nep-mac New Economics Papers
on All new papers
Issue of 2014‒09‒08
67 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Inflation Targeting in Colombia, 2002-2012 By Miguel Urrutia; Franz Hamann; Marc Hofstetter
  2. The critics of modern money theory (MMT) are right By Thomas I. Palley
  3. How to stabilize inflation without damaging employment: Strenghtening the power of unions By Amélie BARBIER-GAUCHARD; Francesco De PALMA; Giuseppe DIANA
  4. Towards a “New” Inflation Targeting Framework: The Case of Uruguay By Martín González-Rozada; Martín Sola
  5. Job search behavior over the business cycle By Mukoyama, Toshihiko; Patterson, Christina; Sahin, Aysegul
  6. Central Bank Liquidity Management and “Unconventional” Monetary Policies By Javier García-Cicco; Enrique Kawamura
  7. Financial Intermediation, House Prices and the Welfare Effects of the U.S. Great Recession By Dominique Menno; Tommaso Oliviero
  8. Stock Price Dynamics and the Business Cycle in an Estimated DSGE Model for South Africa By Michael Paetz; Rangan Gupta
  9. Inflation Targeting in Latin America By Adolfo Barajas; Roberto Steiner; Leonardo Villar; Cesar Pabon
  10. The Interaction of Mortgage Credit and Housing Prices in the US By Fabian Lindner
  11. Low Frequency Effects of Macroeconomic News on Government Bond Yields By Carlo Altavilla; Domenico Giannone; Michele Modugno
  12. On GDP-employment decoupling in Germany By Klinger, Sabine; Weber, Enzo
  13. The Federal Reserve Engages the World (1970-2000): An Insider’s Narrative of the Transition to Managed Floating and Financial Turbulence By Edwin M. Truman
  14. Testing the Asymmetric Effects of Financial Conditions in South Africa: A Nonlinear Vector Autoregression Approach By Mehmet Balcilar; Kirsten Thompson; Rangan Gupta; Renee van Eyden
  15. The inflation Targeting effect on the inflation series: A New Analysis Approach of evolutionary spectral analysis By Zied Ftiti; Essahbi Essaadi
  16. Endogenous Fluctuations in an Endogenous Growth Model with Ination Targeting By Rangan Gupta; Lardo Stander
  17. Macroprudential Policy Tools in Norway: Strengthening Financial System Resilience By Yosuke Jin; Patrick Lenain; Paul O'Brien
  18. A Time-Varying Approach of the US Welfare Cost of Inflation By Stephen M. Miller; Luis Filipe Martins; Rangan Gupta
  19. The great housing boom of China By Chen, kaiji; Wen, Yi
  20. The 2009 recovery act: stimulus at the extensive and intensive labor margins By Dupor, William D.; Mehkari, M. Saif
  21. Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? By Olli-Pekka Kuuselaa; Gregory S. Amacher; Kwok Ping Tsang
  22. Hypnosis Before Wake-up Call? The Revival of Sovereign Credit Risk Perception in the EMU-Crisis By Ingo G. Bordon; Kai Daniel Schmid; Michael Schmidt
  23. Shifts in the Beveridge curve By Diamond, Peter A.; Sahin, Aysegul
  24. Conformism and Wealth Distribution By Kazuo MIno; Yasuhiro Nakamoto
  25. A New Solution to the Equity Premium Puzzle and the Risk-Free Rate Puzzle: Theory and Evidence By Hideaki Tamura; Yoichi Matsubayashi
  26. Deriving the New Quantity Equation: An Approach for a Closed and an Open Economy By Welfens, Paul J. J.
  27. On the relationship between oil price and exchange rates: A wavelet analysis By Gazi Salah Uddin; Aviral Kumar Tiwari; Mohamed Arouri; Frederic Teulon
  28. Debt Redemption Fund: Conditio Sine Qua Non? Government Bonds in the Euro Area Crisis By Silke Tober
  29. Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models By Carlos Viana de Carvalho; Fernanda Feitosa Necchio
  30. Financial Development and Economic Growth: Evidence from Ten New EU Members By Caporale, Guglielmo Maria; Rault, Christophe; Sova, Robert; Sova, Anamaria
  31. Real growth co-movements among the GCC+2 countries: Evidence from timefrequency analysis By Chaker Aloui; Besma Hkiri; Duc Khuong Nguyen; Hela Ben Hamida
  32. The Job Search Intensity Supply Curve: How Labor Market Conditions Affect Job Search Effort By Jeremy Schwartz
  33. DSGE Model-Based Forecasting of Modeled and Non-Modeled Ination Variables in South Africa By Rangan Gupta; Patrick T. Kanda; Mampho P. Modise; Alessia Paccagnini
  34. Rule-of-Thumb Consumers, Nominal Rigidities and the Design of Interest Rate Rules By Sergio Ocampo Diaz
  35. Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models By Carlos Viana de Carvalho; Felipe Schwartzman
  36. Macroeconomies as Constructively Rational Games By Sinitskaya, Ekaterina; Tesfatsion, Leigh
  37. The objective of this paper is to inquire the consequences of some simplifying assumptions typically made in the overlapping generations (OLG) models of pension systems and pension system reforms. This literature is largely driven by policy motivations. Consequently, the majority of the papers is extremely detailed in the dimension under scrutiny. On the other hand, complexity of general equilibrium OLG modeling necessitates some simplifications in the model. We run a series of experiments in which the same reform in the same economy is modeled with six different sets of assumptions concerning the shape of the utility function, time inconsistency, bequests’ redistribution, labor supply decisions and internalizing the linkage between social security contributions and benefits in these decisions as well as public spending. We find that these assumptions significantly affect both the size and the sign of the macroeconomic and welfare measures of policy effects with the order of magnitude comparable to the reform itself. By Marcin Bielecki; Karolina Goraus; Jan Hagemejer; Krzysztof Makraski; Joanna Tyrowicz
  38. Milton Friedmans economics and political economy: an old Keynesian critique By Thomas I. Palley
  39. Forecasting South African Ination Using Non-linear Models: A Weighted Loss-based Evaluation By Pejman Bahramian; Mehmet Balcilar; Rangan Gupta; Patrick T. Kanda
  40. Entrepreneurship in Latin America: A Step Up the Social Ladder? By Eduardo Lora; Francesca Castellani
  41. Forecasting the Price of Gold Using Dynamic Model Averaging By Goodness Aye; Rangan Gupta; Shawkat Hammoudeh; Won Joong Kim
  42. Fiscal Contractions in Eurozone in the Years 1995-2013. Can Non-Keynesian Effects Be Helpful in Future Deleverage Process? By Adam P. Balcerzak; Michal Bernard Pietrzak; Elzbieta Rogalska
  43. Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh By Muhammad Shahbaz; Ijaz Ur Rehman; Ahmed Taneem Muzaffar
  44. Access to Credit and the Size of the Formal Sector in Brazil By Pablo D`Erasmo
  45. The Debt Brake in the Eyes of the German Population By Bernd Hayo; Florian Neumeier
  46. Welcoming remarks at Workshop on the Risks of Wholesale Funding By Dudley, William
  47. Yes Virginia, There is a European Banking Union! But It May Not Make Your Wishes Come True By Martin F. Hellwig
  48. Evolution of Monetary Policy in the US: The Role of Asset Prices By Beatrice D. Simo-Kengne; Stephen M. Miller; Rangan Gupta
  49. Temporal Causality between House Prices and Output in the U. S.: A Bootstrap Rolling-Window Approach By Wendy Nyakabawo; Stephen M. Miller; Mehmet Balcilar; Sonali Das; Rangan Gupta
  50. Deposit dollarization in Myanmar By Kubo, Koji
  51. Is Chad Affected by Dutch or Nigerian Disease? By Sandrine Kablan; Josef Loening
  52. The Effect of Weather-Induced Internal Migration on Local Labor Markets Evidence from Uganda By Eric Stobl; Marie-Anne Valfort
  53. ORANI-IT: a computable general equilibrium model of Italy By Francesco Felici; Maria Gesualdo
  54. Real wages and labor-saving technical change: evidence from a panel of manufacturing industries in mature and labor-surplus economies By Joao Paulo A. de Souza
  55. Stimulus and Fiscal Consolidation: The Evidence and Implications By Dean Baker; David Rosnick
  56. Service Expenditure and Intertemporal Elasticity of Substitution in Japan By Masafumi Kozuka
