease' broadly understood as reallocation of production inputs in the economy due to its dependence on natural resource exports). Our objective is to check how monetary policies (including exchange rate policies) in these countries influence the others in the Customs Union.We use quarterly data for 1996-2010 for Russia, Belarus and Kazakhstan on the following economic indicators: real GDP, inflation, bilateral and effective exchange rates, interest rates. Additional data are collected on oil prices, oil-related real GDP in all three countries (estimated using the method suggested by Masaaki 2009), capital flows and a proxy for ‘world GDP’ in real terms. We build a small inter-country forward-looking simultaneous equations model based on the New Keynesian Phillips curve in which economies of Russia, Belarus and Kazakhstan are described using a number of equations. The model contains two layers of links between countries: explicit one through real effective exchange rates (that rely also on trade intensity between the countries) and implicit one using inter-country averages suggested by GVAR methodology (Chudik and Pesaran 2007). Unlike GVAR, our model uses a small number of countries only, and contains one dominating country (Russia). However, as Monte-Carlo experiments described in Charemza et al (2009) suggest, GVAR methodology can be successfully used in case of small number of countries with a dominating country. Our version of the inter-country model is an adaptation of the model built in Charemza et al (2009) with a number of changes suitable for a different set of countries. While Belarus can be considered small opened economy and microfoundations for the type of model used can be found in e.g. Gali and Monacelli (2005) and Benigno and Benigno (2006), for Russia microfoundations have to be different and are loosely derived following the argument from Sosunov and Zamulin (2007) and Charemza et al (2009). Kazakhstan might be regarded as a somewhat ‘middle’ case, since in terms of economy size it is closer to Belarus, but in terms of expected macroeconomic dependencies might be reasonably considered closer to Russia with a potential threat of the Dutch disease. The first equation for each country describes output gap depending on its own lagged values, real effective exchange rate (REER), world output gap, base interest rate and inter-country averages of output gaps (GVAR methodology). The second equation describes dynamics of non-systematic part of current inflation through lagged inflation, output gap (alternatively – oil-related real GDP), REER, expected deviation of future inflation from its target level (forward-looking equation) and inter-country averages of inflation. The REER is modeled as consisting of two parts – external (proxied by REER with USD and Euro) and internal (REER with the other two countries from the model) with trade shares used as weights (third equation of the model). Bilateral exchange rates are modeled as related to output gaps and REERs of corresponding countries (fourth equation of the model). The model is closed by requiring that bilateral exchange rates (after proper transformations) are inversely related to each other. The last equation of the model describes monetary policy rule for each country, allowing for different modifications depending on the previous research on the topic, Central Banks announcements etc. Bilateral exchange rates modeling allows also to reflect the degree of exchange rate control by the Central Banks of the relevant countries. The equations are estimated using GMM method. The model includes 18 equations in total, being quite parsimonious in terms of parameters – 77 in all equations. Being heavily inter-related through both exchange rates inter-influence and trade inter-influence, the model allows us to simulate spillover effects of various policy measures and pass-through effects of the ‘Dutch disease' between the CEA countries. Simulation experiments (modeling changes in exchange rate regimes, base interest rate (monetary policy changes) and external changes reflected in external part of REER) demonstrate that Belarus is most dependent on the other two counterparts of the union. |
| Keywords: | Russia, Kazakhstan, Belarus, Macroeconometric modeling, Trade issues |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:7160&r=mac |
| By: | Rudi Steinbach; Stan du Plessis; Ben Smit |
| Abstract: | Determine the optimal response of a small open economy's central bank to financial shocks that lead to increases in credit spreads. Increasing credit spreads reduce the efficacy of monetary policy when the central bank is reducing the policy rate to accommodate a lowering in economic activity.Used a DSGE model that incorporates heterogeneous households and financial intermediaries. Financial shocks leads to an increase in non-performing loans, which in turn causes the financial intermediary to increase the spread over the policy rate at which it is willing to lend.The central bank should reduce the policy rate in response to rising credit spreads, however this response is more muted when compared to a closed economy facing a similar shock. |
| Keywords: | South Africa / Italy, Monetary issues, Macroeconometric modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:7194&r=mac |
| By: | Dey, Jaya |
| Abstract: | This paper uses a Bayesian approach to estimate a standard international real business cycle model augmented with preferences with zero wealth-effect, variable capacity utilization and investment adjustment costs. First, I find that the bulk of fluctuations in country-specific outputs, consumption, investments, and international relative prices are attributed to country-specific neutral technology, investment-specific technology and preference shocks. Second, my estimated model with economically meaningful shocks simultaneously accounts for the negative correlation between the real exchange rate and relative consumption, and the negative correlation between the terms of trade and relative output. Lastly, by using marginal likelihood comparison exercise, I find that the success of the model depends on preferences with zero wealth effects; other frictions and alternative asset market structures play a less important role. |
| Keywords: | Bayesian; investment-specific technology; real exchange rate |
| JEL: | C11 E32 F32 F41 |
| Date: | 2013–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57803&r=mac |
| By: | Aleksandra Halka; Grzegorz Szafrański |
| Abstract: | The aim of the research is to find common driving forces in the inflation development across 10 emerging economies from the Central and Eastern Europe (CEE). As opposite to the previous research on this subject we are going to differentiate not only between regional and country specific common factors. We also believe that there are some common price movements across the particular sectors in the CEE countries. The common trends may stem from the fact that all the countries in the region have undergone the period of structural (market) reforms, foreign trade liberalization (especially with EU countries), productivity improvements and hyperinflation on the unprecedented scale. Afterwards, a common source of price determination across the region was the economic stabilization towards meeting Economic and Monetary Union (EMU) criteria of nominal and fiscal convergence. In the last decades we also observe a growing synchronization of the business cycle among these economies. We decompose product-level HICP indices into common aggregate (regional in terms of CEE countries), country, and sector specific components to study the co-movements in inflation rates across group of CEE countries in a systematic manner. To this end we apply a hierarchical factor model with an overlapping country-sector structure and estimate it with an iterative method of Beck, Hubrich and Marcellino (2011). Our findings are also closely related to the hypotheses on differences in the degree of volatility and persistence at the aggregate and disaggregate level (Bils and Klenov, 2004, Klenow and Kryvtsov, 2008, Boivin, Giannoni, and Mihov, 2009, Maćkowiak and Wiederholt, 2009).The research finds a considerable degree of price co-movements across countries and sec-tors. The more open economies the more vulnerable they are to external shocks coming from changes in commodity prices, exchange rates and other parts of financial global market. We find that all common factors explain about 36.5% of variance in product-level monthly price changes. Among them the most important are two aggregate (regional) factors that contribute to about half of the total variance explained (17%), less important are country (6.5%) and sector-specific (3%) components. The contribution of CEE regional component varies considerably between different countries and sectors. It is the most prominent determinant of inflation in Romania (explaining 55% of price variability), and the least important for Estonia (10%), the Czech Republic (8%) and Slovenia (6%). For the other countries the fraction of explained variance is between 13% (Poland) and 18% (Bul-garia). The regional CEE component explains from 11% of variance in food and non-durable sector to 24% in services on average being the most important price determinant in each of them. The first regional common factor may be associated with the disinflationary process explaining lowering of the inflation expectations that occurred in CEE countries, whereas the second regional factor reveals correlations with the global factors, especially commodity prices and euro area price development. As the sector specific factors are concerned, according to the expectations, prices of food and other non-durable goods (which mostly consist of energy goods) strongly depend on the commodity markets. Prices of services revel the highest correlation with the unemployment in the analyzed countries mirroring the impact of the business cycles on the prices in services., though it is not a strong one. Surprisingly there is hardly no influence of the changes in the global or domestic economic activity on the prices of durable and semi-durable goods. Probably it is due to the fact, these prices of these components are influenced by the globalization process, which leads to the price decreases regardless the phase of the business cycle. |
| Keywords: | Central and Eastern Europe (CEE) countries, Macroeconometric modeling, Monetary issues |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6977&r=mac |
| By: | Sailau Baizakov |
| Abstract: | The essence of money is its cost. And the value of money, by definition, is serving, above all, as the measurement for the price of goods and services. I.e. the essence of money is their ability to become a single scale for measurement of goods and services. This ability is due to the international consensus which has linked the price (value) of money to the quantity of goods and services which is exchanged for the currency units such as Tenge, Dollar, Ruble etc. The essence of money is its function to serve as the instrument of: - measurement of value, - goods circulation velocity, - saving wealth by private individuals and legal persons, - circulation as the world currency. Therefore, the purchasing power of money is defined within the frames of its functions. So, e.g., as the measurement of value money assess the prices of goods. Then supporting the process of goods mass circulation, the money itself engage in circulation. The circulation of goods and money flows may be faced with the gap which may cause the crises in economy. Therefore in economy management it is common to quarterly measure the difference between the nominal GDP and the real GDP. It is also assumed that the former is the result of the money circulation in nominal terms whereas the latter represents the results of goods circulation in the prices of the base period (in constant prices – translator’s note). The official statistics name this as the GDP deflator. It is accepted that the GDP deflator (or in other words the index of money inflation) – is the whip for the market economy and is therefore controlled by the government. The ability to use the money as payment tool may become the reason for the financial crises related to debt situations. The current crisis in EU countries is the financial crisis, crisis of external debts. The external debts depend not only on the amounts of debts but to some extent on purchasing power of trading partner currencies. From this it stems that in order to have the complete model of analysis in economic growth factors, it should consider not only the quantitative but also qualitative indicators of all three levels of economic cycle of money and goods: real sector, financial sector, and national economy as a whole (presumably comprising the government and external sectors – note by translator) See above See above |
| Keywords: | NA, Monetary issues, Monetary issues |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5666&r=mac |
| By: | World Bank |
| Keywords: | Environmental Economics and Policies Finance and Financial Sector Development - Currencies and Exchange Rates Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth Environment |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19303&r=mac |
| By: | Leyla Baştav |
| Abstract: | The study aims to analyze Turkish economy for the period 2000-2012 with emphasis on hysteresis mechanism in labor markets. New Keynesian (NK) framework has natural rate (or Non Accelerating Inflation Rate of Unemploymet - NAIRU) vs alternative theory of hysteresis as explanations for employment patterns. Of the four empirical research one reveals presence of hysteresis in Turkey for the term 1950-1995, whereas two of the remaining three studies for 1980-2011 also provide supporting evidence. In this study NKPC is estimated with labor market variables and additionally PC is estimated in output gap format by OLS. Although labor market equations are inconclusive due to presence of hysteresis, output gap NKPC provides some hinting evidence. This finding is also supported by statistical data analysis on employment, unemployment series and further by analysis on turnover in labor markets and long term unemployment. Hysteresis in Turkey seems to be result of business cycles in the economy (or economic shocks) rather than labor market characteristics, which can be overcome by demand management policies. Labor market and output gap equations in the study should be reestimated in the New Keynesian Wage Phillips Curve (NKWPC) format when wage series becomes available. [1]Only then a better vision will have been obtained on labor market dynamics. On macroeconomic field there is insufficient empirical evidence on dynamics of hysteresis to reach a firm theoretical background . This study may add some information to the relevance of business cycles and recessions for presence of persistent unemployment. See above See above |
| Keywords: | Turkey, Labor market issues, Labor market issues |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:6202&r=mac |
| By: | Kabukcuoglu, Ayse (Koc University) |
| Abstract: | I quantify the welfare effects of replacing the US capital income tax with higher labor income taxes under international financial integration using a two-country, heterogeneous-agent incomplete markets model calibrated to represent the US and the rest of the world. Short-run and long-run factor price dynamics are key: after the tax reform, interest rates rise less under financial openness than in autarky. Therefore, wealthy households gain less. Post-tax wages also fall less as a result of the faster capital accumulation, so the poor are hurt less. Hence, the distributional impacts of the reform are significantly dampened relative to autarky although a majority of households prefer the status quo. Aggregate welfare effect to the US is a permanent 0.2% consumption equivalent loss under financial openness which is roughly 15% of the welfare loss under autarky. |
| Keywords: | tax reform; welfare |
| JEL: | D52 E62 F41 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:188&r=mac |
| By: | FERNANDO MARTINS; Daniel Dias; Carlos Marques |
| Abstract: | This paper uses firm level survey data from Portugal to investigate how firms adjust their labour costs in the presence of wage rigidities. In particular, the paper contributes to the literature by analysing how firms, in the presence of wage rigidity, combine different channels of labour-cost adjustment in response to adverse shocks. Wage rigidity is expected to have implications for unemployment because, in the face of negative shocks, employment adjustment is likely to be larger when wages are rigid downwards. Wage rigidity is also thought to have important implications for monetary policy, as it may condition the inflation target that monetary authorities should pursue. If nominal wages were perfectly flexible it would be optimal to aim at zero inflation but, in the presence of downward nominal wage rigidity, a certain amount of inflation may be required to "grease the wheels" of the labour market by easing reductions in real wages. Model estimated by single equation methods (probit model). Recursive triangular model. We conclude that base-wage flexibility has a strong positive impact on employment, and that such positive impact has been significantly strengthened by the possibility of firms resorting to alternative margins of labour cost adjustment, like more flexible compensation components (bonus, benefits and promotions) and the recruitment of new employees at wages lower than those received by the employees that have left the firm. |
| Keywords: | Portugal, Labor market issues, Microsimulation models |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:4944&r=mac |
| By: | Robert G. Chamberlain |
| Abstract: | This paper's objective is to provide an improved model of inflation for use in dynamic macroeconomic models. Fisher's equation of exchange is recognized as a causal relationship that shows how the price level responds to changes in aggregate production, the money supply, and the velocity of circulation of money, but those responses are spread over time, rather than instantaneous.The paper offers first a qualitative discussion of what can change in a country to cause the factors in the equation of exchange to change and how those causes might be controlled. It then develops a time-dependent quantitative model of inflation, suitable for use in a simulation, based on delays that are distributed over time.This paper provides equations that can be used to model changes in the price level (i.e. inflation) that result from a variety of changes in a country that affect the values of the country's aggregate production, money supply, and/or velocity of circulation of money. |
| Keywords: | Not applicable. , Modeling: new developments, Macroeconometric modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6607&r=mac |
| By: | Florian Huber (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | This paper puts forward a Bayesian Global Vector Autoregressive Model with Common Stochastic Volatility (B-GVAR-CSV). We assume that country specific volatility is driven by a single latent stochastic process, which simplifies the analysis and implies significant computational gains. Apart from computational advantages, this is also justified on the ground that the volatility of most macroeconomic quantities considered in our application tends to follow a similar pattern. Furthermore, Minnesota priors are used to introduce shrinkage to cure the curse of dimensionality. Finally, this model is then used to produce predictive densities for a set of macroeconomic aggregates. The dataset employed consists of quarterly data spanning from 1995:Q1 to 2012:Q4 and includes 45 economies plus the Euro Area. Our results indicate that stochastic volatility specifications influences accuracy along two dimensions: First, it helps to increase the overall predictive fit of our model. This result can be seen for some variables under scrutiny, most notably for real GDP and short-term interest rates. Second, it helps to make the model more resilient with respect to outliers and economic crises. This implies that when evaluated over time, the log predictive scores tend to show significantly less variation as compared to homoscedastic models. |
| Keywords: | Density Forecasting, Stochastic Volatility, Global vector autoregressions |
| JEL: | C32 F44 E32 E47 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp179&r=mac |
| By: | Balke, Nathan S. (Southern Methodist University); Plante, Michael D. (Federal Reserve Bank of Dallas); Yucel, Mine K. (Federal Reserve Bank of Dallas) |
| Abstract: | This paper studies the e ffects of oil producing countries' fuel subsidies on the oil market and the world economy. We identify 24 oil producing countries with fuel subsidies where retail fuel prices are about 34 percent of the world price. We construct a two-country model where one country represents the oil-exporting subsidizers and the second the oil-importing bloc, and calibrate the model to match recent data. We find that the removal of subsidies would reduce the world price of oil by six percent. The removal of subsidies is unambiguously welfare enhancing for the oil-importing countries. Welfare can also improve in the oil-exporting countries, depending upon the extent to which they are net exporters of oil and on oil supply and demand elasticities. |
| Keywords: | oil prices; fuel subsidies; fiscal policy; open economy macro |
| JEL: | E62 F41 Q43 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1407&r=mac |
| By: | Jacek Kotłowski; Aleksandra Halka |
| Abstract: | The experience of the last decades revealed the weakening of the relationship between inflation and a domestic output gap in many small open economies. However we may expect that there is still a substantial share of inflation basket which is sensitive to domestic economic activity, in particular non-tradable goods and market services. It would imply that even in a small open economy the central bank may affect inflation via the output gap to some extent. To answer this question we wanted to investigate which categories of goods and services in the Polish economy are sensitive to the domestic output gap. Additionally we investigated the exchange rate pass through at COICOP group levels. The issue is relevant for the central bank, which conducts the monetary policy in the small open economy. We conducted a disaggregated analysis using price indices at the COICOP 4-digit level. We specified a variant of small open economy Phillips curve for individual price indices. To increase the robustness of the results we used different measures of the output gap. We found that more than 50 per cent of the categories react to output gap. The results are robust to a choice of output gap measure and according to our expectations the categories which are mostly linked to the output gap are services but also non-durable goods. We found that only small share of durable and semi-durable goods react to domestic economic activity, which can be explained to some extent by globalization process as argued by Borio and Fillardo [2007]. Prices of several goods from these categories were in a downward trend during the last decade unrelated to the cyclical position of the Polish economy. We identified also the groups of goods and services, for which the price elasticity of domestic demand was rather weak and which do not react to the output gap as well. Investigating the exchange rate pass through at COICOP group levels we found that more than one third of the price indices in the Polish economy respond to exchange rate movements and/or foreign inflation. The impact of exchange rate is the most substantial for durable and semi-durable goods which are to large extent perceived as tradable goods. Finally we aggregated the price indices for goods sensitive to domestic economic activity and formed an index which, taking into account the substantial uncertainty and lags in calculating output gap, may be used as an alternative measure of domestic inflationary pressure. |
| Keywords: | Poland, Macroeconometric modeling, Monetary issues |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5615&r=mac |
| By: | Wojciech Charemza; Svetlana Makarova; Imran Shah |
| Abstract: | The paper analyses inflationary real effects in situation where there are frequent episodes of high inflation. It is conjectured with the increase in high inflation, and when differences between the expected and output-neutral inflation become large, output stimulation through inflationary shocks is more effective than otherwise. It is shown that this conjecture is valid for most countries with high inflation episodes, where inflation is greater than 4.8% for at least 25% of quarterly observations. This leads to a simple policy prescription that anti-inflationary monetary decisions should be undertaken in periods where the expected inflation exceeds output-neutral. Vector autoregressive modelling, asymmetric impulse response analysis, inflationary real effects gauge (IREG) From the set of 45 countries 17 have been selected where there were marked episodes of high inflation. By the episodes of high inflation we mean the cases where 0.75 quantile of annual inflation is equal to at least 7.5%. For these countries IREG’s have been computed and asymmetric impulse responses of output to inflationary shocks evaluated separately for the periods where IREG is positive and negative. For countries selected there is a strong positive correlation between the differences in these cumulative impulse responses and the logarithm of the 0.75th quantile of inflation. In another words, we have shown that, if a country experiences periods of high inflation, it becomes relevant to pay attention to the differences between the expected and output-neutral inflation and make anti-inflationary decision in the periods where this difference is positive. The higher inflation becomes, the stronger is the conclusion above. |
| Keywords: | worldwide, 45 countries, emphasis on Indonesia, Malaysia and Pakistan, Monetary issues, Developing countries |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5478&r=mac |
| By: | Martinez-Garcia, Enrique (Federal Reserve Bank of Dallas); Wynne, Mark A. (Federal Reserve Bank of Dallas) |
| Abstract: | This technical note is developed as a companion to the paper ‘Assessing Bayesian Model Comparison in Small Samples’ (Globalization and Monetary Policy Institute working paper no. 189). Taking the workhorse open-economy model of Martínez-García and Wynne (2010) with nominal rigidities under monopolistic competition as our Data-Generating Process, we investigate with simulated data how Bayesian model comparison based on posterior odds performs when the model becomes arbitrarily close to a closed-economy and/or an economy with flexible prices and perfect competition. This technical note elaborates on three key technical points relevant for Martínez-García and Wynne (2014). First, we explain the building blocks of the open-economy model of Martínez-García and Wynne (2010). We also derive the equilibrium conditions (and the steady state) under producer-currency pricing. Second, we discuss the log-linearization of the equilibrium conditions around the deterministic steady state and our benchmark parameterization. The linear rational expectations model that results from the log-linearization is used to simulate the data under our benchmark parameterization. These simulated data is used in Martínez-García and Wynne (2014) to conduct their Bayesian model comparison exercises. Third, we describe the Bayesian estimation and model comparison techniques with special emphasis on the questions of: (a) how we elicit priors on the models themselves and the parameters of a given model, and (b) how we compute posterior model probabilities. Simultaneously, commentary is provided whenever appropriate to clarify the economic significance of the assumptions embedded in our workhorse open-economy model. |
| Keywords: | Bayesian |
| JEL: | C11 C13 F41 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:190&r=mac |
| By: | Aleksandra Halka; Tomasz Lyziak |
| Abstract: | Inflation perceived by consumers may differ from official statistics due to different baskets of goods and services both variables capture and by consumer loss aversion to price increases. Those effects, suggested by the Prospect Theory, are confirmed in many empirical studies, showing that consumers are substantially in uenced by prices of frequent purchases and price increases are perceived more strongly than price decreases. Following those observations, particularly useful in interpreting a jump of in ation perception in some of the EMU economies after the euro introduction, an alternative price index, i.e. Index of Perceived Inflation, was proposed (Brachinger 2003, 2006). The role of price changes of frequently bought goods and services in determining consumer opinions on price changes was also significant in Poland, especially after its accession to the EU. To assess whether this effect is of a systematic nature, in this paper we propose different indices of price changes of frequently bought goods and services in Poland, including the Index of Perceived Inflation. Then we evaluate those indices vs. CPI inflation in terms of their impact on consumer inflation perception, as proxied with survey data. The results suggest that Polish consumers observe a relatively wide range of goods and services, however both factors suggested by the Prospect Theory seem to influence their opinions on evolution of prices in the past. Having the measure of perceived inflation that seems more adequate than current CPI inflation on the one hand and survey-based measures of perceived inflation scaled with respect to the trend of CPI inflation on the other hand, we use it as a scaling factor to derive a probability measure of consumer inflation expectations in Poland. Then we compare selected features of this measure with respective results based on the measures of consumer inflation expectations quantified in a standard manner. See above See above |
| Keywords: | Poland, Monetary issues, Impact and scenario analysis |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5595&r=mac |
| By: | Vicente da Gama Machado; Marcelo Savino Portugal |
| Abstract: | This paper estimates reduced-form Phillips curves for Brazil with a framework of time series with unobserved components, in the spirit of Harvey (2011). However, we allow for expectations to play a key role using data from the Central Bank of Brazil’s Focus survey. Besides GDP, we also use industrial capacity utilization rate and IBC-Br, as measures of economic activity. Our findings support the view that Brazilian inflation targeting has been successful in reducing the variance of both the seasonality and level of the inflation rate, at least until the beginning of the subprime crisis, when there was a dramatic drop in activity. Furthermore, inflation in Brazil seems to have responded gradually less to measures of economic activity in recent years. This provides some evidence of a flattening of the Phillips curve in Brazil, a trend previously shown by recent studies for other countries |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:354&r=mac |
| By: | Fabia Carvalho; Fabia A. de Carvalho; Silvio Michael de Azevedo Costa; Marcos Ribeiro de Castro |
| Abstract: | This paper builds a DSGE model in which future wage assignments are introduced as collateral for risky consumer and housing loans, in addition to standard BGG-type loans to entrepreneurs. Banks face matter-of-fact constraints in funding and lending markets, have liquidity targets, and are subject to a number of macroprudential rules, such as reserve requirements, capital requirements, and regulation on housing loan concessions. The main determinants of actual bank lending spreads are mapped into the model through the introduction of taxes on banking activity, monopolistic competition in a segment of the bank's conglomerate, credit risk, and regulatory and operational costs. The bank operates in the open market, and that is key to the transmission channel of reserve requirements. The model is carefully tailored to Brazil and reproduces the baseline understanding of the transmission channel of monetary policy and of reserve requirements. Macroprudential regulation in the form of capital requirements has important implications for the dynamics of real variables. DSGE modeling, with results analyzed trhough impulse responses. The first draft of the paper presents a calibration and IRFs. We plan to present in the conference a full-fledged estimated version of it, with variance decomposition analysis, historical decomposition of shocks, in addition to scenario studies. Preliminary results with the calibrated version of the model show that our modeling strategy is capable of reproducing the baseline understanding of the transmission channel of monetary policy and of reserve requirements. In addition, macroprudential regulation in the form of capital requirements has important implications for the dynamics of real variables. We also plan to study to effect of changes in risk weights in capital requirements, changes in the remuneration of reserve requirements, and also analyze the transmission of the last financial shock through the eyes of the model. |
| Keywords: | Brazil, Monetary issues, Optimization models |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5145&r=mac |
| By: | Agnieszka Leszczynska; Katarzyna Hertel |
| Abstract: | Inflation persistence and its role for efficient monetary policy has been given a lot of attention in empirical literature. The main contribution has been made by the Inflation Persistence Network, seeking to assess the level of persistence in the euro zone countries, the influence of the Monetary Union for the inflation persistence heterogeneity within countries and categories of products (see: Altissimo, Mojon, Zaffaroni, 2009). The research concerning New Member States started to appear later on and concentrates mostly on the comparison of the level of inflation persistence among NMS (or individual country analysis), eventually correlating it to the level of inflation (see eg. Franta, Saxa, Smidkova, 2010). Our contribution to the subject is the evaluation of persistence not only in the inflation aggregate in Poland, but also in the disaggregated components of Polish CPI in the aim of discerning sectors which contribute to the largest extent to persistence of headline inflation. We are also interested in assessing whether the adoption of direct inflation targeting in Poland (and the decrease in the targeted value of inflation) contributed to the decrease in persistence and, given the sustained high level of inflation in recent years in Poland, whether it was due to the local increase in the level of persistence (which could make the monetary policy reaction less effective) or to other factors, unrelated to the response of inflation to shocks. The measures of inflation persistence used in the exercise rely solely on time series methods (see: Marques, 2004, Pivetta, Reis, 2007 and Baillie, 1996) and are applied to Polish CPI and its 11 components (CPI ex. food and energy, food and non-alcoholic beverages, processed food, unprocessed food, energy, goods, services, CPI ex. administered prices, administered prices, administered energy, administered services, m-o-m, SA). We avoid structural methods such as New Keynesian Phillips Curve (Gali, Gertler, 1999), which, on one hand, provide information on the sources of persistence (intrinsic or inherited from the developments of economic activity), but on the other are highly dependent on estimating disaggregated output gap. In the first part of the research, to check if the inflation persistence in some sub-categories of CPI is not infinite, we conduct the unit root/stationarity tests. The results of the ADF/PP tests suggest that all of the series are stationary, but the KPSS test casts some uncertainty to those findings in the case of some series, leaving room for the fractional integration analysis, presented in the second part of the research. Meanwhile, still in the framework of linear univariate AR modelling, several persistence measures are calculated in the 9-year rolling windows for all of the series in the aim of assessing and comparing the inflation persistence level and dynamics in the defined sectors. The measures are as follows: sum of autoregressive coefficients, largest autoregressive root, half-life. In this context, the sectors with the highest persistence are core inflation and its components – goods and services as well as administered prices and processed food. There is also evidence of the decrease in persistence, the most apparent in the case of core inflation and its components as well as in the aggregate CPI. The only component where an increase in persistence can be observed are administered services. To check the robustness of the results above (the uncertain results of unit root/stationarity tests inter alia) and to verify the hypothesis that structural changes may have influence on the level of persistence in the context of changing monetary policy environment, the unit root test assuming a potential structural break has been carried on (Zivot-Andrews). The break date was defined endogenously, allowing us to confirm or reject our a priori statements about the possible impact of a shift in monetary policy strategy on the inflation developments. The significance of the break in mean was checked with the Chow stability test. The following results emerged: firstly, in average the level of persistence in the models with break in mean is lower than in models not accounting for the break. However, in case of some of the series the difference is negligible, especially in the second part of the sample. Secondly, in most cases the decrease in persistence is negligible. This is an argument confirming the hypothesis that higher level of inflation in the first part of the sample is contributing to artificially oversizing the persistence measured in the simple AR framework. The largest difference in comparison to the results without the break can be observed once again in the case of core inflation and its components (goods as well as services) and in administered prices. The highest level of persistence can now be stated in the processed food and administered services (in the second part of the sample), the lowest still in the energy sector (also in its administered component) and unprocessed food, which is a result often quoted in the literature (see eg. Bilke, 2005). The second part of the research refers to the discussion and to some empirical evidence (see Gadea, Mayoral, 2006) that inflation process may also be characterised by fractional integration. This assumption leads to a different set of persistence measures than the univariate AR analysis. Firstly, the value of integration (or “memory”) parameter bears information about the duration of a shock, its influence on the series level in the medium and long run and, as such, has been used in our research as one of persistence measures. Both Geweke-Porter-Hudak and local Whittle estimator have been used to evaluate the memory parameter. Secondly, the values of impulse-response function for 3 and 12 months, have been used to illustrate the differences between two alternative specifications and to compare different model specifications. The conclusions stemming from this analysis are the following: firstly, the estimates of the level of persistence confirm in general the results found in the univariate AR analysis. The highest medium and long term persistence can be observed in core inflation and its both components, as well as in the administered prices, the lowest – in the unprocessed food prices, food & beverages and energy (in the case of Whittle estimator). This finding confirms the usefulness of the core inflation aggregate (CPI ex. food and energy) as an inflation measure concentrating mostly on the most persistent CPI components (see eg. Walsh, 2011). Secondly, the rolling sample estimation showed that in case of almost all the series a decrease of level of integration parameter can be observed. However, its scale depends on the series and the estimator of d. The largest changes are detected in case of the overall CPI, CPI ex. administered prices and the prices of goods . The last step consisted of discriminating between the alternative specifications, AR including the break in mean and the fractional integration process, using appropriate statistical tests. In this purpose a test of I(d) vs. I(0) with structural breaks, proposed by Dolado, Gonzalo, Mayoral (2006), has been applied. In the case of series that did not display a statistically significant break in mean an appropriate version of the test above and the EFDF test (Dolado, Gonzalo, Mayoral, 2009) has been used to check whether the hypothesis of fractional integration is acceptable or not. It appears that fractional integration can be a better specification for the series of: CPI, food, energy, CPI ex. administered prices and administered services. Other series are better described as I(0) processes with break in mean (except from administered energy which seems to be an I(0) process) and as such can be modeled within the AR framework. See above See above |
| Keywords: | NA, Monetary issues, Monetary issues |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5692&r=mac |
| By: | Alexi Savov (New York University Stern School of Busi); Alan Moreira (Yale University) |
| Abstract: | We build a macroeconomic model of financial intermediation in which intermediaries issue equity without friction. In normal times, they maximize liquidity creation by levering up the collateral value of their assets, a process we call shadow banking. A rise in uncertainty causes investors to demand liquidity in bad states, which forces intermediaries to delever and substitute toward safe liabilities; shadow banking shuts down, prices and investment fall. The model produces slow economic recoveries, especially when intermediaries are highly-capitalized. It features collateral runs and flight to quality, and it provides a framework for analyzing unconventional monetary policy and regulatory reform proposals. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:254&r=mac |
| By: | Michał Rubaszek; Marcin Kolasa |
| Abstract: | To investigate to what extent adding financial frictions can contribute to an improvement in the quality of DSGE model-based forecasts DSGE models with and without financial frictions. Comparison of point and density forecasts. The main finding is that accounting for financial frictions affecting firms tends to improve the quality of point forecasts while the opposite is true for the extension with household sector financial frictions. However, for all models point forecasts can be considered poor in the absolute sense and density forecasts are rather badly calibrated. We show that the main source of these problems is a significant and sizable bias in the forecasts for most of standard macroeconomic variables. |
| Keywords: | United States, General equilibrium modeling, Forecasting and projection methods |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5100&r=mac |
| By: | World Bank |
| Keywords: | Environmental Economics and Policies Public Sector Economics Economic Theory and Research Social Protections and Labor - Labor Policies Finance and Financial Sector Development - Debt Markets Environment Public Sector Development Macroeconomics and Economic Growth |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19326&r=mac |
| By: | Maria Piotrowska |