  57. Taxation and Labour Supply: Evidence from a Representative Population Survey By Bernd Hayo; Matthias Uhl
  58. Has Oil Pirce Predicted Stock Returns for Over a Century? By Paresh K. Narayan; Nico Katzke
  59. The impact of macroeconomic announcements in the Brazilian futures markets By Marcio Garcia; Marcelo Medeiros; Francisco Eduardo de Luna e Almeida Santos
  60. Forecasting US Real Private Residential Fixed Investment Using a Large Number of Predictors By Goodness C. Aye; Stephen M. Miller; Rangan Gupta; Mehmet Balcilar
  61. Economic policy uncertainty, oil price shocks and GCC stock markets By Mohamed Arouri; Christophe Rault; Frederic Teulon
  62. "A Decade of Flat Wages?" By Fernando Rios-Avila; Julie L. Hotchkiss
  63. A Leverage-Based Measure of Financial Instability By Tepper, Alexander; Borowiecki, Karol Jan
  64. Informe MERCOSUR número 18 : Segundo semestre 2012 - Primer semestre 2013 By Schamis, Graciela; Ramos, Alejandro; Carciofi, Ricardo; Campos, Rosario; Gayá, Romina; Michalczewsky, Kathia; Lucángeli, Jorge; Mesquita Moreira, Mauricio
  65. Corruption in Kazakhstan and the quality of governance By Satpayev, Dossim
  66. "The Euro Treasury Plan" By Jorg Bibow
  67. Turn on the Lights: Macroeconomic Factors Affecting Renewable in Pakistan By Ihtisham Abdul Malik; Ghamz-e-Ali Siyal; Alias Bin Abdullah; Arif Alam; Khalid Zaman

  1. By: Miguel Urrutia; Franz Hamann; Marc Hofstetter
    Abstract: After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. This paper examines the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. The paper studies the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, a small-scale open-economy policy model is estimated.
    JEL: E02 E32 E42 E43 E52 E58 E61 F31 F33 F42
    Date: 2014–02
  2. By: Thomas I. Palley
    Abstract: Eric Tymoigne and Randall Wray's (T&W, 2013) defense of MMT leaves the MMT emperor even more naked than before (excuse the Yogi Berra-ism). The criticism of MMT is not that it has produced nothing new. The criticism is that MMT is a mix of old and new, the old is correct and well understood, while the new is substantially wrong. Among many failings, T&W fail to provide an explanation of how MMT generates full employment with price stability; lack a credible theory of inflation; and fail to justify the claim that the natural rate of interest is zero. MMT currently has appeal because it is a policy polemic for depressed times. That makes for good politics but, unfortunately, MMT's policy claims are based on unsubstantiated economics.
    Keywords: modern money theory, money financed budget deficits, fiscal policy
    JEL: E00 E02 E10 E12 E24 E40 E58 E62 E63
    Date: 2014
  3. By: Amélie BARBIER-GAUCHARD; Francesco De PALMA; Giuseppe DIANA (LaRGE Research Center, Université de Strasbourg)
    Abstract: The aim of this paper is to assess the impact of union bargaining power on inflation and employment in a case of efficiency bargaining, in a context of a strategic game between Central Bank and social partners.
    Keywords: monetary policy, employment, inflation, union bargaining power, efficiency bargaining
    JEL: E24 E52 E58 J52
    Date: 2014
  4. By: Martín González-Rozada; Martín Sola
    Abstract: Using a dynamic stochastic general equilibrium model with financial frictions, this paper evaluates the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of monetary policy. It is found that reserve requirements can be used to achieve the Central Bank’s inflation objectives. The use of this instrument, however, produces a real appreciation of the Uruguayan peso. When the Central Bank uses the monetary policy rate as an instrument, the effect of an increase in reserve requirements is to contribute to reducing the negative impact on consumption, investment and output. Nevertheless, the quantitative results in terms of inflation reduction are rather poor. The policy rate becomes more effective in reducing inflation when the reserve requirement instrument is solely directed at achieving financial stability. The paper’s main policy conclusion is that a well-targeted non- conventional policy instrument can help to effectively control inflation.
    JEL: C61 C68 E52 E58
    Date: 2014–02
  5. By: Mukoyama, Toshihiko; Patterson, Christina; Sahin, Aysegul (Federal Reserve Bank of New York)
    Abstract: We create a novel measure of job search effort starting in 1994 by exploiting the overlap between the Current Population Survey and the American Time Use Survey. We examine the cyclical behavior of aggregate job search effort using time series and cross-state variation and find that it is countercyclical. About half of the countercyclical movement is explained by a cyclical shift in the observable characteristics of the unemployed. Individual responses to labor market conditions and drops in wealth are important in explaining the remaining variation.
    Keywords: job search; time; use; business cycles
    JEL: E24 E32 J22 J64
    Date: 2014–08–01
  6. By: Javier García-Cicco; Enrique Kawamura
    Abstract: This paper presents a small open economy model to analyze the role of central bank liquidity management in implementing “unconventional” monetary policies within an inflation targeting framework. In particular, the paper explicitly models the facilities that the central bank uses to manage liquidity in the economy, which creates a role for the central bank balance sheet in equilibrium. This permits the analysis of two “unconventional” policies: sterilized exchange-rate interventions and expanding the list of eligible collaterals accepted at the liquidity facilities operated by the central bank. These policies have been recently implemented by several central banks: the former as a way to counteract persistent appreciations in the domestic currency, and the latter as a response to the recent global financial crisis in 2008. As a case study, the paper provides a detailed account of the Chilean experience with these alternative tools, as well as a quantitative evaluation of the effects of some of these policies.
    JEL: E52 E58
    Date: 2014–02
  7. By: Dominique Menno; Tommaso Oliviero (CSEF, University of Naples Federico II.; CSEF, University of Naples)
    Abstract: This paper quantifies the welfare effects of the aggregate house price collapse during the U.S. Great Recession for leveraged and un-leveraged U.S. households. We calibrate a dynamic general equilibrium model to the U.S. economy and simulate the 2007-2009 Great Recession as a contemporaneous shock to interest rate spread and aggregate income that quantitatively account for the observed collapse in house prices. As a consequence of the loss in housing wealth, our estimates show that borrowers lost significantly more than savers in terms of welfare. The worsened conditions in the financial intermediation sector in the Great Recession forced borrowers to de-leverage, and generated a pure redistribution from savers to borrowers. This amplified the welfare losses of borrowers while caused a relative welfare gain for savers.
    Keywords: Housing Wealth, Heterogeneous Agents, Welfare, Leverage
    JEL: D31 D58 D90 E21 E30 E44
    Date: 2014–08–28
  8. By: Michael Paetz (Department of Economics, University of Hamburg); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This paper develops and estimates an open economy dynamic stochastic general equilibrium model of South Africa. We devote special attention to the impact of stock price wealth effects on output and the interest rate. For this reason we adopt a perpetual youth approach, which allows for a limited decision horizon. We estimate the model using Bayesian techniques and find that (i) about 9 percent of the volatility in production can be explained by financial shocks, and (ii) the SARB does not and should not react on stock price disturbances. Moreover, stock prices seem to be unaffected by shocks from the real economy.