| Abstract: | The global economic and financial crisis (2008-2009) showed that growing sectoral imbalances (for example, too much housing investment) and financial risks (for instance,excessively leveraged financial institutions, excess household indebtedness, excess maturity mismatches in the banking system, recourse to off-balance-sheet products entailing large tail risks) ultimately led to the severe recession. The monetary policy rate was not a proper tool to deal with the kind of imbalances. More-targeted macroprudential tools should be used for that task. These tools can be classified into three categories: (1) tools influenced lenders’ behavior, such as cyclical capital requirements, leverage ratios, or dynamic provisioning; (2) tools focusing on borrowers’ behavior, such as ceilings on loan- to-value ratios (LTVs) or on debt-to-income ratios (DTIs); and (3) capital flow management tools (Blanchard, Dell'Ariccia, Mauro, 2013, p. 18). Focusing on loan-to-value (LTV) and debt-to-income (DTI) ratios, limits on LTV and DTI are aimed to prevent excess household indebtedness. Growing vulnerabilities on borrower side could lead to bankruptcies and foreclosures and finally to macroeconomic busts. However, implementation of LTV and DTI may be linked with significant costs. When the limits are not appropriate, their use may create expansion of credit by nonbanks, less-regulated financial institutions or stimulate political opposition, ( for example, young households may strongly object to a decrease in the maximum LTV). Introducing macroprudential tools focusing on borrowers’ behavior requires information on economic security of households and its sensibility to different dimensions. In the paper economic security of households is defined as the ability to achieve income necessary for covering household needs at its suitable level and to create financial reserves to be at disposal in case of unfavorable accidence (sickness, job loss, family breakdown). The purpose of the paper is to build a structural equation model (SEM) in which economic security of households is a main endogenous concept. The detailed objectives: • to verify hypotheses on relationships between concepts used in the model; • to evaluate the relevance of different economic security dimensions (identified both as latent variables and measured variables); • to measure economic security (an index of household economic security); • to define criterion for considering the family secure or insecure; • to simulate the impact of changes in economic security dimensions (including household indebtedness) on the economic security index. Economic security of households is described by: 3) its latent dimensions, like: income stability; propensity to save; propensity to borrow; loan burden; financial survival (abilities to survive in a critical financial situation); propensity to insure; wealth (real estate); heritage (parents’ wealth, educational level of parents); burden of chronic illness; and 4) its measured variables, like: income level; level of savings; level of debts. The latent dimensions of economic security are estimated in the model from the 54 scale items in the questionnaire, each of which is predicted to “tap into'” the latent variables. The paper uses the data from the questionnaire survey carried out across households in Poland in 2013 by the professional polling agency. The whole sample (N=1082 households) is broken into two sub-samples to represent “young” households (N=399) and “older” households (N=683). Exploratory factor analysis and confirmatory factor analysis are applied to estimate the SEM. The model is estimated separately for “young” households (a head in age between 18 and 39) and “older” ones ( a head in age of 40 and more) to identify differences and similarities in dimensions of economic security for these two groups. Findings should be useful directly for macroprudential policy as well as indirectly for monetary policy. |
| Keywords: | Poland, Monetary issues, Finance |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:7113&r=mac |
| By: | Moorashin Javan |
| Abstract: | Although there are several papers in the literature that look at the theoretical effects of automatic stabilizers and its efficiency, few of them present empirical evidence. This paper conducts an empirical study of the effects of fiscal policy as an automatic stabilizer.In the first part of this paper attempt was made to study cyclicality of fiscal policy, for this purpose panel data method were applied to 8 opec member countries for the 1980-2010 period. The main purpose of this paper is to study the relationship between the fiscal policy (measured by government expenditures and tax revenues) and volatility of business cycle (measured by GDP, private GDP) among 8 opec member countries for the period 1980-2010 by applying panel data. Furthermore, we check for the robustness of our results by introducing a list of controls (openness, GDP, GDP per capital and GDP growth).The results reveal that the fiscal policy for the countries under consideration is acyclical. The results present strong and negative correlation between tax revenues (deflated by GDP) and volatility of output and also government expenditures (deflated by GDP) are positively correlated with the volatility of output. The derived results indicate that tax revenues as an efficient fiscal policy help smoothing the volatility of output while government expenditures accelerate the volatility of output. So, this results support the idea that countries which are exposed to more volatile business cycle, want to increase tax revenues (deflated by GDP) to help smoothing their volatility. |
| Keywords: | selected opec members countries, Business cycles, Tax policy |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6904&r=mac |
| By: | Masashige Hamano |
| Abstract: | This paper explores the role played by product variety and quality in a real business cycle model.Firms are heterogeneous in terms of their specific quality as well as productivity level. Firms which have costly technology enter in the period of high aggregated demand and produce high quality goods. The average quality level and the number of available varieties are procyclical as in the data. The model can replicate the observed inflationary bias in the conventional CPI due to a rise in the number of new product varieties and quality. |
| Keywords: | US, Business cycles, General equilibrium modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6766&r=mac |
| By: | Vitor Carvalho; Ricardo Silva; Ana Paula Ribeiro |
| Abstract: | In the current context where the limited role for monetary policy instruments apparently endows fiscal policy with higher effectiveness, European fiscal policy authorities are rather constrained by the fact of most countries being struggling against recessions together with the need to put public finances in a sustainable path. In this context, we assess how large are fiscal multipliers in Europe, for both aggregated and disaggregated spending and revenue variables. Moreover, we analyze how cycle phases and fiscal consolidation episodes shape the size of fiscal multipliers. We present evidence for the Euro area, relying on a VAR model with pooled annual data from 1998 to 2008. Estimation results show that, on average, transfers are the main driving force for the overall expenditure dynamics; moreover, wages exhibit negative impacts on output while positive effects are strongly driven by shocks in public investment and, to a lesser extent, by intermediate consumption. On the revenue side, all items impinge negatively on output growth. Additionally, our results show that public spending multiplier is positive in recessions while in expansions is smaller, inclusively, negative. Similarly, the effectiveness of the tax multiplier is, also, higher in recessions. Finally, we have found that consolidation phases affect negatively the size of multipliers. |
| Keywords: | Euro Area, Public finance, Macroeconometric modeling |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5276&r=mac |
| By: | Joyce, Michael (Bank of England); Spaltro, Marco (Morgan Stanley Investment Management) |
| Abstract: | Studies of the Bank of England’s quantitative easing (QE) policy have tended to focus on its impact on financial markets and the broader macroeconomy. Less attention has been given to the effect on banks’ balance sheets and bank lending. In this paper we use a new non-publicly available panel data set of UK banks to address this question. Based on the historical bank-level relationship between deposits and bank lending, our analysis suggests that the first round of the Bank’s QE purchases during 2009-10 may have led to a small but statistically significant increase in bank lending growth. These effects appear more important for small rather than large banks. Our evidence also suggests that QE had weaker effects on lending because of low levels of bank capital. |
| Keywords: | Banking; quantitative easing; panel data |
| JEL: | E52 G21 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0504&r=mac |
| By: | Thuy Lan Nguyen (Columbia University); Wataru Miyamoto (Columbia University) |
| Abstract: | This paper proposes the use of data on expectations to identify the role of news shocks in business cycles. This approach exploits the fact that news shocks cause agents to adjust their expectations about the future even when current fundamentals are not affected, therefore, data on expectations are particularly informative about the role of news shocks. Using data on expectations, we estimate a dynamic, stochastic, general equilibrium model that incorporates news shocks for the U.S. between 1955Q1 and 2006Q4. We find that the contribution of news shocks to output is about half of that estimated without data on expectations. The precision of the estimated role of news shocks also greatly improves when data on expectations are used. Moreover, the contribution of news shocks to explaining short run fluctuations is negligible. These results arise because data on expectations show that changes in expectations are not large and do not resemble actual movements of output. Therefore, news shocks cannot be the main driver of business cycles. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:259&r=mac |
| By: | Franck Portier (Toulouse School of Economics) |
| Abstract: | There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating its relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of its role in business cycles can be established. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:289&r=mac |
| By: | Luo, Yulei |
| Abstract: | This paper provides a tractable continuous-time CARA-Gaussian framework to explore how the interactions of risk aversion and induced uncertainty due to informational frictions determine strategic consumption-portfolio rules, precautionary savings, and consumption dynamics in the presence of uninsurable labor income. Specifically, after solving the model explicitly, we explore the relative importance of the two types of induced uncertainty: (i) model uncertainty due to robustness and (ii) state uncertainty due to limited information-processing capacity as well as risk aversion in determining asset allocation, precautionary savings, and consumption dynamics. Finally, we discuss how the separation between risk aversion and intertemporal substitution affects strategic asset allocation and precautionary savings. |
| Keywords: | Robustness, Model Uncertainty, Rational Inattention, Uninsurable Labor Income, Strategic Asset Allocation, Precautionary Savings |
| JEL: | C6 C61 D8 D81 E2 |
| Date: | 2014–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58077&r=mac |
| By: | Timo Baas |
| Abstract: | In the last years, Baltic countries joined or prepare to join the European Monetary Union. Accession comes in a time, were trading share between these countries and the Eurozone are declining. From a theoretical point of view, the optimality of currency unions depends on bilateral trade between it's members. In this paper it is shown that countries might benefit from a currency union as an alternative to fixed exchange rates. Using a DSGE model of a small country and a currency union, it is shown that membership in the union is beneficial to a fixed exchange rate system without a common monetary policy in terms of output and price stability. This result is robust even if trading shares decline significantly.In this paper we compare different monetary policy rules in a two-country open-economy DSGE model with Calvo price setting. Membership in the currency union is always beneficial in terms of macroeconomic stability. The benefits of joining a monetary union, however, are increasing with a declining share of foreign goods in the consumption basket of domestic households. The decision of Baltic countries to join the monetary union, therefore, is a second best solution in an environment were there is a fear of floating. |
| Keywords: | Baltic countries, General equilibrium modeling, EU enlargement |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6916&r=mac |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development - Access to Finance Banks and Banking Reform Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19321&r=mac |
| By: | Perry Warjiyo |
| Abstract: | Plenary Session Paper Plenary Session Paper Plenary Session Paper |
| Keywords: | Indonesia, Finance, Monetary issues |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:8002&r=mac |
| By: | Julia Bachtrögler (Department of Economics, Vienna University of Economics and Business); Harald Badinger (Department of Economics, Vienna University of Economics and Business and Austrian Institute of Economic Research); Aurélien Fichet de Clairfontaine (Department of Economics, Vienna University of Economics and Business); Wolf Heinrich Reuter (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | The widespread use of composite indices has often been motivated by their practicality to quantify qualitative data in an easy and intuitive way. At the same time, this approach has been challenged due to the subjective and partly ad hoc nature of computation, aggregation and weighting techniques as well as the handling of missing data. Partially ordered set (POSET) theory offers an alternative approach for summarizing qualitative data in terms of quantitative indices, which relies on a computation scheme that fully exploits the available information and does not require the subjective assignment of weights. The present paper makes the case for an increased use of POSET theory in the social sciences and provides a comparison of POSET indices and composite indices (from previous studies) measuring the 'stringency' of fiscal frameworks using data from the OECD Budget Practices and Procedures survey (2007/08). |
| Keywords: | Partially Ordered Set Theory, Composite Indices, Index Functions, Fiscal Frameworks, Fiscal Rules, Budgetary Procedures |
| JEL: | C43 H60 E02 E62 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp181&r=mac |
| By: | Yuriy Gorodnichenko; Oleksandr Talavera |
| Abstract: | We document basic facts about prices in online markets in the U.S. and Canada, a rapidly growing segment of the retail sector. Relative to prices in regular stores, prices in online markets are more flexible as well as exhibit stronger pass-through (60-75 percent) and faster convergence (half-life less than 2 months) in response to movements of the nominal exchange rate. Multiple margins of adjustment (frequency of price changes, direction of price changes, size of price changes, exit of sellers) are active in the process of responding to nominal exchange rate shocks. Furthermore, we use the richness of our dataset to show that degree of competition, stickiness of prices, synchronization of price changes, reputation of sellers, and returns to search effort are important determinants of pass-through and speed of price adjustment for international price differentials. |
| JEL: | E3 F40 F41 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20406&r=mac |
| By: | Balteanu, Irina (Bank of Spain); Erce, Aitor (European Stability Mechanism) |
| Abstract: | This paper provides a set of stylized facts on the mechanisms through which banking and sovereign distress feed into each other, using a large sample of emerging economies over three decades. We first define “twin crises” as events where banking crises and sovereign defaults combine, and further distinguish between those banking crises that end up in sovereign debt crises, and vice-versa. We then assess what differentiates “single” episodes from “twin” ones. Using an event analysis methodology, we study the behavior around crises of variables describing the balance sheet interconnection between the banking and public sectors, the characteristics of the banking sector, the state of public finances, and the macroeconomic context. We find that there are systematic differences between “single” and “twin” crises across all these dimensions. Additionally, we find that “twin” crises are heterogeneous events: taking into account the proper time sequence of crises that compose “twin” episodes is important for understanding their drivers, transmission channels and economic consequences. Our results shed light on mechanisms surrounding feedback loops of sovereign and banking stress. |
| Keywords: | bank crises; sovereign debt |
| JEL: | E44 F34 G01 H63 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:184&r=mac |
| By: | Motaz Khorshid; Asaad El- Sadek |
| Abstract: | The Egyptian revolution broke out in January 25, 2011, a revolution that sparked the national movements in the Arab world, and impressed the world as a model of an unprecedented popular peaceful uprising included all the spectrums of Egypt's society. It revolution addressed all forms of corruption and tyranny as well as to lift the banner of freedom, justice and democracy. In June 30, 2012 Mohamed Morsi was elected as a president of Egypt for a mandate of 4 years. Despite the people's aspiration for a better future, the continuation of the political instability, social injustice and economic problems during the year following the election have generated an increased feeling of insecurity and discontent. In June 2013, the Egyptian people decided to rebel against the unsatisfactory performance of the new political regime and succeeded to isolate the president with a support from the national military force. Since January revolution of 2011 and during the following transition period, Egypt continued to witness a considerable slowdown of its economic activity, a drop in domestic and foreign direct investments, a sizable decline in industrial production, a notable deterioration in foreign reserves and foreign exchange revenues and a growing government deficit. In January 2014, Egypt's socioeconomic indicators are still showing a declining trend reflected in; i) less than 2 percent increase in GDP coupled with a stagnated per capita real income, ii) an investment rate fluctuating around 16% of GDP compared to 22% in 2008, iii) a continuing low rate of national savings, iv) a sizable decline in the foreign direct investment flows - which amounted to about U.S. $ 2 billion per year - compared to an average of 13 billion dollars during the 1990 decade and the begin of the current century, v) an exacerbation of the unemployment problem, especially among youth and educated women with an average unemployment rate of more than 13% compared to 9% or less five years ago, vi) a high poverty rate accounting to more than 25% of the total population compared to less than 17% at the beginning of the third millennium, vii) a continuing budget deficit and unprecedented levels of domestic public debts exceeding 80 percent of GDP in June 2013, viii) A trade deficit in the current account of the balance of payments showing a continuous declining trend and ix) an upward rising trend of inflation derived by the prevailing increase in the state budget deficit. Against this background, the Egyptian Cabinet approved in 28/08/2013 an urgent plan to stimulate the economy during the period from July 2014 until June 2017 (3 years). The overall objectives of this medium-term plan is to achieve a GDP growth rate between 5% and 7% and reduce the unemployment rate to less than 9%, which represents the prevailed rate before January 25. The plan primarily depends on improving investments environment by relying on private, public and foreign direct investments (FDI). The plan suggests also an increased role of government in revitalizing the economy, with respect to investment spending, employment strategy and exports promotion policy. To support the development and follow up of the three year stimulating plan of the Egyptian economy and to determine the required investment allocation and government spending policies, a three-sector five-institution economy wide model is constructed, implemented as an analytical tool for formulating and testing alternative socioeconomic development policies and scenarios. The constructed model reflects the structural features of the Egyptian economy and its modes of functioning and it is implemented using the general algebraic modeling system (GAMS) software. It is particularly designed to project Egypt's socioeconomic indicators and assess the impact of alternative policy measures and external conditions including: (1) Investment spending policies explained in the allocation of private and public gross fixed capital formation, (2) foreign direct investment (FDI) flows needed to complement domestic investments in support of the growth prospects of the economy, (3) government spending policies broken down into government wage bill, final consumption spending and transfers to domestic and foreign institutions, (4) government fiscal policy including various tax and subsidy programs, (5) export promotion policy, (6) total factors productivity and labor efficiency policies, (7) external balance policy reflected determined by investment income from abroad, worker remittances, interest on foreign assets and foreign transfers from abroad , (8) wage rate and commodity pricing policies and finally (9) alternative population, labor force and unemployment policies. The development planning model represents an economy with three productive activities (primary, industrial and services activities), six institutions (urban and rural households, private and public corporations, and general government) and the outside world. Domestic institutions have both current and capital accounts. Factors of production include labor and capital services. Labor factors (or compensation of employees) are broken down by economic activity ( private, public and government labor) and household area (urban and rural). Capital services include both public and private accounts. Commodities are composed of domestic, imported, exported and composite (including both domestically produced and imported goods ) with each of them divided into primary, industry and services. Gross capital formation is composed of private (households and private companies) and public ( government and public enterprises) investments as well as foreign direct investments (FDI). Government account disaggregates tax income into direct and indirect taxes and subsidies. Finally, the rest of the world account includes net transfers from abroad in the form worker's remittances, investment income, foreign direct investments and other current transfers to domestic institutions as well as imports and exports of goods and services. The Planning model is viewed as a consistent economy wide simulation model - following the general equilibrium tradition - and it is equipped with a set of dynamic adjustment mechanisms to ensure the generation of the future path of the economy. The model adopts an investment/saving macroeconomic closure rule that treats public and private gross fixed capital formations as exogenous variables, gross savings as an endogenous variables and the foreign savings that clear the macroeconomic system. Production sectors apply a flexible price clearing mechanisms with an imperfect substitution between domestic and imported goods. Distribution of gross output between domestic sales and exports is based on a constant elasticity of transformation (CET) function. Transfers from the rest of the world are fixed in foreign currency whereas transfers of the domestic institutions to the outside world are a function of their disposable income. Exports of commodities are computed as the equilibrium quantity between supply of and demand for exported goods and services. The ratio of domestic to world price of commodity and the elasticity of trade determines world demand for exports. Government income is composed of direct and indirect taxes, public enterprises transferred operating surplus and transfers from domestic and foreign institutions. Government final consumption spending is fixed in real term and public savings are computed as a residual. Households and companies expenditures are computed as a fixed share of their nominal income and household final consumption spending is computed by a linear expenditure system (LES) . The model is equipped with institutional capital flows matrix that balances exogenous investments with savings and capital transfers. Given market imperfection and high unemployment rates, wage rates are fixed within period but change between periods based on employment and wage policy. Natural growth rate of population and labor participation policies are used to dynamically adjust population and labor force size between periods. The dynamic adjustment of capital stock between periods - by production activity - is based on the initial capital stock, gross fixed capital formation in real term and the consumption of fixed capital. Similar dynamic adjustment mechanisms are derived for investment income from abroad and foreign direct investments (FDI). The purposes of the paper are: (1) to assess the economic impact of the revolution and highlight the principal economy wide challenges facing the Egyptian economy, (2) to develop the accounting framework, economic rationale and mathematical structure of the economy wide model used to test the development policies of the stimulating plan, (3) to use the developed model to simulate the behavior of the economy under the selected policy measures and development choices of the three year plan, and (4) to suggest appropriate action plans and implementation programs to achieve the purposes of the three-year economic recovery measures. Based on this rationale, the paper is centered around five sections. After an introductory part describing the post revolution economic performance and the most important challenges facing the Egyptian economy, the second and third sections outline the accounting framework, economic rationale, overall structure and disaggregation level of the model as well as the policy measures amenable to analysis based on its structure. The fourth section describes the results of applying the model to assess the impact of the three year stimulating plan with special emphasis on the capacity to reach the planned targets and the feasibility of the selected policy measures. Highlights of policy recommendations and suggestions are introduced in the last section. |
| Keywords: | Egypt, General equilibrium modeling, Impact and scenario analysis |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:7264&r=mac |
| By: | Leonardo Bursztyn; Davide Cantoni |
| Abstract: | This paper examines the impact of exposure to foreign media on the economic behavior of agents in a totalitarian regime. We study private consumption choices focusing on former East Germany, where differential access to Western television was determined by geographic features. Using data collected after the transition to a market economy, we find no evidence of a significant impact of previous exposure to Western television on aggregate consumption levels. However, exposure to Western broadcasts affects the composition of consumption, biasing choices in favor of categories of goods with high intensity of pre-reunification advertisement. The effects vanish by 1998. |
| JEL: | D12 E21 Z10 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20403&r=mac |
| By: | Jean Louis Brillet; Gilbert Cette; Ian Gambini; Raymond Gambini |
| Abstract: | This presentation will start with a global description of the package features, then move to an interactive computer session. The purpose of MacSim is to describe the main macroeconomic interactions, both inside and between countries, based on a set of small quarterly econometric country models, linked by their trade flows. The countries treated are, in alphabetical order : Belgium, France, Germany, Italy, Japan, Luxemburg, Nederlands, United Kingdom, USA, plus an artificial grouping of the remaining EMU-12 elements (Austria, Finland, Greece, Ireland, Portugal, Spain) , and a sketchy Rest of the World. Each model includes the main usual economic mechanisms describing : The production function : Cobb-Douglas, with an explicit impact of the relative cost of labor and capital on their role in production. Unemployment, depending on employment and the potential work force. A price block, with wages depending on inflation, productivity and unemployment, the GDP deflator on the wage cost and the rate of use of capacities, and trade prices on local cost and competitors prices. Household consumption and change in inventories are also included. The trade between countries is treated as follows : First global imports are defined, depending on foreign demand to the country, available local capacities (compared with foreign) and local price competitiveness.. Then imports are shared between providers, using a predefined share modified again by a comparison of their rates of use and price competitiveness, Both the interest rate and exchange rate can be set to follow specific rules : nominal fixed, real fixed and Taylor rule for the first, nominal fixed, real fixed and uncovered interest rate parity for the other. Of course, EMU countries follow ECB defined rates. But a risk premium is applied to the individual interest rates. The package itself provides a base solution, to which the user applies shocks on the external environment and the State policy, for a specific country or a set. Decisions are made at the beginning of the year, and applied over it. Comprehensive results are presented in tables and graphs. A global function computes the efficiency of policies, depending on the usual elements : GDP growth, inflation, State and Trade balances. This allows to use the package as a game, with a variable number of players. Two examples of the process will be presented as a second part. See above See above |
| Keywords: | NA, Macroeconometric modeling, Miscellaneous |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5659&r=mac |
| By: | Randall Wright (U Wisconsin) |
| Abstract: | This paper integrates search-based models of marriage and money. We think about households as organizations, the way Coase thinks about firms, as alternatives to markets that become more attractive when transactions costs increase. In the model, individuals consume market- and home-produced goods, and home production is facilitated by marriage. Market frictions, including taxes, search and bargaining problems, can increase the propensity to marry. The inflation tax, in particular, encourages marriage iff being single is cash intensive. Micro data confirm that singles use cash more than married people. We then use macro data, over many countries and years, to see how marriage responds to inflation, taxation and other variables. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:237&r=mac |
| By: | Osaro Agbontaen; Okonedo Enase |
| Abstract: | Rationale: Macroeconomic stabilization inconsistencies with output growth, inflation and exchange rate volatility has made the Nigeria economy susceptible to external shocks. Scholars with this opinion agree that it distorts optimal productivity capacity, induce volatility in domestic output, generate fluctuations in commodity prices, and increase the levels of debt with implication for the balance of payments. Objective: This study seeks to unveil the intricacies of these challenges and understand how they have made it unmanageable for policy makers to achieve output stabilization in the short-run and diversified self sustaining growth in the long-run.Consequently, this study seeks to investigate if there are causal effects emanating from the observed levels of output growth that influence the persisting rates of inflation and volatility in the rates of exchange. We adopted the vector autoregression (VAR) approach, to assess permanent shocks from macroeconomic stability; which was encapsulated in two forms. First, it was represented by budget deficits in order to deduce the impact of macroeconomic management in accordance with domestic policies and examine its influences on output growth. Secondly, it was captured by current account balance to measure how macroeconomic stability relates with international policies in order to cushion external shocks. Further, we test for the hypothesis of diagonal covariance and the symmetric covariance processes. Also, we examine the degree of own variance asymmetry exhibited by the variables in the model. This econometric technique was selected in order to ease the analysis of the related concepts of exogeneity and temporal precedence in association with the Granger causality. The variables in the model indicated various levels of statistical significance. The impulse response estimates were obtained and interpreted.The results disclosed that efforts by policy makers to strengthen the capacity for macroeconomic stability lack spontaneity and it does not foster internal and external shocks management in the economy. We establish that issues on macroeconomic stability are multidimensional and needs intensive policy monitoring to mitigate internal shocks, in order to put in place policies that are resilience to external shocks which will in turn propel the perceived sustainable growth strategies. Subsequently, we disclosed that inflationary shocks have implication for institutions of macroeconomic management, domestic organizations and foreign investors interested in the growth potentials of developing countries. |
| Keywords: | Nigeria, Impact and scenario analysis, Macroeconometric modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6952&r=mac |
| By: | Alper Duman |
| Abstract: | Turkey by and large avoided the financial meltdown thanks to its low level of household debt ratio and relatively sound public finance structure. The stylized fact is that the consumption loss as a percentage of GDP has been greater for the countries with higher growth rates of household debt-to-income ratios prior to the global crisis. Although Turkey also witnessed a surge in household debt levels (for example in 2010 among 34 OECD members, Greece and Turkey saw household liabilities increase at fastest pace as 12.1 percent and 10.8 percent respectively), the starting point was so low that the general effect could not be as destructive. We study two main factors that will make this dynamic more fragile and hence lay ground for an imminent financial crisis in the future: (1) Due to formalization of land and real estate markets, home ownership rates decline for the median group of households which constitute the backbone of the labor force, and (2) The share of consumer credit in household budgets increase steadily for the lower three quintiles of the households. Both factors will induce dramatic rises in household debt-to-income ratios and will create systemic financial risks . We follow Hein (2011) and employ a simple Kaleckian closed economy model. By using the model we get comparative statics equation for growth in terms of household debt as a ratio of total disposable income and various parameters/variables including the home ownership rate, interest rate, debt burden. Then we simulate the model in Mathematics to figure out the critical regions in which growth would decline and hence trigger a crisis. Decreasing home ownership rates, decreasing nominal income growth and increasing debt-sensitivity of investment will increase the fragility (by expanding the regions in which growth declines) and hence raise the likelihood of a crisis in Turkey. |
| Keywords: | Turkey, Growth, Microsimulation models |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5259&r=mac |
| By: | Gabe de Bondt; Heinz C. Dieden; Sona Muzikarova; Istvan Vincze |
| Abstract: | Following the discontinuation of statistics on industrial new orders by Eurostat since the observation period March 2012, this paper presents the ECB indicator for euro area industrial new orders. This indicator aims to fill the emerged gap on euro area industrial new orders for various breakdowns: total, total excluding heavy transport equipment, main industrial groupings, and domestic and non-domestic, broken down into euro area and non-euro area. Specific-to-general regression modeling approach Out-of-sample dynamic forecasting Real-time forecasting Granger causality tests Impulse responses from bivariate VAR Following the discontinuation of statistics on industrial new orders by Eurostat since the observation period March 2012, this paper presents the ECB indicator for euro area industrial new orders. This indicator aims to fill the emerged gap on euro area industrial new orders for various breakdowns: total, total excluding heavy transport equipment, main industrial groupings, and domestic and non-domestic, broken down into euro area and non-euro area. Despite the discontinuation at European level, a large number of euro area countries (currently about 80%) will continue with the data collection at a national level, reflecting the importance of industrial new orders statistics for their national conjunctural analysis. The ECB, in close cooperation with National Central Banks and National Statistical Institutes, has established regular monthly data transmissions of national data on industrial new orders to the ECB. In order to derive estimates for missing national data, a common modeling framework has been applied to the individual EU countries. The ECB indicator for euro area industrial new orders are compiled from national data as a weighted average, applying the weighting scheme as previously used by Eurostat with base year 2005. National data are seasonally and working-day adjusted; in cases in which only non-adjusted national data are available, the adjustment has been done by the ECB. For those national statistical institutes that have decided to continue the collection of industrial new orders, these national data are taken into account. For those countries that have discontinued the data collection, national data as derived from the estimation framework are used for the aggregation of euro area results. Correspondingly, the euro area aggregate series consist of official hard data formerly collected by Eurostat (up to March 2012); and from April 2012 onwards, aggregates obtained from the combination of national data and the outcome of the estimation framework. The ECB indicator for new orders is calculated once the incoming national data coverage reaches the Eurostat-set threshold of 60%. Regarding countries for which national data are received after the euro area database is updated for a new monthly observation, their estimates will be replaced by the national data and the euro area results will be recalculated and revised accordingly. The importance of modeling new orders particularly lies in the empirically backed tendency that new orders have shown to historically anticipate business cycle turning points. There is a long-standing tradition of new orders leading industrial production. For example, new orders are among the leading series used for the widely monitored OECD’s Composite Leading Indicator (CLI). Furthermore, new orders in manufacturing (specifically, the nondefense capital goods excluding aircraft orders sub-category) have historically exhibited high correlation with the US business cycle. Consistently, manufacturing new orders in capital goods have served as inputs to The Conference Board’s (TCB) Leading Economic Index (LEI) for both the U.S. and the euro area. Notwithstanding the link between industrial new orders and industrial production as well as the empirical evidence that the former pre-empts business cycle turning points, little formal academic literature exists about explicitly modeling industrial new orders and thereby could constitute a relevant underpinning for our modeling exercise. Our study therefore pioneers modeling industrial new orders in manufacturing as far as scale (euro area aggregate as well as all EU countries), scope (not only totals and totals excluding heavy transport equipment new orders but also breakdowns across main industrial groupings and source of origin), and by deploying a broad mix of qualitative as well as quantitative data. The model determinants are selected not only from business surveys on new orders from the European Commission’s harmonised business survey in manufacturing as well as from Markit’s survey among Purchasing Managers (PMI), but also from official statistics on industrial turnover. Emphasis is thus put on ensuring that the information from a broad mixture of soft and hard data is exploited, which should help in enhancing the robustness of the model-based proxy for new orders. Given the lack of formal academic consideration, as well as the small number of observations available for industrial new orders for euro area countries (in some cases starting in 2003 and ending in 2012) a specific-to-general modeling approach is preferred. The model is thus constructed by diagnostically building up on its simplest versions. Several criteria to accept the final model version are applied. Apart from statistical criteria (not only t-statistics, but also the white noise property of the model residuals), restrictions accounting for plausible economic properties (e.g. it is implausible that industrial new orders can consistently growth faster than sales) are also considered. The estimation results show for all countries that the model determinants significantly help in explaining industrial new orders month-on-month growth rates. In particular, turnover data and surveys on new orders matter for monthly new order growth and to a much lesser extent the variables considered to improve the model dynamics. This is evidenced by expected relationships (signified by the coefficient signs), recurring statistical significance, and by coefficients’ economically sound magnitude. Importantly, the model yields healthy residuals for the euro area aggregate and at the country-level. At the euro area aggregate level, the model explains about 50% of the variation in total new orders month-on-month growth rate with a corresponding standard error of regression at around 1.6 percentage points. The explanatory power varies between around 30% (capital goods) and 70% (intermediate goods) for the other breakdowns of new orders considered at the euro area aggregated level. These are promising outcomes for the inherently noisy monthly growth rates in industrial new orders. For example, the correlation between the in-sample estimated euro area total new order index level and the actual new order index level is 99% and an out-of-sample exercise, based on the model estimated for the euro area up to the end of 2002, shows that the correlation remains high at 97%. Out-of-sample and real-time forecasting, an alternative estimation method, focusing on three-month on three-month growth rates, and alternative specifications, all show that the estimates are robust. A real-time forecasting exercise shows that the model-based real-time outcome for the new order index is closer to the final official release than the index derived from the first releases of the monthly growth rate. Moving from the inherently noisy month-on-month growth rates in new orders to the three-month on three-month growth rates confirms the explanatory power of the basic model determinants, as they explain slightly above 90% of the new orders growth rates at this lower frequency, but at the cost of an incorrect behaviour of the model residuals. Moreover, the basic model estimates improve in a statistical and/or economic way neither by system estimation (Seemingly Unrelated Regression), by simplifying the way both surveys on new orders are considered, nor by adding a foreign indicator at the euro area aggregate or country-level. Finally, we apply a formal analysis to check whether the ECB indicator for euro area industrial new orders leads euro area industrial production, given the fact that analysts closely monitor industrial new orders, mainly because of their leading properties for the business cycle. For example, new orders for capital goods served as one of the inputs of TCB’s LEI for the euro area and TCB aims to replace the discontinued series with the ECB indicator on euro area industrial new orders. Our results, which are robust across sub-groupings of new orders as well as two different empirical methods (i.e. Granger causality tests and impulse responses from a bivariate vector autoregressive model), indeed show that euro area new orders lead industrial production. This finding implies that analysts may benefit from closely monitoring the ECB indicator for euro area new orders. Besides the leading content of new orders for production, monitoring of new orders is also useful in cross-checking developments in industrial production in real time. This is particularly appealing during periods of heightened uncertainty about the reliability of industrial production data, as illustrated by two real-time examples (2008/09 recession and 2011/12 recession). Another contribution of new orders in the conjunctural analysis of the euro area economy is that it provides – unlike production data – information on the origins of demand, i.e. domestic or foreign. |