    Keywords: DSGE models, wealth effects, open economy, South Africa
    JEL: D91 E21 E44 F41
    Date: 2014–08
  9. By: Adolfo Barajas; Roberto Steiner; Leonardo Villar; Cesar Pabon
    Abstract: Estimation of conventional Taylor rules for Brazil, Chile, Colombia and Peru shows that central banks increase their repo rate in response to increases in the output gap and, except in Peru, to deviations of inflation expectations from target. Using a Markov-Switching methodology, it is found that, in the presence of external shocks, Chile, Colombia and Peru temporarily abandoned their conventional reaction function. The Taylor Rule is expanded and variables are included related to exchange rate misalignments and to domestic credit developments; limited evidence is found that countries have used some form of integrated inflation targeting. There is strong evidence that intervention in F/X markets is determined by exchange rate misalignments rather than by exchange rate volatility and that most countries seem particularly concerned with a strong currency. Central banks appear to have pursued an inflation objective using a standard Taylor rule and an exchange rate objective through interventions in the F/X market.
    JEL: E31 E52 E61
    Date: 2014–01
  10. By: Fabian Lindner
    Abstract: This paper looks at the relation between mortgage credit and housing values. It has become conventional wisdom in policy circles that credit growth led to the housing bubble in the US. However, this statement has not been empirically tested as of yet. The paper uses the Johansen procedure to estimate a long run relationship between mortgage credit and housing prices between 1984 and 2012 and analyzes the interactions between the variables. To this effect, two models with two different housing price variables are estimated. It is found that mortgage credit is weakly exogenous. Impulse-response functions, variance decompositions and out of sample forecast also show that mortgage credit drives housing prices and not vice versa. The paper also looks at the effect of short-term and long-term interest rates and does not find important influences of both on housing prices or mortgage credit. The role of monetary policy is not likely to have been very strong in the built-up of the housing bubble.
    Keywords: Housing Prices, Mortgage Markets, Monetary Policy
    JEL: E22 E44 E52 G21
    Date: 2014
  11. By: Carlo Altavilla (European Central Bank and CSEF); Domenico Giannone (LUISS University of Rome, ECARES, EIEF and CEPR); Michele Modugno (Federal Reserve Board)
    Abstract: We analyze the reaction of the U.S. Treasury bond market to innovations in macroe-economic fundamentals. We identify these innovations based on macroeconomic news, which are defined as differences between the actual releases and market expectations. We find that that macroeconomic news explain about one-third of the low frequency (quarterly) fluctuations in long-term bond yields. When we focus on the high frequency (daily) movements, this decrease to one-tenth. This is because macroeconomic news have a persistent effect on bond yields, whereas non-fundamental factors have substantial effects on the day-to-day movements of bond yields, although their effects are shorter lived.
    Keywords: macroeconomic announcement, news, treasury bond yield
    JEL: E43 E44 E47 G14
    Date: 2014–08–22
  12. By: Klinger, Sabine (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This paper investigates the time-varying relationship between German output and employment growth, in particular their decoupling in recent years. We estimate a correlated unobserved components model that allows for both persistent and cyclical time variation in the employment impact of GDP as well as an autonomous employment component capturing other factors than real output. As one result, we measure a permanent decline in Verdoorn's coefficient as well as pronounced effects of the autonomous employment component in the recent years. The development of the estimated impact parameters is shown to crucially depend on structural change, but also on labour availability and business expectations." (Author's abstract, IAB-Doku) ((en))
    Keywords: Bruttoinlandsprodukt, Schätzung, Beschäftigungsentwicklung, ökonomische Theorie
    JEL: E24 E32 J23 J24 C32
    Date: 2014–08–27
  13. By: Edwin M. Truman (Peterson Institute for International Economics)
    Abstract: This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve’s role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank.
    Keywords: Federal Reserve, Federal Open Market Committee, inflation, macroeconomic policies, monetary policy, external balance, exchange rates, exchange market intervention, financial crises, third world debt crises, Mexican crisis, Asian financial crises
    JEL: F3 F31 F32 F33 F34 E4 E42 F5 F52 F53
    Date: 2014–08
  14. By: Mehmet Balcilar; Kirsten Thompson; Rangan Gupta; Renee van Eyden
    Abstract: The negative consequences of financial instability for the world economy during the recent financial crisis have highlighted the need for a better understanding of financial conditions. We use a financial conditions index (FCI) for South Africa previously constructed from 16 financial variables to test whether the South African economy responds in a nonlinear and asymmetric way to unexpected changes in financial conditions. To this end, we make use of a nonlinear logistic smooth transition vector autoregressive model (LSTVAR), which allows for a smooth evolution of the economy, governed by a chosen switching variable between periods of high and low financial volatility. We find that the South African economy responds nonlinearly to financial shocks, and that manufacturing output growth and Treasury Bill rates are more affected by financial shocks during upswings. Inflation responds significantly more to financial changes during recessions.
    Keywords: financial conditions index; nonlinear vector autoregression; LSTVAR; asymmetry
    JEL: C32 G01 E44 E32
    Date: 2014–08–29
  15. By: Zied Ftiti; Essahbi Essaadi
    Abstract: In this work, we study the inflation targeting effect on the inflation dynamics in the case of four industrial countries. Our objective is to check whether the inflation targeting policy (ITP) has a significant impact on the change of the inflation path. We use a non-parametric approach that doesn’t require any previous modelling. This is the evolutionary spectral analysis, as defined by Priestley
    Keywords: Inflation Targeting, Spectral Analysis and Structural Change.
    JEL: C16 E52 E63
    Date: 2014–08–29
  16. By: Rangan Gupta; Lardo Stander
    Abstract: This paper develops a monetary endogenous growth overlapping generations model characterized by production lags - specically lagged capital inputs - and an in ation targeting monetary authority, and analyses the growth dynamics that emerge from this framework. The growth process is endogenized by allowing productive government ex- penditure on infrastructure, complementing the lagged private capital input. Following the extant literature, money is introduced by impos- ing a cash reserve requirement on an otherwise competitive banking sector. Given this framework, we show that multiple equilibria emerge along dierent growth paths, with the low-growth (high-growth) equi- librium being unstable (stable) and locally determinate (locally inde- terminate). In addition, we show that convergent or divergent endoge- nous uctuations and even topological chaos could emerge around the high-growth equilibrium in the growth path where the monetary au- thority follows a high in ation targeting regime. Conversely, when the monetary authority follows a low in ation targeting regime, oscillations do not occur around either the low-growth or high-growth equilibrium.
    Keywords: endogenous uctuations, in ation targeting, chaos, production lags, indeterminacy.