| Keywords: | Euro Area and all EU countries , Business cycles, Forecasting and projection methods |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5663&r=mac |
| By: | Jellal, Mohamed |
| Abstract: | We consider a simple overlapping generations model with exogenous fertility that analyzes the effects of the institutions of labor market and remittances on unemployment. In our model, the remittances take the form of insurance against involuntary unemployment. In this environment, it was shown that remittances sent by the diaspora provide consumption and savings and increase the amount of national physical capital. Since the rate of unemployment decreases with the size of the national investment, remittances tend to decrease the level of unemployment. However, we have shown that these remittances cannot be sufficient to restore full employment of the country. |
| Keywords: | Labor market institutions, Unemployment, Remittances,Informal sector, |
| JEL: | E2 E26 F22 F24 J51 J64 |
| Date: | 2014–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58114&r=mac |
| By: | Fakhri Hasanov; Frederick Joutz |
| Abstract: | The objective of the study is building and using macroeconometric model which ensures analyzing and forecasting the (short run) impacts of various policy measures and external shocks, particularly changes in the oil price, foreign price and income on the Azerbaijani economy.Cointegration and Error Correction Modeling; General to Specific Modeling Strategy; Automatic Model Selection with Impulse Indicator SaturationsWe developed macroeconometric model with the objective of analyzing and forecasting the effects of various domestic policy measures and external shocks, particularly changes in oil price, world income on the Azerbaijani economy. It comprises 13 stochastic equations and 13 identities by covering the real, monetary, fiscal and external sectors of the Azerbaijan economy. The General to Specific Strategy is applied to the Cointegration and Error Correction Modeling in the empirical estimations over the quarterly period of 2000-2010. As we argue, the main contribution of our model is that since its stochastic equations contain information about the long-run relations, short-run dynamics and speed of adjustment from short-run deviation to long-run equilibrium, it has more power for policy analyzing and forecasting than the prior models built for the Azerbaijani economy. |
| Keywords: | Azerbaijan, Other issues, Other issues |
| Date: | 2013–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:005741:6017&r=mac |
| By: | Bos, Frits; Teulings, Coen |
| Abstract: | This paper discusses five different types of forecasts by CPB: forecasts for next year, forecasts for next period of government, analyses of the sustainability of public finance, long-term scenarios and long-term effects of election platforms. CPB forecasts for next year and for the next period of government should be seen as well-motivated estimates based on all recent information, plausible assumptions and expected trends. The more distant the look into the future, the more uncertain are the forecasts. For such long-term analyses, the CPB employs scenarios, extended sensitivity analyses and identification of major political choices. Policy making is like sailing in fog. The regular set of CPB forecasts helps to look forward and to monitor whether a change of course is necessary. Despite fundamental uncertainty about the future, the CPB forecasts provide a good base for political discussions and decision making, like a coalition agreement, budget and wage rate negotiations and defining a long-term policy strategy. These forecasts inform Dutch society, reduce transaction costs in economic and political decision making, and foster consensus on economic and fiscal policy. |
| Keywords: | macroeconomic forecasting and government policy, accuracy of forecasts, uncertainty and public decision making, measurement in economics, CPB Netherlands Bureau for Economic Policy Analysis |
| JEL: | A11 C0 D8 E17 F17 F47 G17 H68 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57564&r=mac |
| By: | Irma Hindrayanto (De Nederlandsche Bank); Siem Jan Koopman (VU University Amsterdam, the Netherlands); Jasper de Winter (De Nederlandsche Bank, the Netherlands) |
| Abstract: | Many empirical studies have shown that factor models produce relatively accurate forecasts compared to alternative short-term forecasting models. These empirical findings have been established for different macroeconomic data sets and different forecast horizons. However, various specifications of the factor model exist and it is a topic of debate which specification is most effective in its forecasting performance. Furthermore, the forecast performances of the different specifications during the recent financial crisis are also not well documented. In this study we investigate these two issues in depth. We empirically verify the forecast performance of three factor model approaches and report our findings in an extended empirical out-of-sample forecasting competition for quarterly growth of gross domestic product in the euro area and its five largest countries over the period 1992-2012. We also introduce two extensions of existing factor models to make them more suitable for real-time forecasting. We show that the factor models have been able to systematically beat the benchmark autoregressive model, both before as well as during the financial crisis. The recently proposed collapsed dynamic factor model shows the highest forecast accuracy for the euro area and the majority of countries that we have analyzed. The forecast precision improvements against the benchmark model can range up to 77% in mean square error reduction, depending on the country and forecast horizon. |
| Keywords: | Factor models; Principal component analysis; Forecasting; Kalman filter; State space method; Publication lag; Mixed frequency |
| JEL: | C32 C53 E17 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20140113&r=mac |
| By: | Asian Development Bank (ADB); (Pacific Department, ADB); ; |
| Abstract: | The Monitor provides an update of developments in Pacific economies and explores topical policy issues. |
| Keywords: | pacific economy, pacific economic monitor, cook islands, fiji, kiribati, marshall islands, micronesia, nauru, palau, papua new guinea, samoa, solomon islands, timor, tonga, tuvalu, vanuatu, climate change, pacific cyclone, pem, pem december 2013 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:asd:wpaper:rps136133-2&r=mac |
| By: | Nicolas Moumni; Benaissa Nahhal |
| Abstract: | In the context of international financial crisis, this paper aims to analyze the impact of liquidity level on effectiveness of monetary policy transmission of the Moroccan central bank (Bank Al Maghrib, BAM). After a long period of liquidity excess, the Moroccan banking system through, since 2007, a liquidity shortage that forces BAM to inject a regular and massive quantity of liquidity. For example, 7-day advances bidding BAM rose from 3,5 billion dirhams in 2006 to 2,420 billion dirhams in 2012, an increase by 691 times. To evaluate the influence of liquidity level on effectiveness of the monetary policy transmission of Bank Al Maghrib, we estimate a simple VAR over the period 1998-2012 by distinguishing the period of liquidity excess and liquidity shortage.Our results show that in periods of liquidity excess the monetary policy transmission would be less effective, especially in the long term. Instead, a situation of liquidity shortage makes it more effective. |
| Keywords: | Morocco, Monetary issues, Macroeconometric modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6662&r=mac |
| By: | World Bank |
| Keywords: | Macroeconomics and Economic Growth - Subnational Economic Development Public Sector Expenditure Policy Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Public Sector Economics Public Sector Development |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19310&r=mac |
| By: | Britta Stoever; Thomas Drosdowski; Ulrike Lehr; Marc Ingo Wolter |
| Abstract: | Household specific consumption behavior is of interest for various social and economic problems. The “Poverty Report” of the Federal government of Germany for example uses the information on consumption expenditures by different household types in the context of social participation. Other fields that can be addressed are poverty consumption, sustainable consumption, effects of income redistribution, implications of demographic change etc. These subjects play a major role in the project soeb3 (Sozioökonomische Berichterstattung, Reporting on socioeconomic development, http://www.soeb.de/en/) that aims at analyzing the social development in Germany. To quantify the consequences of changes in the household composition the macro-econometric input-output model INFORGE has to be extended by socioeconomic information. This will be done by including a household specific consumption module into the model environment. The paper will describe the methodology, structure and functioning of the consumption module disaggregated by socioeconomic characteristics. The applied method takes into account the availability of data and combines a macroeconomic model with micro-data based information. The socioeconomic consumption module includes 70 consumption purposes and 42 income components from the German Household Budget Survey (Einkommens- und Verbrauchsstichprobe (EVS)). The social dimensions are social status linked with household size. Changes in income estimated in the macro-economic input-output model induce changes in the household specific income composition. These changes affect the households’ consumption expenditures. Summing up the newly calculated consumption expenditures by social characteristics the aggregate consumption by purpose can again be reintegrated into the macroeconomic model. The resulting economic consequences can then be traced and quantified. One significant result is the possibility to model complex socioeconomic interactions with limited data availability. The applied method provides the opportunity to integrate socio-economic structures in an economic model environment and thus reveal the inter-related macroeconomic effects of social characteristics. The combination of micro-based and macro data enhance the original model output. Finally, the implications of demographic change, social transformation and/or changes in income can be analyzed. |
| Keywords: | Germany, Macroeconometric modeling, Miscellaneous |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6721&r=mac |
| By: | Cristian Badarinza; John Y. Campbell; Tarun Ramadorai |
| Abstract: | The relative popularity of adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs) varies considerably both across countries and over time. We ask how movements in current and expected future interest rates affect the share of ARMs in total mortgage issuance. Using a nine-country panel and instrumental variables methods, we present evidence that near-term (one-year) rational expectations of future movements in ARM rates do affect mortgage choice, particularly in more recent data since 2001. However longer-term (three-year) rational forecasts of ARM rates have a weaker effect, and the current spread between FRM and ARM rates also matters, suggesting that households are concerned with current interest costs as well as with lifetime cost minimization. These conclusions are robust to alternative (adaptive and survey-based) models of household expectations. |
| JEL: | D14 E43 G21 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20408&r=mac |
| By: | Tosic, Natasa; Iordan-Constantinescu, Nicolae |
| Abstract: | The study presents the new approaches of the knowledge‐based economies and competitiveness policy using two major indexes and methodologies developed by two prestigious world institutions, the World Bank and the World Economic Forum, as well as the practical consequences of their implementation at the level of individual economies in a dynamic globalised world. The main conclusion derived from the study is that without firm and steady measures for a comprehensive implementation of the mix of policies included in the two indexes, there are fewer chances of winning a better position of a country in the global concert of people and increasing the nation's wealth and standard of living. A particular attention is given to the case of the Republic of Serbia, candidate country to the European Union, pointing out both the achievements and the need for further action at the national level. |
| Keywords: | knowledge‐based economy, competitiveness, globalisation, Global Competitiveness Index, Serbia |
| JEL: | E42 E61 F36 F43 G15 O47 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58081&r=mac |
| By: | Cobb, Marcus |
| Abstract: | The use of chain-linked methods reduces significantly the problem of price structure obsolescence present in fixed base environments. However, price updating introduces a new dimension that may produce confusion if not accounted for. Probably the most notorious difficulty generated by the introduction of chain-linked indices to the measurement of GDP has been that the aggregate is not the direct sum of its components, thus not only making it harder to explain its behaviour but also making it more cumbersome to work with the series in a consistent manner. Because of the non-additivity of the components, one of the processes that have been affected is that of the indirect seasonal adjustment. This document presents a consistent framework to identify and track down the sources of seasonal effects to its components in an aggregate measure chain-linked using the annual overlap method. This is done based on the decomposition of component’s contributions and the indirect seasonal adjustment. The framework allows separating the effects on growth rates into non-systematic seasonal effects, systematic seasonality and changes in systematic seasonality. |
| Keywords: | Seasonal Adjustment, Annual Overlap, Chain-linking |
| JEL: | E32 O11 O47 |
| Date: | 2014–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58033&r=mac |
| By: | World Bank |
| Keywords: | Public Sector Expenditure Policy Macroeconomics and Economic Growth - Subnational Economic Development Urban Development - Municipal Financial Management Finance and Financial Sector Development - Debt Markets Public Sector Economics Public Sector Development |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19311&r=mac |
| By: | Hashim Al-Ali |
| Abstract: | Comprehensive economic models in general, and macro-fiscal integrated models in particular, are needed to ensure consistency and optimality in constructing government annual integrated budgets and economic development programmes. Mathematical models can provide decision-makers and planners with alternative optimal policies and scenarios, based on slightly different objectives and/or assumptions. Hence, an informal choice may be made among these scenario alternatives. Thus, this allows policy making to be evidence-based with objectivity and scientific in orientation. In addition to revealing the implications of policy decisions by the relevant authority, the macroeconomic-fiscal models make direct and indirect impacts of various policies obvious to decision-makers. Besides, the future structure and growth path for the economy can be simulated using these mathematical/economic models. This is basically what macro-fiscal forecasting models do and that is why so much consideration and attention has been given, in recent years, to the use of applied models in macroeconomic development and planning, national and sectoral economic analysis and public finance management fields. Without an analytical framework, attempts to solve problems in one area or segment of the economy often aggravate those in other areas and segments. Arising from the situation analysis which was made possible by macroeconomic-fiscal models, for instance governments in some countries, have been able to take remedial actions on the most feasible ways of redressing the negative impacts of policy, which arise from the implementation of medium-term plans, investment programmes, medium-term budget frameworks and/or annual budgets. Ordinarily, annual budgets, medium term plans and strategies as well as long term development visions, evolve their policy options from simulations, and result-oriented macroeconomic-fiscal models. It is when short, medium and long term development programmes are articulated from the results of macroeconomic-fiscal models’ simulation, that governments are considered to be planning or budgeting with facts; otherwise such governments are referred to as planning without quantified facts. That said, hitherto, no integrated macro-fiscal model has been formulated and articulated, for forecasting and decision purposes in Bangladesh. Given the actual modeling needs, the limitation and coverage of the available statistical data and limited modelling related capacity within the ministry of finance (MOF), an attempt has been made here to structure, formulate and numerically articulate a macro-fiscal forecasting model that is characterized as; realistic, simple, though comprehensive but easy to understand and comprehend, integrated for all the segments of the national economy (real economy, fiscal, financial and external sector) included in the model and brought together, in an economically viable causal-chain sequential relationship, with impact oriented and feed-back solutions processes. The constructed model however, has been structured in such a way so that it can be absorbed by the prevailed technical capabilities and capacities of the existing MOF/macroeconomic wing (MEW) staff, this comprehensive model has been calibrated, empirically articulated, and implemented as well as run with different economic and development scenario alternatives, for future projections, and hence, it can be used as an effective tool for forecasting and decision as well as policy making process. An integrated macro-fiscal forecasting and simulation modelling application and results. On such results a realistic macroeconomic and fiscal framework would be structured and quantified, to cover the next five years, and can be beyond. Such framework and other related results on real economy, fiscal, financial and external sector of the national economy, will be used as a consistent results-base approach to formulate, draw and quantify the economy medium term fiscal framework (MTFF) and medium term budget framework (MTBF), for years 2013-2017. |
| Keywords: | Bangladesh, Macroeconometric modeling, Modeling: new developments |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5039&r=mac |
| By: | Ricardo Félix; Gabriela Castro; José Maria; Paulo Júlio |
| Abstract: | Reassess the size of the fiscal multiplier in times of crisis Non-Ricardian DSGE model with a detailed fiscal sector Multipliers tend to be larger in times of crisis |
| Keywords: | Small euro area economy, General equilibrium modeling, Public finance |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5307&r=mac |
| By: | Filippo di Mauro; Filippo di Mauro, Fabio Fornari |
| Abstract: | The paper attempts to verify whether equity returns of individual firms, and their realized volatilities, improve the in-sample and out-of-sample predictability of the US business cycle, as measured by the IP index VAR analysis and tests for forecasting ability The equity returns of individual firms, and their realized volatilities, are shown to improve the in-sample and out-of-sample predictability of the US business cycle, as measured by the IP index. In fact, significant declines in the root mean squared errors (RMSEs) are found when these variables are added to aggregate financial variables and selected macroeconomic indicators. Overall, to the aim of forecasting, there is a noticeable swing in the relative importance of individual firms across time, although firms that become key predictors of economic activity in a given month continue to do so for around six months, on average, bringing support to the idea that there is structure in the information that they convey. Unconditionally, belonging to a given sector does not boost the predictive power of firms, but we find that it becomes important for example around periods of recessions. Balance sheet data show that predictive ability of the firms is associated with features as performance, liquidity, the size of the foreign activity. Firm size also matters, as suggested by recent literature (Gabaix, 2011), although it is not - as put forward there - the only indicator to prevail. |
| Keywords: | European countries, Forecasting and projection methods, Microsimulation models |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6809&r=mac |
| By: | World Bank Group |
| Keywords: | Finance and Financial Sector Development International Economics and Trade - External Debt International Economics and Trade - Trade and Regional Integration Macroeconomics and Economic Growth - Macroeconomic Management |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19300&r=mac |
| By: | Karl Farmer |
| Abstract: | The present sovereign debt crisis in the Economic and Monetary Union of the EU (EMU) is partly attributable to the pronounced increase in external imbalances across northern and southern euro zone countries during the years running up to 2007 (Lane and Milesi-Ferretti, 2011). While the behavior and extent of external imbalances during the pre-crisis period is empirically well documented (e.g. Lane and Pels 2012) it remains an open theoretical question how the evolution of the observed external imbalances can best be reproduced within an intertemporal general equilibrium model of the EMU. Fagan and Gaspar (2008) compare in a two-good, two-country Yaari (1965)-Blanchard (1985) overlapping generations (OLG) pure exchange model without government debt the pre-euro financial autarky steady state to euro-related financial integration between northern and southern euro countries (called core and periphery, respectively). They find that the evolution of intra-EMU external imbalances can be traced back to North-South differences in time preference. While the neglect of production and capital accumulation may be justified by the similarity of northern and southern GDP growth rates in the pre-crisis period the rather huge private capital movements from core to periphery over this period suggest a two-country overlapping generations model with production and private capital accumulation in order to check whether the observed EMU external imbalances can be attributed to differences in economic fundamentals within this model framework, too. In addition, we introduce government debt into our basic model in order to investigate whether in view of the pre-crisis time-stationarity in the debt to GDP ratios of both EMU core and periphery the observed external imbalances can be traced back to which economic fundamentals. Thus, there are two main objectives of the paper: First, to present stylized facts regarding the intra-EMU macroeconomic data running up to the financial crisis 2007 in order to motivate the model set-up. Secondly, to develop a two-zone OLG model with production, capital accumulation and government debt in order to figure out how EMU’s North-South external imbalances can be attributed to financial integration due to the common currency. To pursue the second objective, a one-good, two-country Diamond (1965)-Buiter (1981) OLG model with time preference and technological differences across countries (e.g. EMU’s North, South) and time-stationary debt to GDP ratios will be developed. It will be used (i) to see how the pre-euro real interest differential between EMU South (periphery) and EMU North (core) can be depicted in the proposed model and (ii) whether the observed external imbalances (net foreign asset positions) can be referred to the euro-related interest rate convergence between EMU core and periphery. Both countries in the model economy are interconnected through free international trade in commodities, real capital and bonds emitted by national governments. The objective of this highly stylized model is to figure out major economic mechanisms triggering the observed intra-EMU imbalances in the run-up towards the global financial crisis. This is clearly the first step to set up a dynamic applied general equilibrium model along the lines of Fagan and Gaspar (2008). The author finds that the pre-euro real interest differential can be attributed to a relatively high time preference, low total factor productivity and high capital production share in the periphery. Exactly these differences in economic fundamentals cause the pre-crisis evolution of the external imbalances among EMU core and periphery. |
| Keywords: | EMU, Finance, General equilibrium modeling |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5484&r=mac |
| By: | Bouyon, Sylvain; Boeri, Filippo |
| Abstract: | The ECRI Statistical Package 2014 Lending to Households reveals that the total amount of outstanding household real debt at end-2013 contracted for the third consecutive year in both the EU member states (EU27) and the euro area (EA17). All in all, indicators point to less divergent growth patterns across member states in 2013, as the standard deviation of the sample in domestic currency recorded its lowest value in more than 15 years. Still, pronounced corrections continued in a few countries, especially in Slovenia, Portugal, Spain, Hungary and Latvia. The successive yearly contractions in the EU27 occurred despite significant easing in interest rates in many markets over the last few years. Gross disposable income of households, which is one of the main drivers behind households’ demand, and housing prices, which can affect both demand and supply of loans, have had strong effects on the dynamics of household debt since 2007. Considering household debt-to-GDP ratios, long-term comparisons between the different groups of countries composing the EU27 show that no convergence was observed across these groups and across EU27 countries in the years preceding the financial crisis. However, partly as a result of the 2008-09 financial crisis and its long-lasting effects, strong convergence was registered across EU27 countries between 2007 and 2013. Regarding non-financial corporation (NFC), the outstanding debt decreased again in 2013 in both the EU27 and the euro area. In 2013, the correction intensified in nominal terms in both the EU27 and the EA17, but slowed down in real terms in comparison with 2012. The Key Findings relate to the more detailed ECRI 2014 Statistical Package covering 38 countries: the 27 EU member states, three EU candidate countries (Croatia, Turkey and the Former Yugoslav Republic of Macedonia), the EFTA countries (Iceland, Liechtenstein, Norway and Switzerland) and four key global economies (the United States, Australia, Canada and Japan). The purpose of the package is to provide reliable statistical information that allows users to make meaningful comparisons in time and between these countries. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:eps:ecriwp:9574&r=mac |
| By: | Lal Almas; Nazim U. Hajiyev |
| Abstract: | The economic condition in each country can be determined based on two ratios. One of them is inflation and the other is economic growth. The inflation level is an indicator of economic stability in the country; however, sustainable development is an indicator of economic development and the welfare of the country. Due to the fact that economic development is a vast phenomenon, it consolidates social, ecological, ethical and other factors. The main point here is provision of a fecund environment for sustainable economic development. We would like to note that economic growth cannot provide an adequate approximation of the long-term development; therefore, the provision of the dynamic equilibrium level of economic growth is essential. The research covers a time span of 1996 through 2010 and has the following goals: • Evaluation of the country’s economy and the determination of its dynamic equilibrium level of economic growth using Keynesian Domar model; • Determination of changes in the basic economic determinants by the conduction of Domar table; • Effect of application of obtained results in measurements dedicated to the support of economic growth. The models of economic growth reflect the real economic processes using some simplifications, but holding the main concepts. These models analyze the different points of the economic development and make possible the identification of certain consistencies and rules. We would like to note that the differentiating features of the economic growth models are their ability to grow only in account of capital and labor forces. We know that the economic development is possible under various circumstances such as quality and quantity of economic resources and their changes, economic technologies, technical progress and etc. However, it is not possible without an initial investment. For this reason, the Keynesian model is considered to be the most basic model of economic growth. Thus the main point in this model is determination of factors enabling the dynamic equilibrium growth model. During the modeling of the economic process the simplification and identification of initial inputs is also important. The Domar model is considered a simple Keynesian model and reflects this in the following way [3, 180], [2, 519-520], [4, 250]: (1) here, - the speed of the economic growth t period; - the capital efficiency limit; and - saving norm. As we can see the capital efficiency limit and saving norm are the basic variables of the model and can be estimated using the following quotations: (2) (3) Where - output growth in t period, - investment in the capital in t period, - savings in t period, - output level in t period, and σ - constants. It is obvious that all models are estimated under conditions of predefined limitations. This is due to the fact that a model cannot account for all conditions and terms of actual economic process, which can bring about additional complexity and inconsistencies. From this point of view, the Domar model consists of the following initial conditions [1, 231], [2, 519], [4, 249-250]: 1. The model is based only on the products/goods market; 2. The technology of the production is reflected by the Leontyev function, i.e. the limit of capital efficiency is constant; 3. The labor market is in a saturation condition and there is no lack of labor force; 4. The excessive supply on labor market supports the stable prices; 5. The growth in investments reflects the growth in total supply and total demand, i.e. both total demand and total supply increase only due to increase in investments; 6. There is no amortization of capital; and 7. Correlation between capital (K) and quantity of goods (Y) is (K/Y) reflecting the saving norm Due to the initial terms of the model ( ) is constant. The major conclusions drawn from the model are that limits of product output, investments and capital growth are equal to each other [2, 520], [4, 250]. In other words, (4) During the composition of this model for the Azerbaijani economy we considered the specifics of economic growth and the oil factor of the economy. Considering that the oil and natural gas resources are scarce and limited and the national economy cannot fully rely on it (Holland syndrome), necessary measurement and changes in the national economic policy should be taken. A number of policy measures were implemented in this direction such as establishment of oil fund, saving of oil revenue in foreign banks and etc. However, in order to continue the obtained economic growth, we need to establish and realize the complexity of the necessary measurements. The major role in the establishment of sustainable economic development in Azerbaijan is the identification of the dynamic equilibrium levels of economic growth and the qualitative and quantitative evaluation of actual deviations from this level. It will play a crucial role in the formation of the national economic policy. In order to evaluate the Domar model we should determine its basic inputs – saving norm and the efficiency limit of the capital. Therefore the econometric evaluation of equation (2) was as following: Table 1. the results of econometric evaluation of saving norm Variable ratio Standard deviation t-statistics Probability R_GDP 0.627099 0.0416 15.06642 0.000 C -561.353 300.9516 -1.86526 0.095 Determination ratio 0.94583 Average of the variable 4346.899 Clarified Determination ratio 0.94166 Standard deviation of variable 3197.992 Standard deviation of regression 772.393 Akayk information factor 16.260 Sum of squares of deviations 775568 Schwartz factor 16.355 Log relevance to reality -119.95 F-statistics 226.100 Statistics of Durbin-Watson 1.22534 Probability (F-statistics) 0.00003 Source: the valuation was made by author It can be seen from the results that the model is significant from an economic point of view. According to the determination ratio, 95% of increase in real savings during 1997-2000 can be explained by the increase in real GDP during this period. At the same time, the high level of t-statistics (15.066) shows that the GDP taken as an explanatory variable has a really large impact on other variables within the model. The model supports the stability test and coefficient test at the required level and provides the basis for the economic conclusions. According to the results of the model increase in GDP by one million Azeri Manat (AZN) brings about an increase in savings by 0.62 million AZN. In other words, if our country’s population spends one AZN, it reflects as 38 kopeks of consumption and 62 kopeks for saving. From the population’s point of view this result seems unrealistic. In reality, an increase in income brings about an increase in consumption. It is explained by the fact that the consumption demands of the population are not met yet. However, considering that the inputs of the model contained information not only about population, but also about the government, companies and other organization, we believe that the obtained results can be considered as reliable. Thus the governmental bodies and companies direct their revenues to savings rather than consumption, which forms the savings base of our country. Now let us identify the limit of capital efficiency. For this purpose we observed the relation between the growth of real GDP and capital investments using the econometric evaluation tools: Table 5. The results of evaluation of limit of capital efficiency Variable ratio Standard deviation t-statistics Probability R_CI 0.153436 0.024873 6.168736 0.0000 Determination ratio 0.377072 Average of variable 978.5786 Clarified Determination ratio 0. 377072 Standard deviation of variable 844.4061 Standard deviation of regression 666.4543 Akayk information factor 15.91057 Sum of squares of deviations 5774098. Schwartz factor 15.95622 Log relevance to reality -110.3740 Statistics of Durbin-Watson 0.97980 Source: the valuation was made by author |
| Keywords: | Azerbaijan, Growth, Impact and scenario analysis |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6650&r=mac |
| By: | Peter Downes (Outlook Economics); Kevin Hanslow (Centre of Policy Studies, Victoria University); Peter Tulip (Reserve Bank of Australia) |
| Abstract: | This paper estimates the effects of the mining boom in Australia, using a large-scale structural macroeconometric model, AUS-M. We estimate that the mining boom boosted real per capita household disposable income by 13 per cent by 2013. The boom has contributed to a large appreciation of the Australian dollar that has weighed on other industries exposed to trade, such as manufacturing and agriculture. However, because manufacturing benefits from higher demand for inputs to mining, the deindustrialisation that sometimes accompanies resource booms – the so-called 'Dutch disease' – has not been strong. |
| Keywords: | mining boom; Dutch disease; macroeconomic modelling |
| JEL: | E17 Q33 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2014-08&r=mac |
| By: | Joao Sousa Andrade; António Portugal Duarte; Adelaide Duarte |
| Abstract: | Based on the Krugman (1991) model, the aim of this study is to analyse whether the adoption by Portugal of an exchange rate target zone regime in the context of the participation of the Portuguese escudo in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS), allowed the verification of the existence of a nonlinear S-shaped relationship between the exchange rate and its fundamental determinants. Indeed, it is essential for the Portuguese economy to achieve the conditions of stability, credibility and macroeconomic discipline, since without these it would be very difficult to adopt the European single currency. We tested three models ─ OLS, Auto-correlation by Maximum Likelihood, and GARCH (p, q). We also used LSTAR and ESTAR models to analyse the behaviour of the exchange rate. With this study we also support the idea that a target zone regime should be considered a feasible solution for ‘tomorrow’ for countries that ‘today’ can be forced to abandon the Euro Zone. This kind of option combines monetary policy autonomy with macroeconomic stability. |
| Keywords: | Portugal and Germany, Monetary issues, Macroeconometric modeling |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5305&r=mac |
| By: | Maryia Akulava |
| Abstract: | What affects individual preference for different types of political regime? This paper investigates the determinants of individual preferences for democratic values and looks at differences in impact of influencing factors in transition and non-transition countries. It combines both individual and country level characteristics in order to see whether they impact personÕs attitude. I found that preferences for democracy are formed by impact of both individual and country-level factors. However, the direction of impact depends on the type of political regime and stage of economic development in the country. First, GDP per capita, growth of inequality and inflation are positively affecting personal preferences for democratic values in the democratic countries and negatively in the countries with autocratic regime. In turn, growth of unemployment in democratic countries decreases individual support of democracy and has a positive impact on support in the countries with autocratic regime. That agrees with the literature that beliefs and attitude towards political systems depend on countryÕs past experience. Age has different effect in transition and non-transition economies proving that being raised in different environments matters in terms of formation of political preferences. |
| Keywords: | Democracy, macroeconomic factors, individual characteristics, transition countries |
| JEL: | D7 J2 O1 P1 P2 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bel:wpaper:25&r=mac |
| By: | Jan Gadomski; Jan Gadomski |
| Abstract: | Aim of the research is an analysis of the mechanism of transmission of the disturbances caused by the supply or price shocks in such economic systems as the supply chains, linked markets, etc. The interest of the study is focused on the propagation of shocks in the complex systems with distinguished fisical as well as money flows. Main analitical tool used in the analysis is the distributed lag model. Properties of this model are analised applying the concepts of the generating function and polinomial lag operator. Measurment of the lag and its sensitivity to the dynamics of the independent variable of the distributed lag model is also analised. Determination of the lag structure, long-term multiplier, mean and the variance of the lag distribution of the complex model composed of the component distributed lag models. Analysis of the impact of dynamics of the independent variable on the lagging mechanism. |
| Keywords: | Poland, Modeling: new developments, Macroeconometric modeling |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5373&r=mac |
| By: | Duy Hung Bui |
| Abstract: | Vietnam is a developing country with a fixed exchange rate regime and the use of foreign currency is under control of the monetary authorities. Hence, like other developing countries, Vietnam also has the parallel exchange market that exists together with the official exchange market though, it is illegal. The existence of the parallel exchange market creates several complications to the State Bank of Vietnam in their attempts to manage the foreign exchange market and the exchange rate. Fluctuations in the parallel market rates affect both the level of international reserves, the position of the economy and portfolio decisions of the public. Therefore, a strong understanding of the parallel foreign exchange market will help the State bank of Vietnam have sound policies in the foreign exchange market. The monetary approach to the parallel foreign exchange market initially developed by Blejer (1978) and then further developed by Agénor (1991) is used. This approach focuses on the disequilibrium in the money market in explaining movements in output, price, the parallel market exchange rate, and change in net foreign assets An increase of money supply by 1% causes the exchange rate in the parallel market depreciated by 0.015%. A 1 per cent devaluation of the official exchange rate would bring about 1.33 per cent devaluation of the parallel market rate. These results bespeak the State Bank of Vietnam’s efforts to reduce the market premium seem to be not success and stimulating economic growth by money supply would lead to deprecation in both markets |
| Keywords: | Vietnam, Macroeconometric modeling, Monetary issues |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6719&r=mac |
| By: | Filippo di Mauro; Alexander Al-Haschimi; Stephane Dees; Martina Jancokova |