    JEL: C62 E32 O42
    Date: 2014–08–29
  17. By: Yosuke Jin; Patrick Lenain; Paul O'Brien
    Abstract: In Norway house prices have risen to high levels, associated with very strong credit growth, in a context of low interest rates. Such a combination was in many countries a contributory factor to the 2008- 09 crisis. The Norwegian authorities have been well aware of the problem. Below-target inflation and low interest rates abroad have kept policy interest rates low. “Macro-prudential” tools have been developed as additional policy instruments with a view to strengthen the banking system’s resilience to possible shocks and dampen systemic risk. This chapter notes that although authorities seem to have succeeded in containing over-heating pressures in the housing market, high levels of household indebtedness persist, a phenomenon which was an important factor in the last major Norwegian recession. The chapter also provides some longer run considerations on resource allocation in the housing market. This Working Paper relates to the 2014 OECD Economic Survey of Norway ( Les instruments macroprudentiels en Norvège : Renforcer la résilience du système financier En Norvège, les prix des logements ont atteint des niveaux élevés ; parallèlement, le crédit a connu une très forte hausse, sur fond de taux d’intérêt faibles. Dans de nombreux pays, cette conjonction a contribué à la crise de 2008-09. Les autorités norvégiennes sont bien conscientes de ce problème. L’inflation étant inférieure à l’objectif et les taux d’intérêt étant modestes à l’étranger, les taux directeurs sont restés à un niveau très bas. Les pouvoirs publics ont élaboré, en plus de leur panoplie traditionnelle, des instruments « macroprudentiels » visant à renforcer la résilience du système bancaire face à des chocs éventuels et à atténuer le risque systémique. On verra dans le présent chapitre que si les autorités ont semble-t-il réussi à contenir les risques de surchauffe sur le marché de l’immobilier, l’endettement des ménages reste très élevé ; or, ce phénomène avait joué un rôle important lors de la dernière grande récession qu’a connue la Norvège. Le présent chapitre contient également des considérations à plus long terme concernant l’affectation des ressources sur le marché de l’immobilier. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de Norvège 2014 ( ique-norvege.htm).
    Keywords: Norway, financial stability, macroprudential policy, real estate market, marché de l'immobilier, politique macroprudentielle, Norvège, stabilité financière
    JEL: E51 G18 G21 G28 H2 R31 R38
    Date: 2014–06–11
  18. By: Stephen M. Miller; Luis Filipe Martins; Rangan Gupta
    Abstract: Money demand specifications exhibits instability, especially for long spans of data. This paper reconsiders the welfare cost of inflation for the US economy using a flexible timevarying cointegration methodology to estimate the money demand function. We find evidence that the time-varying cointegration estimation provides a better fit of the actual data than a timeinvariant estimation and that the throughout unitary income elasticity only exists for the log-log form over the entire sample period. Our estimate of the welfare cost of inflation for a 10-percent inflation rate lies in the range of 0.025 to 0.75 percent of GDP and averages 0.27 percent. In sum, our findings fall well within the ranges of existing studies of the welfare cost of inflation. Finally, the interest elasticity of money demand shows substantial variability over our sample period.
    Keywords: Money Demand Function, Welfare cost of inflation, Time-varying cointegration
    JEL: C32 E52 G10
    Date: 2014–08–29
  19. By: Chen, kaiji (Economics Department, Emory University.); Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: This paper provides a theory to explain the paradoxical features of the great housing boom in China —the persistently faster-than-GDP housing price growth, exceptionally high capital returns, and excessive vacancy rates. The expectation that high capital returns driven mainly by resource reallocation are not sustainable in the long run can induce the very productive entrepreneurs to speculate in housing during economic transition. This creates a self-fulfilling growing housing bubble, which can create severe resource misallocation. A calibrated version of the theory accounts quantitatively for both the growth dynamics of house prices and other salient features of the recent Chinese experience.
    Keywords: Housing Bubble; Resource Misallocation; Chinese Economy; Development; Economic Transition.
    JEL: E22 E23 O11 O16 P23 P24 R31
    Date: 2014–08–22
  20. By: Dupor, William D. (Federal Reserve Bank of St. Louis); Mehkari, M. Saif (University of Richmond)
    Abstract: This paper (i) estimates the local effects of government stimulus spending on labor market outcomes and (ii) shows how these effects can be obtained from a firm's optimal policy in the presence of costs to hiring workers. We analyze the American Recovery and Reinvestment Act of 2009 (Recovery Act) using instrumental variables at the county-level. We find that $1 million of government spending increased employment locally by 5.5 persons and also increased wage payments to existing workers by $178,000. Next, we build a model in which a firm meets new government demand with a combination of new hiring and increasing the number of hours for existing workers. Faced with hiring costs and an overtime premium, the firm responds by increasing hours along both margins. Our analysis also provides insight into how government spending policy should be structured to lower the cost of generating new jobs. Finally, we catalog survey evidence from Recovery Act fund recipients that reinforces the importance of the intensive labor margin.
    Keywords: fiscal policy; intensive and extensive labor margins; the 2009 Recovery Act.
    JEL: D21 D24 E52 E62
    Date: 2014–08–11
  21. By: Olli-Pekka Kuuselaa; Gregory S. Amacher; Kwok Ping Tsang
    Abstract: Tradable permit markets for carbon dioxide (C02) emissions respond to short-run fluctuations in economic activity. To provide stability, both price and quantity interventions have been proposed. This paper focuses on the relative performance of fixed versus intensity allowances in the presence of both productivity and energy price uncertainty. Both instruments achieve the same steady-state emissions reduction target of 20 percent, which is similar to the current policy proposals, and the regulator then chooses the allowance policy that has the lowest expected abatement cost. A standard real business cycle (RBC) model is used to solve for the expected abatement cost under both policies. Expected cost outcomes are compared using data from the U. S. economy as the baseline scenario. Unlike previous studies, this paper’s results show that, under a reasonable model calibration, fixed allowances outperform intensity allowances by a cost difference of as much as 30 percent.
    JEL: E32 Q54 Q58
    Date: 2013–10
  22. By: Ingo G. Bordon; Kai Daniel Schmid; Michael Schmidt
    Abstract: This paper qualifies the view of pronounced overpricing of sovereign bonds for the so-called GIIPS countries during the nancial crisis. We use annual data for 21 OECD countries from 1980 to 2012. As opposed to related studies, our data set allows us to contrast the pricing of macroeconomic fundamentals between three distinct phases: The period before the signing of the Maastricht treaty, the EMUconvergence era, and the financial crisis. In detail, we find: (i) Since the 1980s the role of public debt for the pricing of government bonds has changed twice: Firstly following the signing of the Maastricht treaty, and again with the wake-up call due to the onset of the financial crisis. (ii) Before the financial crisis EMU member countries had - de facto - been perceived as a homogenous group with regard to the role of public debt for sovereign risk pricing. (iii) With the reconsideration of country-specfic fundamentals the role of public debt has not only been revived but its impact upon bond yield spreads has become comparable to the time before the Maastricht treaty.
    Keywords: EMU, GIIPS, Public Debt, Risk Perception, Sovereign Bond Yields
    JEL: E44 E62
    Date: 2014
  23. By: Diamond, Peter A. (Federal Reserve Bank of New York); Sahin, Aysegul (Federal Reserve Bank of New York)
    Abstract: This note puts the current shift in the Beveridge curve into context by examining the behavior of the curve since 1950. Outward shifts in the Beveridge curve have been common occurrences during U.S. recoveries. By itself, the presence of a shift has not been a good predictor of whether the unemployment rate at the end of the expansion following a shift was higher or lower than that in the preceding expansion.
    Keywords: Beveridge curve; unemployment; vacancies
    JEL: E24 J60
    Date: 2014–08–01
  24. By: Kazuo MIno (Kyoto University); Yasuhiro Nakamoto (Kyusyu Sangyo University)
    Abstract: This paper explores the role of consumption externalities in a neoclassical growth model in which households have heterogeneous preferences. We fi?nd that the degree of conformism in consumption held by each household signifi?cantly affects the speed of convergence of the aggregate economy as well as the patterns of wealth distribution in the steady state equilibrium. In particular, a higher degree of consumption conformism accelerates the convergence speed of the economy towards the steady state. We also reveal that in an economy with a high degree of conformism, the pattern of initial distribution of wealth tends not to be sustained in the long run.