| Abstract: | This paper links granular data of financial institutions to global macroeconomic variables using an infinite-dimensional vector autoregressive (IVAR) model framework. This framework is used to assess the impact of foreign macroeconomic shocks on default risks of euro area financial firms. In addition, the macroeconomic impact of firm-specific shocks is investigated. The approach taken nests a global VAR (GVAR) model, which allows an assessment of the two-way links between the financial system and the macroeconomy, while accounting for heterogeneity among financial institutions and the role of international linkages in the transmission of shocks. The model is estimated using macroeconomic data for 21 countries and default probability estimates for 35 euro area financial institutions. Overall, the results show that accounting for heterogeneity among firms is important for investigating the transmisson of shocks through the financial system. The model also captures the important role of international linkages, showing that macroeconomic shocks scaled to those observed following the Lehman bankruptcy generate a rise in firm-level default probabilities that is close to those observed during this time period. By linking a firm-level framework to a global model, the IVAR approach provides promising avenues for developing macro-prudential tools that can explicitly model spillover effects among a potentially large group of firms, while accounting for the two-way linkages between the financial sector and the macroeconomy, which were key transmission channels during the recent financial crisis. |
| Keywords: | European countries, Macroeconometric modeling, Finance |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6807&r=mac |
| By: | World Bank |
| Keywords: | Health Monitoring and Evaluation Macroeconomics and Economic Growth - Investment and Investment Climate Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth - Subnational Economic Development Public Sector Expenditure Policy Public Sector Development Health, Nutrition and Population |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19325&r=mac |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development - Access to Finance Macroeconomics and Economic Growth - Investment and Investment Climate Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress Public Sector Expenditure Policy Public Sector Development |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19305&r=mac |
| By: | Osaro Agbontaen; Milton Iyoha |
| Abstract: | 1. Identify unanticipated shocks in foreign aid. 2. Examining how macroeconomic stability constraints foreign aid and hinders the drives of growth. Vector Auto-regression Model 1. Estimates of the innovations of foreign aid shocks to macroeconomic variables shocks generates inconsistencies that distorts budget deficits. 2. Foreign aid shocks creates uncertainties that weakens current account balances and transmit negative shocks that has strong constraining effects on economic growth. 3. Foreign aid negative impacts reduce the tendencies for the economy to grow. 4. Macroeconomic strategies are inconsistent and lack the will to effectively utilize the gains of foreign aid. |
| Keywords: | Nigeria, Macroeconometric modeling, Trade issues |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5401&r=mac |
| By: | Ayele Gelan |
| Abstract: | Electricity users in Kuwait pay a nominal tariff of 2 fills (about USD 0.007) per KWh. Almost all cost of generation, distribution and supply are covered by a very generous government subsidy. The 2 fills/KWh was introduced in 1966 and has been retained at that level since then. On the other hand, the cost of generating electricity has sharping risen particularly in recent years. For instance, cost per KWh escalated from about 20 fills in 2000 to about 40 fills in 2010, indicating that cost of production nearly doubled during that decade. The extremely generous subsidy or almost free availability of electricity has given rise to a pattern unsustainable behaviour in electricity use. Krane (2012) expressed the situation as a ‘dichotomy between energy value and price’ to say that excessively low energy pricing induced ‘wanton consumption’ whereby ‘low pricing encourages consumption at rates above those warranted by the opportunity cost of these fuels on global energy markets. Low prices also distort energy allocation preferences while undercutting upstream investment and efficiency incentives’ . These are reflected in a number of key aggregate indicators. For instance, in terms of economic electricity use efficiency, measured in terms of GDP generated per unit of KWh used, Kuwait does not only stand among the lowest but also the situation has gotten worse over the years. In 1990 GDP/KWh was USD 1.4 but it fell to USD1.2 in 2005. This contrasts with experiences of most other countries in the world; for instance, USA which was doing already much better in 1990 (about USD 2.2/KWh) but also electricity use efficiency improved and reached about USD2.7 in 2005. In terms of electricity consumption per capita Kuwait is the second highest in 2005 (after Norway). This figure doubled between 1985 and 2005, rising from about 8 thousands KWh to 17 thousand KWh. It should be noted that while Kuwait’s electricity is generated entirely by using fossil fuels but other countries like Norway have shifted to renewables such as hydro sources. The objective of this study is to quantify economy-wide impacts of public utility reform that may target to start by reducing electricity subsidy. The study is timely and highly relevant to current policy developments in the country. It will inform the ongoing debate regarding far reaching economic reform programmes, mainly aiming at diversification of Kuwait’s economy away from heavy reliance on the oil sector and reducing the dominance of the public sector by promoting private sector developments. Approaches and Methods The study was conducted using a computable general equilibrium (CGE) modelling approach. This was based on a social accounting matrix constructed for Kuwait based base year data of 2010. The 2010 Kuwait input-output table and related system of national accounts provided by the Central Statistical Bureau (CSB) provided core data required to construct a SAM with 17 production sectors. This was supplemented with other satellite accounts such as employment, demographic and capital stock which are separately estimated in line with flow variables in the SAM. The CGE model used for this study is the comparative static version of the standard IFPRI CGE model (Lofgren, et al, 2001), which was substantially revised to customize it to the purpose of this study . While designing the simulation experiments, the focus of this study was on labour market conditions to capture the highly segmented nature of the labour market in Kuwait. Expatriates constitute the bulk of the work force in Kuwait, about 83%. Kuwaiti’s account for the remaining proportion. Critically, the national labour force are highly concentrated in the public sector, including the electricity sector. The average wage level for Kuwaiti’s is substantially higher than expatriate salaries and wages. These conditions are highly relevant in the context of this study. Economic reform in Kuwait is bound to be implemented in conditions of inflexible wages and limited sectoral mobility among the Kuwaitis. However, labour market conditions for the expatriates is likely to be flexible wages and free mobility between sectors. Simulation experiments were conducted by taking these conditions into account. Preliminary Simulation Results Two scenarios of simulation experiments were conducted. These are separately discussed below. Scenario 1: 25% reduction of subsidy on the electricity sector To begin with the intra-sectoral impacts, gross value-added in the electricity sector falls by 34% while electricity tariff rises 260%, which means a rise from 2 fills/KWh to 5.2 fills/KWh. The policy shock reveals interesting macroeconomic and sectoral impacts. The inter-sectoral effects are more or less in line with an inverse proportion with sectoral electricity use intensity – more intensive users experiencing a degree of contraction while less intensive electricity users experiencing some expansions. The mixed impacts at sectoral levels have led to negligible macroeconomic effects. Aggregate GDP (value-added measure) declining by a less than 1% while gross domestic expenditure marginally increased, by about 1%. As we expect government surplus increases by about 3%. Household welfare, measured in terms of equivalent variation, declined but only by 0.5%. In this modelling framework, the net impacts of this policy shock are negligible but distributional impacts are likely to be much higher. We have shown this in terms of distributional effects across sectors but distributional effects across the households is beyond the scope of this research, since this study is based on a highly aggregate SAM which does not distinguish between households by income or expenditure sizes. This are left for future research. Scenario 2: 25% reduction of subsidy on the electricity sector accompanied by household compensation for welfare loss This scenario was conducted aiming at compensating households for the welfare loss they experienced due to the policy shock. It should be noted that the reduction in welfare reported above is negligible. However, if the subsidy reduction was much larger, say 50% or more, then we would expect that the welfare loss to households will be much larger. We have noted that the policy shock will also further increase Kuwaiti government budget surplus. However, unlike other countries with large budget deficits, current economic reforms in Kuwait are motivated more by the need to adjust the structure of the economy and improve efficient resource allocation rather than budgetary considerations. In that context, if the economic reform can help with achieving the main objective of effecting efficient resource allocation, then compensating households for welfare loss may be necessary particularly to reduce public resistance to expected rationalizations of public utilities including the electricity sector. It was with these policy context in mind that the scenario 2 policy experiment was conducted. The additional simulation shock was effected by compensating households by full amount of budget surplus gained by the government as a result of the policy change. In other words, government transfer to households was scaled up by the full amount of the difference between government budget surplus with the policy shock in scenario 1 and the corresponding figure in the base year. This yielded a much higher expansionary effect. In scenario 2, the only sector that experience contraction in terms of gross value added is the electricity sector, the sector that received the shock, but it contracts by about 32%, which is smaller than the contraction it experienced in scenario 1. The rates of positive stimulus to the other sectors ranged from 0.41% in government services to 6% in the construction sector. Aggregate GDP increased by 2.2% and the compensation caused household welfare to improve by 3.4% compared to the pre-reform level. |
| Keywords: | Kuwait, Energy and environmental policy, General equilibrium modeling |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:7106&r=mac |
| By: | Aviv Nevo (Northwestern University); Arlene Wong (Northwestern University) |
| Abstract: | This paper examines household consumption smoothing via variation in time spent shopping over the business cycle. Using scanner data on grocery purchases, we document how households lower the prices that they pay during downturns by increasing their coupon usage, sale purchasing, buying larger sizes and generic products. We show that this behavior is consistent with a significant decline in households' cost of time in recessions, which is comparable to the decline in cost of time over an individual's life-cycle. Using our estimated cost of time and data from time-use diaries, we estimate a high elasticity of substitution between time and goods in home production. This implies that households are able to smooth a sizable fraction of consumption, relative to market expenditures, by varying their intra-temporal allocation of time during recessions. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:315&r=mac |
| By: | Dusa, Silvia |
| Abstract: | The current study presents the main models of competitiveness, developed by different organization or institutions, primarily those established by the World Economic Forum, International Institute for Management Development, European Commission and the Institute for Strategy and Competitiveness, founded by Michael at Harvard Business School. The concept of competitiveness and the whole philosophy and reasoning around this concept, started relatively recently, but developed very rapidly and currently is a topical preoccupation of all responsible governments. |
| Keywords: | competitiveness, economic growth, euro, convergence, models of competitiveness, WEF |
| JEL: | E42 E61 F36 F43 G15 O47 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58103&r=mac |
| By: | Asian Development Bank (ADB); (Office of Regional Economic Integration, ADB); ; |
| Abstract: | This publication reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. It covers the 10 members of the Association of Southeast Asian Nations plus the People’s Republic of China; Hong Kong, China; and the Republic of Korea. |
| Keywords: | bonds, asian bonds, local currency bonds, bond yield curves, liquidity survey, bid-ask spreads, hedging, transaction funding, foreign exchange, capital flows, liquidity, quantitative easing, QE, Federal Reserve, monetary policy, SHIBOR shock, repo, transparency, taxation, greater diversity of investors and traders, cross-border portfolio investment regulation, emerging East Asia, ASEAN+3, Malaysia, Indonesia, Philippines, Thailand, Singapore, Republic of Korea, People's Republic of China, Japan, Bond Market Outlook |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:asd:wpaper:rps136083-2&r=mac |
| By: | Asian Development Bank (ADB); (Pacific Department, ADB); ; |
| Abstract: | This private sector assessment reviews Fiji’s private sector environment in 2006–2012, against recommendations made in ADB’s 2005 Promise Unfulfilled: Private Sector Assessment for Fiji. While fiji has made considerable reform progress in a number of areas (including tax reforms, encouraging telecommunications competition, and reducing barriers to foreign investment), it still faces considerable challenges in responding to a range of macroeconomic shocks following the global economic crisis, and political and policy uncertainty at home. |
| Keywords: | fiji, private sector, private sector investment, business environment, contract enforcement, investment incentives, investment climate, state-owned enterprises, foreign investment, price controls, contract enforcement, iTaukei land, access to finance, financial services |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:asd:wpaper:rps136022-2&r=mac |
| By: | Georgios Kouretas; Chris Tsoumas; Anastasios A. Drakos |
| Abstract: | In a recent line of research the low interest-rate environment of the early to mid 2000s is viewed as an element that triggered increased risk-taking appetite of banks in search for yield. This paper uses approximately 7,000 annual observations on banks of the CEE countries over the period 1997-2011. The econometrics anlysis is conducted with the use of an unbalanced panel data set. We use two alternative estimation methods: A Dynamic Fixed Effects IV panel data and the ArellanoBover/Blundell-Bond GMM panel estimation method Our preliminary result provide strong empirical evidence that low interest rates indeed increase bank risk-taking substantially. This result is robust across a number of different specifications that account, inter alia, for the potential endogeneity of interest rates and/or the dynamics of bank risk. Furthermore, we take into consideration the presence of a significant number of foreign banks that operate in the 11 CEE countries. The new institutional and regulatory framework that has been implemented in these economies as the final stage of the modernization of the banking sector is shown to provide important implication in the conduct of monetary policy and the existence of a risk-channel. On average a relatively low level of risk assets leads to a higher risk-taking behaviour by banks over the period under examination. Finally, the distributional effects of interest rates on bank risk-taking due to individual bank characteristics reveal that the impact of interest rates on risk assets is diminished for banks with higher equity capital and is amplified for banks with higher off-balance sheet items. |
| Keywords: | Central and Eastern European Countries, Monetary issues, Finance |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5204&r=mac |
| By: | Bulat Mukhamediyev; Mukhamediyev Bulat |
| Abstract: | For oil producing countries it is important to share rationally oil revenues between current expenditure and savings. The purpose of this paper is to study what impact will have change of the oil revenues accumulation on the dynamics of macroeconomic indicators.Modeling of dynamic stochastic general equilibrium with oil producing sector of economy.Forecasted responses of model variables to internal and external shocks of the economy of Kazakhstan. The influences of changes in the share of oil revenues accumulation in the National Fund on forecasted responses of macroeconomic indicators were found. |
| Keywords: | Kazakhstan, General equilibrium modeling, Developing countries |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6890&r=mac |
| By: | Kenza Benhima (University of Lausanne (HEC)); Celine Poilly (University of Lausanne); Philippe Bacchetta (University of Lausanne) |
| Abstract: | In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash in their production process. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. We show that liquidity and productivity shocks tend to generate a negative comovement between the cash ratio and employment. In contrast, standard credit shocks produce a positive relationship. A calibrated version of the model yields a negative comovement that is close to the data. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:256&r=mac |
| By: | Joao Granja; Gregor Matvos; Amit Seru |
| Abstract: | We study the recent episode of bank failures and provide simple facts to better understand who acquires failed banks and which forces drive the losses that the FDIC realizes from these sales. We document three distinct forces related to the allocation of failed banks to potential acquirers. First, a geographically proximate bank is significantly more likely to acquire a failed bank: only 15% of acquirers do not have branches within the state. Sales are more local in regions with more soft information. Second, a failed bank is more likely to be purchased by a bank that has a similar loan portfolio and that offers similar services, highlighting the role of failed banks’ asset specificity. Third, low capitalization of potential acquirers decreases their ability to acquire a failed bank and potentially distorts failed bank allocation. The results are robust to restricting the data to actual bidders, confirming that they are not driven by auction eligibility criteria imposed by the FDIC. We relate these forces to FDIC losses from failed bank sales. We organize these facts using the fire sales framework of Shleifer and Vishny (1992). Our findings speak to recent policies that are predicated on the idea that a bank’s ability to lend is embodied in its collection of assets and employees and cannot be easily replaced or sold. |
| JEL: | E65 G18 G21 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20410&r=mac |
| By: | Le Blanc, Julia; Porpiglia, Alessandro; Teppa, Federica; Zhu, Junyi; Ziegelmeyer, Michael |
| Abstract: | We study the role of household saving behaviour, of individual motives for saving and that of perceived liquidity constraints in 15 Euro Area countries. The empirical analysis is based on the Household Finance and Consumption Survey, a new harmonized data set collecting detailed information on wealth holdings, consumption and income at the household level. Since the data is from 2010-2011, strong conclusions as regards the present are difficult to draw. This is because the crisis may have affected the data, especially in countries that were severely hit. Nevertheless we find evidence of some degree of homogeneity across countries with respect to saving preferences and the relative importance of different motives for saving. In addition, credit constraints are more heterogeneous across geographic regions and perceived to be binding for specific groups of respondents. Households living in Mediterranean countries report to be more subject to binding liquidity constraints than households living in Continental Europe. Household characteristics and institutional macroeconomic variables are significant and economically important determinants of household saving preferences and credit constraints. -- |
| Keywords: | Household Finance and Consumption,Life Cycle Saving,Survey Data |
| JEL: | C8 D12 D14 D91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:162014&r=mac |
| By: | Saeed Rasekhi; Somaye Sadeghi |
| Abstract: | business cycle synchronization is an important topic since it involves with transfering economic shocks among the countries with some degree of business cycle synchronization. The synchronization may be increased by integrating. Estimating index of synchronization(de-trended real GDP correlation)and then analyzing the results The results indicate the bilateral Synchronization in ECO integration. So, we suggest that the members should cooperate with each other and pay attention to the effects of their economic policies regarding to the Synchronization. |
| Keywords: | ECO members based on data availibilty, Trade issues, Regional integration |
| Date: | 2013–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:005741:6076&r=mac |