    Keywords: consumption externalities, heterogeneous agents, wealth distribution
    JEL: D31 E13 E21 O40
    Date: 2014–08
  25. By: Hideaki Tamura (Graduate School of Economics, Kobe University); Yoichi Matsubayashi (Graduate School of Economics, Kobe University)
    Abstract: This paper develops a new method for solving both equity premium and risk free rate puzzles based on the standard utility function. The method for solving the equity premium puzzle in accordance with Mehra and Prescott (1985) needs to be simultaneously consistent with the method for solving the risk-free rate puzzle presented by Weil (1989). That is, the reasonable estimated values for the degree of relative risk aversion in the former solution and for the subjective discount rate in the latter solution need to plausibly fall within experiential bounds. This study indicates that a consistent solution is possible for the equity premium and risk-free rate puzzles even when there is a standard constant relative risk aversion (CRRA) type utility function. This solution is possible by formularizing the Euler equation for consumption, considering the precautionary saving effect.
    Keywords: equity premium puzzle, risk-free rate puzzle, uncertainty, Euler equation
    JEL: E21 E44 G12
    Date: 2014–08
  26. By: Welfens, Paul J. J. (University of Wuppertal)
    Abstract: This theoretical contribution shows a simple way in which the quantity equation can be derived as a long-term equilibrium solution for the case of a closed economy and an open economy, respectively. It is shown first for the case of a closed economy which parameters stand behind "velocity" and that indeed there are arguments why velocity should be constant over time – assuming a specific parameter set of the goods market. It is noteworthy that the quantity equation can be derived both in a demand-side context and in a long run supply-side approach. Moreover, a new derivation is presented for the case of an open economy and it is shown that trade as well as foreign direct investment should be expected to have an influence on the price level and the inflation rate, respectively. Finally, the analysis suggests that financial market activities should have an impact on the price level.
    Keywords: macroeconomics, open economy, quantity equation, monetary policy, tax policy
    JEL: E00 F41 E50 E52 H20
    Date: 2014–08
  27. By: Gazi Salah Uddin; Aviral Kumar Tiwari; Mohamed Arouri; Frederic Teulon
    Abstract: We may find numerous works in the existing literature regarding the cohesion between oil prices and exchange rates, yet an exact shape of the relationship remains undefined. By restoring to wavelet analysis and using a rich database from Japan, this study contributes to the literature by investigating the said relationship within the time–frequency space. Over the time horizon, it is being established that the strength of the relationship between oil price and exchange rate keeps changing. If the Bank of Japan needs to control the exchange rate, it should give proper importance to shocks on oil prices, while formulating exchange rate policy.
    Keywords: Oil price, Exchange rates, Wavelets, Japan
    JEL: C40 E31 E32 F44
    Date: 2014–08–29
  28. By: Silke Tober
    Abstract: Fiscal austerity has not led to a return of confidence and it is not at all certain that the current crisis strategy can be sustained politically and will eventually succeed. Government bonds of crisis-hit countries have lost their safe asset status and high risk premiums are impairing monetary transmission. Within its mandate the ECB is in principal able to do what it takes to put an end to this crisis, but only if euro area governments tow the same line. A well-designed debt redemption fund could restore confidence and enhance growth by repairing the monetary transmission mechanism and allowing the expansionary monetary policy of the ECB to reach the crisis-hit countries. Combined with additional policies to foster growth and rebalancing in the euro area, a temporary debt redemption fund could be instrumental in engineering an economic turn-around. The paper touches upon the recent OMT-decision of the German Federal Constitutional Court, euro(basket)bonds and eurobills.
    Keywords: Debt Redemption Fund, OMT, safe assets, TARGET2, constitutional court, current account imbalances
    Date: 2014
  29. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); Fernanda Feitosa Necchio (Federal Reserve Bank of San Francisco)
    Date: 2014–07
  30. By: Caporale, Guglielmo Maria (Brunel University); Rault, Christophe (University of Orléans); Sova, Robert (CREST & University of Paris 1 Panthéon-Sorbonne); Sova, Anamaria (E.B.R.C. Bucharest)
    Abstract: This paper reviews the main features of the banking and financial sector in ten new EU members, and then examines the relationship between financial development and economic growth in these countries by estimating a dynamic panel model over the period 1994-2007. The evidence suggests that the stock and credit markets are still underdeveloped in these economies, and that their contribution to economic growth is limited owing to a lack of financial depth. By contrast, a more efficient banking sector is found to have accelerated growth.
    Keywords: financial development, economic growth, transition economies
    JEL: E44 E58 F36 P26
    Date: 2014–08
  31. By: Chaker Aloui; Besma Hkiri; Duc Khuong Nguyen; Hela Ben Hamida
    Abstract: Business cycle synchronization has been one of the most debated issues in the Gulf Cooperation Council (GCC) countries as it is the basic requirement for the stability of a monetary union that GCC countries have sought to wish to create in 2010. In this article, we attempt to investigate whether this required condition is attained by looking at the synchronization of real growth in GCC economies. Our findings from a continuous wavelet approach show that the real growth rates in most of the countries within the GCC region comove with the others over the short and medium terms. In addition, long-term co-movement of real growth rates is only found in seven out of the 15 country pairs. In particular, the two major countries of the GCC region, Saudi Arabia and the United Arab Emirates, share common growth cycles with the remaining countries. Finally, the growth cycle in the two potential country member candidates for the GCC, Jordan and Morocco, is found to lead the one in Saudi Arabia and Bahrain, and the one in Kuwait, Qatar, and the UAE, respectively.
    Keywords: synchronization; wavelet coherence; real GDP growth; time-frequency domain.
    JEL: E32 F00
    Date: 2014–08–29
  32. By: Jeremy Schwartz (Loyoloa University Maryland)
    Abstract: During the Great Recession of 2007, unemployment reached nearly 10 percent and the ratio of unemployment to open positions (as measured by the Help Wanted OnLine Index) more than tripled. The weak labor market prompted an unprecedented extension in the length of time in which a claimant can collect unemployment insurance (UI) to 99 weeks, at an expense to date of $226.4 billion. While many claim that extending UI during a recession will reduce search intensity, the effect of weak labor market conditions on search remains a mystery. As a result, policymakers are in the dark as to whether UI extensions reduce already low search effort during recessions or perhaps decrease excessive search, which causes congestion in the labor market. At the same time, modelers of the labor market have little empirical justification for their assumptions on how search intensity changes over the business cycle. This paper develops a search model where the impact of macro labor market conditions on a worker’s search effort depends on whether these two factors are substitutes or complements in the job search process. Parameter estimates of the structural model using a sample of unemployment spells from the National Longitudinal Survey of Youth 1997 indicate that macro labor market conditions and individual search effort are complements and move together over the business cycle. The estimation also reveals that more risk-averse and less wealthy individuals exhibit less search effort.
    Keywords: Job search, search models, structural estimation, search methods
    JEL: D1 D9 E2 E3 J6
    Date: 2014–08
  33. By: Rangan Gupta; Patrick T. Kanda; Mampho P. Modise; Alessia Paccagnini
    Abstract: In ation forecasts are a key ingredient for monetary policymaking - especially in an in ation targeting country such as South Africa. Generally, a typical Dynamic Stochastic General Equilibrium (DSGE) only includes a core set of variables. As such, other variables,e.g. such as alternative measures of in ation that might be of interest to policymakers, do not feature in the model. Given this, we implement a closed-economy New Keynesian DSGE model-based procedure which includes variables that do not explicitly appear in the model. We estimate such a model using an in-sample covering 1971Q2 to 1999Q4, and generate recursive forecasts over 2000Q1-2011Q4. The hybrid DSGE performs extremely well in forecasting in ation variables (both core and non-modeled) in comparison with forecasts reported by other models such as AR(1).
    Keywords: DSGE model, in ation, core variables, non-core variables
    JEL: C11 C32 C53 E27 E47
    Date: 2014–08–29
  34. By: Sergio Ocampo Diaz
    Abstract: This paper argues that, in the presence of nominal wage rigidities, the existence of Rule-of-Thumb agents and price rigidities does not cause a change in the Taylor Principle as suggested by Galí et al. (2004), and that the only rigidity relevant for this result is that faced by Rule-of-Thumb consumers. For doing so, a New-Keynesian model with Rule-of-Thumb agents is proposed. The model discriminates between both type of agents when defining wage rigidities, thus al- lowing to identify and measure the factors that affect the Taylor Principle, this also allows to drop complete markets for Rule-of-Thumb agents, and the simple use of non-separable utility functions in order to determine the incidence of the wealth effect when facing staggered wages.
    JEL: C68 E32 E37
    Date: 2013–05
  35. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); Felipe Schwartzman (Federal Reserve Bank of Richmond)
    Abstract: For a given frequency of price changes, the real eects of a monetary shock are smaller ifadjusting rms are disproportionately likely to have last set their prices before the shock. Thistype of selection for the age of prices provides a complete characterization of the nature ofpricing frictions in time-dependent sticky-price models. In particular: 1) The Taylor (1979)model exhibits maximal selection for older prices, whereas the Calvo (1983) model exhibitsno selection, so that real eects are smaller in the former than in the latter; 2) Selection isweaker and real eects of monetary shocks are larger if the hazard function of price adjustmentis less strongly increasing; 3) Selection is weaker and real eects are larger if there is sectoralheterogeneity in price stickiness; 4) Selection is weaker and real eects are larger if the durationsof price spells are more variable.
    Date: 2014–07
  36. By: Sinitskaya, Ekaterina; Tesfatsion, Leigh
    Abstract: Real-world decision-makers are forced to be locally constructive, in the sense that their actions are constrained by the interaction networks, limited information, and computational capabilities at their disposal.� This study poses the following question:� Suppose utility-seeking consumers and profit-seeking firms in an otherwise standard dynamic macroeconomic model are required to be locally constructive decision-makers, unaided by the external imposition of global coordination conditions.� What combinations of locally constructive decision rules result in good macroeconomic performance relative to a social planner benchmark model, and what are the game-theoretic properties of these decision-rule combinations?� We begin our investigation of this question by specifying locally constructive decision rules for the consumers and firms that range from simple reinforcement learning to sophisticated adaptive dynamic programming algorithms.� We then use computational experiments to explore macroeconomic performance under alternative decision-rule combinations.� A key finding is that simpler rules can outperform more sophisticated rules, but that forward-looking behavior coupled with a relatively long memory permitting past observations to inform current decision-making is critical for good performance.
    Keywords: Learning; Macroeconomics; agent-based; game; stochastic optimization
    JEL: B4 C6 C7 E2
    Date: 2014–08–22
  37. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw); Karolina Goraus (Faculty of Economic Sciences, University of Warsaw); Jan Hagemejer (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Krzysztof Makraski (Warsaw School of Economics; National Bank of Poland); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Keywords: pension system reform, overlapping generations (OLG), defined benefit, defined contribution
    JEL: C68 E17 E25 J11 J24 H55 D72
    Date: 2014
  38. By: Thomas I. Palley
    Abstract: Milton Friedman's influence on the economics profession has been enormous. In part, his success was due to political forces that have made neoliberalism the dominant global ideology, but Friedman also rode those forces and contributed to them. Friedman's professional triumph is testament to the weak intellectual foundations of the economics profession which accepted ideas that are conceptually and empirically flawed. His success has taken economics back in a pre-Keynesian direction and squeezed Keynesianism out of the academy. Friedman's thinking also frames so-called new Keynesian economics which is simply new classical macroeconomics with the addition of imperfect competition and nominal rigidities. By enabling the claim that macroeconomics is fully characterized by a divide between new Keynesian and new classical macroeconomics, new Keynesianism closes the pincer that excludes old Keynesianism. As long as that pincer holds, economics will remain under Friedman's shadow.
    Keywords: Friedman, monetarism, new classical macroeconomics, new Keynesian, neoliberalism
    Date: 2014
  39. By: Pejman Bahramian; Mehmet Balcilar; Rangan Gupta; Patrick T. Kanda
    Abstract: The conduct of in ation targeting is heavily dependent on accurate in ation forecasts. Non-linear models have increasingly featured, along with linear counterparts, in the forecasting literature. In this study, we focus on forecasting South African in ation by means of non-linear models and using a long historical dataset of seasonally-adjusted monthly in ation rates spanning from 1921:02 to 2013:01. For an emerging market economy such as South Africa, non-linearities can be a salient feature of such long data, hence the relevance of evaluating non-linear models' forecast performance. In the same vein, given the fact that 1969:10 marks the beginning of a protracted rising trend in South African in ation data, we estimate the models for an in-sample period of 1921:02-1966:09 and evaluate 24 step-ahead forecasts over an out-of-sample period of 1966:10-2013:01. In addition, using a weighted loss function specication, we evaluate the forecast performance of dierent non-linear models across various extreme economic environments and forecast horizons. In general, we nd that no competing model consistently and signicantly beats the LoLiMoT's performance in forecasting South African in ation.
    Keywords: In ation, forecasting, non-linear models, weighted loss function, South Africa
    JEL: C32 E31 E52
    Date: 2014–08–29
  40. By: Eduardo Lora; Francesca Castellani
    Abstract: This book looks at the potential and the limits of policies to promote entrepreneurship as an important vehicle for social mobility in Latin America and the Caribbean, as well as steps to remove the constrains that hamper entrepreneurship.
    JEL: E21 I31 O15 Z13
    Date: 2014–03
  41. By: Goodness Aye; Rangan Gupta; Shawkat Hammoudeh; Won Joong Kim
    Abstract: We develop models for examining possible predictors of the return on gold that embrace six global factors (business cycle, nominal, interest rate, commodity, exchange rate and stock price factors) and two uncertainty indices (the Kansas City Fed’s financial stress index and the U.S. Economic uncertainty index). Specifically, by comparing with other alternative models, we show that the dynamic model averaging (DMA) and dynamic model selection (DMS) models outperform not only a linear model (such as random walk) but also the Bayesian model averaging (BMA) model for examining possible predictors of the return of gold. The DMS is the best overall across all forecast horizons. Generally, all the predictors show strong predictive power at one time or another though at varying magnitudes, while the exchange rate factor and the Kansas City Fed’s financial stress index appear to be strong at almost all horizons and sub-periods. However, the forecasting prowess of the exchange rate is supreme.
    Keywords: Bayesian, state space models, gold, macroeconomic fundamentals, forecasting
    JEL: C11 C53 F37 F47 Q02
    Date: 2014–08–29
  42. By: Adam P. Balcerzak (Nicolaus Copernicus University, Poland); Michal Bernard Pietrzak (Nicolaus Copernicus University, Poland); Elzbieta Rogalska (University of Warmia and Mazury, Poland)
    Abstract: Last global financial crisis has led to massive fiscal stimulation actions in most of developed countries which resulted in significant increase of their public debt. For many economists current level of debt in case of many highly developed countries is coming up to unsustainable level or at least level that has negative consequences on the long term growth. This can be also said about Eurozone or wider EU economies. This factors in near future will force many EU countries to adopt much stricter middle and long term fiscal policy that will be necessary for deleveraging process. In this context the aim of the research is to check whether can one find non-Keynesian effects of fiscal consolidations in Eurozone countries in last decade. If the answer is positive, then could these non-Keynesian effects be significant developing factor in case of Eurozone countries. The third scientific question concentrates on the ways the fiscal consolidations were implemented and the potential influence of consolidations strategies on short term growth. The research is based on European Commission and Eurostat fiscal and macroeconomic data for Eurozone countries for the years 1995-2013. In the research the econometric dynamic panel model based on the concept of conditional convergence was applied. As a complementary method qualitative analysis of cases of significant contractions was made with the concentration on the differences between expansionary thus non-Keynesian cases and conventional Keynesian cases of fiscal contractions. The research results give some arguments for existence of fiscal transitions channels leading to non-Keynesian effects of fiscal policy, which in the same time can be a factor of conditional convergence. Thus in case of proper construction of fiscal consolidations polices these factors can be helpful in future deleverage process.