| By: | Daniel S. Hamermesh; Daiji Kawaguchi; Jungmin Lee |
| Abstract: | Are workers in modern economies working “too hard”—would they be better off if an equilibrium with fewer work hours were achieved? We examine changes in life satisfaction of Japanese and Koreans over a period when hours of work were cut exogenously because employers suddenly faced an overtime penalty that had become effective with fewer weekly hours per worker. Using repeated cross sections we show that life satisfaction in both countries may have increased relatively among those workers most likely to have been affected by the legislation. The same finding is produced using Korean longitudinal data. In a household model estimated over the Korean cross-section data we find some weak evidence that a reduction in the husband’s work hours increased his wife’s well-being. Overall these results are consistent with the claim that legislated reductions in work hours can increase workers’ happiness. |
| JEL: | E24 J23 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20398&r=mac |
| By: | Bezemer, Dirk; Samarina, Anna (Groningen University) |
| Abstract: | The share of domestic bank credit allocated to non-financial business declined significantly in EMU economies since 1990. This paper examines the impact of capital inflows on domestic credit allocation, taking account of (future) EMU membership. The study utilizes a novel data set on domestic credit allocation for 38 countriesover 1990?2011 and data on capital inflows into the bank and non-bank sectors. We estimate panel models controlling for initial financial development, income level, inflation, interest rate, credit market deregulation and current account positions. The results suggest that the decline in the share of credit to non-financial business was significantly larger in (future) EMU economies which experienced more capital inflows into their non-bank sectors. We discuss implications. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:14021-gem&r=mac |
| By: | Mr Insukindro; Arti Adji; Aryo Aliyudanto |
| Abstract: | After the 2008 global economic crisis, as one of the emerging markets, Indonesia experiences a lot of capital inflows. The increase in capital inflows stimulated economic activities and caused macroeconomic fluctuations. This study focused on the analysis of pull and push factors that affect the portfolio capital inflows to Indonesia. The study utilized structural cointegrated vector autoregressive (SCVAR), impulse responses function (IRF), and variance decomposition (VD) methods. The method of SCVAR has been developed to analyze the shocks to factors relatively affecting the variation of incoming portfolio inflows (equity and bond inflows) to Indonesia, as well as the responses of the portfolio inflows to shocks to these factors.The results indicated that there was a long-term relationship between the variables, so SCVAR approach could be employed in this study. The results of the impulse responses function showed that the portfolio inflows in the form of bonds generated positive response to the unexpected changes of budget deficit and domestic output growth, while the portfolio inflows in the form of stocks generated positive response to the unexpected changes in foreign output growth, domestic output growth, stock price index, and budget deficit. Furthermore, the results of variance decomposition analysis showed that pull factors, i.e. domestic interest rate and current account balance, were the main determinants that explained the variation of portfolio inflows in the form of bonds, while the domestic interest rate and stock price index were the most dominant variables that explained the variation of portfolio inflows in the form of stocks. |
| Keywords: | Indonesia, Macroeconometric modeling, Modeling: new developments |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:7019&r=mac |
| By: | Judith Kabajulizi |
| Abstract: | 1. Rationale/Objective Evaluation of healthcare reforms has been an integral part of healthcare system studies. In Uganda the effectiveness of the healthcare reforms that were systematically undertaken since 1992, has been widely studied. The partial equilibrium studies evaluating the reforms have concentrated on the economic impact to the health sector and impacts to the population’s health status. The functioning of the health sector generates cascade effects as it is interlinked with both productive labour supply and other sectors in the economy. The economy-wide impacts of healthcare reforms in Uganda have not been researched. The objective of this study is to assess the economy-wide impacts of changes in policies and strategies for healthcare provision in Uganda. Specifically, the study aims to: i) Present results from a dynamic computable general equilibrium (CGE) model for the Ugandan economy that includes healthcare reform effects. The aim is to represent the interaction of the healthcare system with the rest of the economy and incorporate key features of Uganda’s healthcare system in the model. ii) Present an updated Ugandan social accounting matrix (SAM) with a disaggregated health sector defined by three new accounts: non-government health, government primary health, and government other health. The aim of the enhanced SAM is also to capture health consumption expenditure by multiple households defined by residence and main economic activity (i.e. rural-farming, rural non-farming, urban-farming, urban-non-farming, Kampala-non-farming); and productive health sector labour by skill level (i.e. self-employed, unskilled, skilled). ii) Determine the impact of changes in healthcare policies and strategies on: a) factors of production; b) households; c) non-healthcare sectors; and d) macroeconomic indicators. iv) Assess how policies aimed at improving healthcare delivery compare. 2. Design and methods: The analysis is based on a dynamic computable general equilibrium model of Uganda calibrated to the enhanced Uganda 2007 social accounting matrix. The CGE method of evaluation is a move from the narrow internal focus on the health sector to wider national effects. Additionally, the study is in a developing country setting and hence lessons to draw on the likely macroeconomic impacts of healthcare reforms for low- and middle-income countries generally. 2.1 The Uganda social accounting matrix The Uganda SAM 2007 is a 122 by 122 matrix representing 50 sectors (comprising of agriculture, industry, and services); 6 factors of production (labour, livestock capital, physical capital, and land); and 8 institutions (enterprises, government, multiple households, and the rest of the world). My role in this pre-existing Uganda SAM 2007 is to disaggregate the health sector into three new accounts namely non-government-health, government-primary-health, and government-other-health; and balance the new SAM. While creating the new accounts, aggregate totals from the original SAM are preserved (that is, shares are used from other sources rather than actual numbers). Household health consumption expenditure and health sector labour supply shares are derived from the Uganda national household survey (UNHS) 2005 and the UNHS 2005 labour survey module respectively. Shares for capital and health intermediate inputs are derived from the national accounts and government health expenditure for 2007/2008; government health consumption shares are taken from the government medium term expenditure framework (MTEF) 2006/2007. 2.2 The model The analysis is based on a recursive dynamic model to capture the dynamics of health policy changes in the economy. The Labour force growth rates for the different policy simulations are exogenously supplied from a demographic model. I present two policy scenarios representing exogenous changes in the economic conditions of the country, which are compared to a baseline scenario of business as usual. The base run is for the period 2010-2025 and assumes government budget allocation remains the same throughout the model period. The first simulation considers reallocation of resources to the health sector. Thus, the base year government health expenditure is raised by some percentage (informed by the literature), as a share of GDP. In the second experiment, the reallocation of resources to health sector is coupled with improved efficiency in the use of resources. Thus, I increase health expenditure by some percentage from the base, with increased factor productivity in the health sector (both total factor productivity and health specific factor productivity). 3. Results/Expected Results The creation of three new health accounts (out of the original single account) in the Uganda SAM 2007 is my innovation. Specifically, the health sector is now represented by non-government-health, government-primary-health, and government-other-health. The scenarios described above are a work in progress and final results will be presented in the full conference paper. |
| Keywords: | UGANDA, General equilibrium modeling, Developing countries |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5158&r=mac |
| By: | Nicola Fuchs-Schündeln (Goethe University Frankfurt /Main); Alexander Bick (Arizona State University) |
| Abstract: | We document contemporaneous differences in the aggregate labor supply of married couples across 18 OECD countries along the extensive and the intensive margin. We quantify the contribution of international differences in non-linear labor income taxes and consumption taxes, as well as gender wage gaps and educational premia, to the international differences in the data. Our model replicates the comparatively small cross-country differences of married men's hours worked very well. Moreover, taxes and wages account for a large part of the observed large differences in married women's labor supply between the US and Europe. The non-linearity of labor income taxes leads to substantially different effects of taxation on married men and women. We find that going to a system of strictly separate taxation would increase labor supply of married women by more than 100 hours annually in a third of our sample countries. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:321&r=mac |
| By: | Jean Louis Brillet |
| Abstract: | To study the consquences of the Trans Pacific Partnership on the Vietnamese economy Using a five product econometric modelto measure the impact of individual elements, then synthetize the full set of measures. Vietnam, along with 11 other countries having a Pacific coast (including the USA and Canada), is now finalizing negotiations on an agreement, which will change profoundly the conditions of trade in the region. Our goal is to understand the consequences of the agreement, and test if it will have favorable consequences for Vietnam, considering that, as all treaties of this kind, we have to measure the balance of both positive and negative individual decisions. For this we shall use a five product model, developed for the Vietnamese Ministry of Planning and Investment. The products are: Agriculture, Manufacturing, Construction, Non-Financial Services and Financial Services. The model will use annual data for the period 1995-2012, built especially for the project by the General Statistical Office. Its structure can be described as short term Keynesian, with long term classical features. Its uses a Cobb-Douglas production function, and it features a price-wage loop, with a WS-PS wage determination. Its equations follow globally an error correction framework. It identifies Foreign Direct Investment, through its motivations and its impact on structural parameters of the economy. It has been estimated using a system method, and the process mostly met with success, in spite of the volatility of data and the ongoing transition process, which questions the stability of formulations. In our study, we shall start from a reasonable 10 year forecast, and shock in success the elements of the agreement: tariffs rates, quotas, local subsidies. Then we will use the actual decisions, or what we know of them at the time of the study, to summarize the outcome of the actual agreement. |
| Keywords: | Vietnam, Macroeconometric modeling, Trade issues |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6983&r=mac |
| By: | Dirk Hoorelbeke |
| Abstract: | HERMREG is a regional econometric model for Belgium. It provides midterm forecasts for the three Belgian regions (the Brussels Capital Region, the Flemish Region and the Walloon Region) on a sectoral level. The model started off as a top-down model, but recently the model has been enriched with some bottom-up elements. In a production function framework with four production factors (capital, labour, energy and other intermediate inputs) the demand functions four these production functions are derived. Both short term and long term versions of these demand functions are estimated on a regional and sectoral level. Both the used methodology and estimation results will be presented. A comparison of forecasts using the 'old' top-down model and the 'new' hybrid model will also be presented as well as some technical variants (e.g. oil price shock and a regional shock). |
| Keywords: | Belgium , Macroeconometric modeling, Regional modeling |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5327&r=mac |
| By: | Alan S Duncan (Bankwest Curtin Economics Centre (BCEC), Curtin University); Ken Leong (Bankwest Curtin Economics Centre, Curtin Business School) |
| Abstract: | Western Australia is a diverse state with unique regions. Studies on the economy that adopt a ‘one size fits all’ approach’ are likely to be hindered by a lack of the richness and variability inherent in the intra-state regions. This paper proposes a modelling framework for the Western Australian macroeconomy by utilising existing and constructed data on its ten regions. As an export-oriented state, WA is affected by external factors such as the exchange rate, commodity prices and developments in emerging economies. However, with different composition of domestic- versus external-facing industrial sectors, each region is expected to respond differently to such shocks. Initial projections suggest WA’s growth is likely to decrease from its present 5.1 per cent to between 5-7 per cent through 2013-2014. When hit with an adverse shock to commodity prices initiated by, for example, a structural change in the Chinese economy, the mining-intensive region of Pilbara suffers by a factor of 3 percentage points in the near term over less exposed regions such as Great Southern and Peel. |
| Keywords: | Western Australian economy, gross regional product, regional analysis, industrial composition, forecasting, simulation. |
| JEL: | E01 R11 E17 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ozl:bcecwp:wp1405&r=mac |
| By: | Annari De Waal; Prof Reneé van Eyden |
| Abstract: | We examine the effect of output shocks in different regions of the world on South Africa, with the use of a customised global vector autoregression (GVAR) model for the country from 1980 to 2010. The aim of the paper is to compare the impact of economic shocks in different countries on the South African economy in the mid 1990s and in 2010. Due to substantial changes in South Africa's main trading partners, an output shock in China will now affect South Africa much more than an output shock in the Euro area, Japan, the UK or the USA. Journal of Economic Literature (JEL) Classification Codes: C32, E32, F43, O55 Keywords: South Africa, global output shocks, global macroeconometric modelling, global VAR (GVAR) We build a customised GVAR model for South Africa with data from 1980 to 2010. The countries included in the GVAR are South Africa and its main trading partners between 2001 and 2010. Other studies use the 33 countries included in the GVAR of Dees, Di Mauro, Pesaran and Smith (2007), but South Africa do not trade with all these countries and some important trading partners of South Africa are not included in the Dees et al. study. To capture the change in trade weights over the sample period, we assemble the foreign variables with three-year moving averages of trade-weighted data. We develop the model utilising the GVAR modelling methodology of Pesaran, Schuermann and Weiner (2004), Garratt, Lee, Pesaran and Shin (2006), Dees et al. (2007), Pesaran, Schuermann and Smith (2009a), Pesaran et al. (2009b) and Smith and Galesi (2011). Key references: Dees, S., Di Mauro, F., Pesaran, M.H. & Smith, L.V. 2007. Exploring the international linkages of the euro area: A global VAR analysis. Journal of Applied Econometrics, 22:1-38. Garratt, A., Lee, K., Pesaran, M.H. & Shin, Y. 2006. Global and national macroeconometric modelling: A long-run structural approach. Oxford: Oxford University Press. Pesaran, M.H., Schuermann, T. & Smith, L.V. 2009a. Forecasting economic and financial variables with Global VARs. International Journal of Forecasting, 25:642-675. Pesaran, M.H., Schuermann, T. & Smith, L.V. 2009b. Rejoinder to comments on forecasting economic and financial variables with Global VARs. International Journal of Forecasting, 25:703-715. Pesaran, M.H., Schuermann, T. & Weiner, S. 2004. Modelling regional interdependencies using a global error-correcting macroeconometric model. Journal of Business and Economic Statistics, 22(2):129-162. Smith, L.V. & Galesi, A. 2011. GVAR Toolbox 1.1. [Online] Available from: http:// www.cfap.jbs.cam.ac.uk/research/gvartoolbox [Downloaded: 2011-08-09]. Due to the substantial increase in South Africa’s trade with China since 1994, we show that a shock to the Chinese economy will now have a much larger impact on the South African economy than it would have had before 1994. Economic shocks in the Euro area, Japan, the UK and the USA will not affect South Africa as much as before, since trade with these areas declined markedly. |
| Keywords: | South Africa, Macroeconometric modeling, Business cycles |
| Date: | 2013–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:004912:5403&r=mac |
| By: | Berdin, Elia; Gründl, Helmut |
| Abstract: | Low interest rates are becoming a threat to the stability of the life insurance industry, especially in countries such as Germany, where products with relatively high guaranteed returns sold in the past still represent a prominent share of the total portfolio. This contribution aims to assess and quantify the effects of the current low interest rate phase on the balance sheet of a representative German life insurer, given the current asset allocation and the outstanding liabilities. To do so, we generate a stochastic term structure of interest rates as well as stock market returns to simulate investment returns of a stylized life insurance business portfolio in a multi-period setting. Based on empirically calibrated parameters, we can observe the evolution of the life insurers' balance sheet over time with a special focus on their solvency situation. To account for different scenarios and in order to check the robustness of our findings, we calibrate different capital market settings and different initial situations of capital endowment. Our results suggest that a prolonged period of low interest rates would markedly affect the solvency situation of life insurers, leading to relatively high cumulative probability of default for less capitalized companies. -- |
| Keywords: | Life Insurers,Interest Rate Guarantees,Risk Assessment,Solvency II |
| JEL: | G22 G23 G17 E58 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:65&r=mac |
| By: | Andrew Foerster; Juan Rubio-Ramírez; Daniel F. Waggoner; Tao Zha |
| Abstract: | Markov-switching DSGE (MSDSGE) modeling has become a growing body of literature on economic and policy issues related to structural shifts. This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of MSDSGE models. Our new method, called "the partition perturbation method,'' partitions the Markov-switching parameter space to keep a maximum number of time-varying parameters from perturbation. For this method to work in practice, we show how to reduce the potentially intractable problem of solving MSDSGE models to the manageable problem of solving a system of quadratic polynomial equations. We propose to use the theory of Gröbner bases for solving such a quadratic system. This approach allows us to first obtain all the solutions and then determine how many of them are stable. We illustrate the tractability of our methodology through two examples. |
| JEL: | C6 E3 G1 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20390&r=mac |
| By: | Ansgar Belke; Anne Oeking; Ralph Setzer |
| Abstract: | Traditional specifications of export equations incorporate foreign demand as a demand pull factor and the real exchange rate as a relative price variable. However, such standard export equations have failed to explain the export performance of euro area countries during the crisis period. In particular, the significant gains in export market shares in a number of vulnerable euro area crisis countries did not coincide with an appropriate improvement in price competitiveness. This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. The strength of the link between domestic demand and exports is dependent on capacity constraints. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the nonlinear smooth transition regression model. In the first case, we differentiate between positive and negative changes in capacity utilization and in the second case between small and large changes of the same transition variable. We find that domestic demand developments are relevant for the short-run dynamics of exports when capacity utilization is low. For some countries, we also find evidence that the substitution effect of domestic demand on exports turns out to be stronger the larger is the deviation of capacity utilization from its average value over the cycle. |
| Keywords: | Euro area countries: Spain, Portugal, Italy, France, Ireland and Greece, Macroeconometric modeling, Monetary issues |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6780&r=mac |