    Keywords: fiscal policy, fiscal consolidations, non-Keynesian effects, conditional convergence
    JEL: H3
    Date: 2014–08
  43. By: Muhammad Shahbaz; Ijaz Ur Rehman; Ahmed Taneem Muzaffar
    Abstract: This paper revisits the relationship between financial development and economic growth in Bangladesh by incorporating trade openness in production function using quarter frequency data over the period of 1976-2012. We applied combined Bayer-Hanck cointegration to examine cointegration amongst variables in the presence of structural breaks. The results show that financial development facilitates economic growth but capitalization impedes it. In addition, trade openness stimulates economic growth. Labour is also positively linked with economic growth. The causality analysis reveals the feedback effect between financial development and economic growth. Trade and labour Granger cause economic growth. This paper provides new insights for policy making authorities to use financial development and trade openness as tool to sustain economic growth in long run. This paper also suggests policy makers to utilise capitalization in proper way to sustain economic growth for long run.
    Keywords: Financial development, trade openness, Bangladesh
    JEL: E1 E44
    Date: 2014–08–29
  44. By: Pablo D`Erasmo
    Abstract: This paper studies the link between credit conditions and formalization in Brazil, as both credit and the rate of formalization have notably increased in the last decade. A firm dynamics model with endogenous formal and informal sectors is developed to quantitatively evaluate how much of the change in corporate credit and the size of the formal sector can be attributed to a reduction in the cost of financial intermediation. The model predicts that the observed reduction in intermediation costs generates an increase in the credit-to-output ratio and in the share of formal workers, in line with the data. It is found that -by affecting the corporate interest rate, the allocation of capital and the entry and exit rates- the change in credit conditions has important effects on firm size distribution and aggregate productivity.
    JEL: D24 E26 L11 O16 O17
    Date: 2013–04
  45. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg)
    Abstract: In response to the recent sovereign debt crisis, the member states of the European Union agreed to enact balanced budget rules in their national legislation. However, little is known about the public’s opinion of balanced budget rules. To fill this gap, we conducted a survey among 2,000 representatively chosen German citizens. Our findings suggest that 61% of the German population supports the debt brake, whereas only 8% oppose it. However, approval rates differ notably among various subgroups of the population. The debt brake enjoys greater support among high-income earners and among those well-informed about the future costs of deficit spending. People who do not trust politicians would like to see the government’s hands tied even more tightly. Opinions about the debt brake also differ markedly across the supporters of different political parties.
    Keywords: Debt brake; balanced budget rule; European Fiscal Compact; survey; Germany
    JEL: E02 E62 H62 H63
    Date: 2014
  46. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Workshop on the Risks of Wholesale Funding, Federal Reserve Bank of New York, New York City.
    Keywords: short-term wholesale funding; tri-party repo; Federal Reserve liquidity facilities
    JEL: D53 E51
    Date: 2014–08–13
  47. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: The paper discusses the prospects for European Banking Union as they appear in the summer of 2014. The first part gives an overview over the problems that gave rise to the Banking Union initiative, the second part discusses the legislative measures that have been taken towards this objective. The euro area is currently suffering from low growth, high indebtedness of private households and firms, banks, and governments, and the weakness of financial institutions. Weakness of financial institutions affects the economy not only in countries with outright banking crises and sovereign debt crises, but also in some of the core countries that so far have seemed more stable. ECB policies have so far stabilized the system without solving the underlying problems. At the national level, political will to solve the underlying problems is missing; most governments prefer procrastination over cleanups, some governments do not have the funds to recapitalize the banks of their countries, and some governments like their banks to borrow from the ECB and lend to them. The European Banking Union comes with a promise of reducing cross-border externalities in dealing with banks. However, the Single Supervisory Mechanism is hampered by the need to apply national laws that implement European directives; this makes for fragmentation even if the ECB is in charge. Moreover, procedures for the recovery and resolution of institutions in difficulties are problematic: If banks with systemically important operations in several countries enter into resolution, there is no way to prevent the breakdown of these operations and to limit the resulting systemic damage. Further, the legislation makes no provisions for the liquidity needed for maintaining systemically important operations at least temporarily. Finally, there is no fiscal backstop. Because of the deficiencies, the “too-big-to-fail” syndrome is still present. In view of the many legacy problems, this issue is critical. If the European Banking Union is to work, further reforms will be needed shortly.
    Keywords: European Central Bank, Banking Supervision, bank resolution, European Banking Union, too-big-to-fail, sovereign debt
    JEL: G21 G28 E58 H63 F55
    Date: 2014–08
  48. By: Beatrice D. Simo-Kengne; Stephen M. Miller; Rangan Gupta
    Abstract: This paper investigates whether changes in monetary transmission mechanism respond to variations in asset prices. We distinguish between bull and bear markets and employ a TVP- VAR approach with stochastic volatility to assess the evolution of the monetary policy in relation to housing and stock prices. We measure the relative importance of housing and stock prices in the conduct of monetary policy and their possible feedback effects over both time and horizon and across regimes. Empirical results from annual data on the US spanning the period from 1890 to 2012 indicate that monetary policy responds more strongly to asset prices during bull regimes. While the bigger monetary effect of stock price shocks occurs prior to the 1970s, monetary policy appears to respond more strongly to housing price than stock price shocks after the 1970s. Similarly, contractionary monetary policy exerts a larger effect on both asset categories during bull markets. Particularly, larger negative responses of house prices to monetary policy shocks occur after the 1980s, corresponding to the bull regime in the housing market. Conversely, the stock-price effect of monetary policy shocks dominates before the 1980s, where stock-market booms achieved more importance.
    Keywords: Monetary policy, house prices, stock prices, TVP-VAR
    JEL: C32 E52 G10
    Date: 2014–08–29
  49. By: Wendy Nyakabawo; Stephen M. Miller; Mehmet Balcilar; Sonali Das; Rangan Gupta
    Abstract: This paper examines the causal relationships between the real house price index and real GDP per capita in the U.S., using the bootstrap Granger (temporal) non-causality test and a fixed-size rolling-window estimation approach. We use quarterly time-series data on the real house price index and real GDP per capita, covering the period 1963:Q1 to 2012:Q2. The full-sample bootstrap non-Granger causality test result suggests the existence of a unidirectional causality running from the real house price index to real GDP per capita. A wide variety of tests of parameter constancy used to examine the stability of the estimated vector autoregressive (VAR) models indicate short- and long-run instability. This suggests that we cannot rely on the full-sample causality tests and, hence, this warrants a time-varying (bootstrap) rolling-window approach to examine the causal relationship between these two variables. Using a rolling window size of 28 quarters, we find that while causality from the real house price to real GDP per capita occurs frequently, significant, but less frequent, evidence of real GDP per capita causing the real house price also occurs. These results imply that while the real house price leads real GDP per capita, in general (both during expansions and recessions), significant feedbacks also exist from real GDP per capita to the real house price.
    Keywords: Real house price, Real GDP per capita, Bootstrap, Time-Varying Causality
    JEL: C32 E32 R31
    Date: 2014–08–29
  50. By: Kubo, Koji
    Abstract: Myanmar has peculiar conditions of deposit dollarization that were shaped by administrative controls. On the one hand, restrictive controls encouraged the accumulation of foreign currency deposits (FCD). On the other hand, foreign currency loans (FCL) were not practiced officially; therefore, FCD was not utilized for credit. Given the adverse effects and persistence of dollarization in other dollarized economies and the recent recovery of local currency deposits in Myanmar, this paper opts for the prohibition of FCL and offers policy measures for de-dollarization.
    Keywords: Myanmar, Foreign exchange, Monetary policy, dollarization, Foreign currency deposits, Foreign currency loans
    JEL: E41 F31 O53
    Date: 2014–08
  51. By: Sandrine Kablan; Josef Loening
    Abstract: We examine the effects of the ‘natural resource curse’ on Chad and find little evidence for Dutch disease. Structural vector auto-regression suggests that changes in domestic output and prices are overwhelmingly determined by aggregate demand and supply shocks, and while oil production and high international prices negatively affect agricultural output, the effects are small. Consistent with empirical evidence for neighbouring Cameroon, we observe minimal impact on Chad’s manufacturing sector. We associate our findings with structural underemployment and the inefficient use of existing production factors. In this context, increased public expenditures in tradable sectors present the opportunity to make oil revenues an engine of national development.
    Keywords: Natural resource curse, Dutch disease, Chad, Structural VAR.
    JEL: C30 E32 E61 O11 O13
    Date: 2014–08–29
  52. By: Eric Stobl; Marie-Anne Valfort
    Abstract: Relying on census data collected in 2002 and historical weather data for Uganda, this paper estimates the impact of weather-induced internal migration on the probability for non-migrants living in the destination regions to be employed. Consistent with the prediction of a simple theoretical model, the results reveal a larger negative impact than the one documented for developed countries. They further show that this negative impact is significantly stronger in Ugandan regions with lower road density and therefore less conducive to capital mobility: a 10 percentage points increase in the net in-migration rate in these areas decreases the probability of being employed of non-migrants by more than 10 percentage points.
    Keywords: weather shocks, internal migration, labor market, Sub-Saharan Africa.
    JEL: E24 J21 J61 Q54 R23
    Date: 2014–08–29
  53. By: Francesco Felici; Maria Gesualdo
    Abstract: This paper presents the comparative-static national disaggregate Computable General Equilibrium (CGE) model of the Italian economy, ORANI-IT, which represents the starting point to the development of a tax CGE model of Italy. The model, designed at the Department of Treasury of the Italian Ministry of the Economy and Finance, in collaboration with the Centre of Policy Studies (CoPS), and currently managed at Sogei S.p.A. (IT Economia - Modelli di Previsione ed Analisi Statistiche), is intended for policy analysis. The aim of this paper is to provide a complete description of the theoretical specification of the model and to illustrate the process of compiling the model�s database. Departing from the core structure, features of the Italian model in the context of ORANI-style models, developed at CoPS, are highlighted, as data availability allowed us to improve the modelling of the investment matrix and the demand of labour. The result is a more reliable model with a broader level of analysis. The paper concludes with the model�s validation, which among several checks, consists in an illustrative two targets/two instruments simulation.
    Keywords: Computable general equilibrium (CGE) model, model's validation, Italy
    JEL: C68 E10 E60
    Date: 2014–08
  54. By: Joao Paulo A. de Souza (Department of Economics, University of Massachusetts, Amherst)
    Abstract: This paper uses panel cointegration and error correction models to unveil the direction of long-run causality between the real product wage and labor productivity at the industry level. I use two datasets of manufacturing industries: the EU-Klems dataset covering 11 industries in 19 developed economies, and the Unido Industrial Statistics Database covering 22 industries in 30 developed and developing economies. In both datasets, I find evidence of cointegration between the two variables, as well as evidence of two-way, long-run Granger causality. These findings are consistent with theories of directed technical change, which claim that a rise in labor costs sparks the adoption of labor-saving innovations. They are also consistent with distributive theories whereby real wages keep apace of labor productivity growth, giving rise to long-run stability in functional distribution.
    Keywords: Technological Change, Wage Shares, Labor Productivity, Panel Cointegration
    JEL: B5 E25 O33
    Date: 2014
  55. By: Dean Baker; David Rosnick
    Abstract: This paper examines the evidence on the impact of stimulus and fiscal consolidation in the context of a severe economic slump like the Great Recession. The first part reviews some of the major works on this topic in the last decade. It notes that the research clearly points in the direction of stimulus increasing growth during a prolonged slump. The second part examines the impact of changes in government consumption and investment on growth, using data from advanced countries since 1980. Consistent with most prior literature it finds that increases in government spending during downturns lead to increases in growth. It then constructs simulations for the period since the Great Recession showing multipliers in the neighborhood of 1.5. The third part notes new evidence suggesting that potential GDP appears to have fallensharply as a result of the downturn. A full model of the impact of stimulus would have to incorporate this effect which is likely to be large relative to the size of the stimulus.
    Date: 2014
  56. By: Masafumi Kozuka (Graduate School of Economics, Kobe University)
    Abstract: In this paper, we employ a cointegration approach to empirically analyze consumer behavior related to service expenditure in Japan. The model we employ is a CRRA utility function considering service and non-durable expenditures. The ratio of service expenditure reached 50% in the 1980s in Japan, and it has been increasing. It indicates that service expenditure is an important factor in analyzing consumer behavior. The empirical results show that the intertemporal elasticity of substitution of service expenditure is positive, significant and greater than that of non-durable expenditure. These results are caused by the growing ratio of selective service expenditure.
    Keywords: Service expenditure, intertemporal elasticity of substitution, cointegration
    JEL: C32 E21
    Date: 2014–05
  57. By: Bernd Hayo (University of Marburg); Matthias Uhl (University of Marburg)
    Abstract: We study the influence of taxation on labour supply using a specifically designed representative survey of the German population. First, we investigate whether taxes generally matter for the labour supply decisions of our respondents. Around 41 per cent report taking taxes into consideration, which implies that the majority of the German population appears unresponsive to taxation. Second, we look at self-reported labour supply adjustments following a recently enacted payroll tax change. Only around 12 per cent of all respondents report an actual labour supply response, but we find evidence of an income, as well as a substitution, effect of the tax change. Our conclusion is that effects of taxes on labour supply in Germany are likely small. We analyse the correlation with economic and socio-demographic variables, and find that the self-employed are relatively more sensitive to taxation and that low interest rates reduce incentives for an expansion of the labour supply.
    Keywords: Taxation, Labour supply, Representative population survey Germany
    JEL: E62 H30 J22
    Date: 2014
  58. By: Paresh K. Narayan (Centre for Financial Econometrics, School of Accounting, Economics and Finance, Deakin University, Australia); Nico Katzke (Department of Economics, University of Pretoria)
    Abstract: This paper contributes to the debate on the role of oil prices in predicting stock returns. The novelty of the paper is that it considers monthly time-series historical data that span over 150 years (1859:10-2013:12) and applies a predictive regression model that accommodates three salient features of the data, namely, a persistent and endogenous oil price, and model heteroskedasticity. Three key findings are unraveled: First, oil price predicts US stock returns. Second, in-sample evidence is corroborated by out-sample evidence of predictability. Third, both positive and negative oil price changes are important predictors of US stock returns, with negative changes relatively more important. Our results are robust to the use of different estimators and choice of in-sample periods.
    Keywords: Stock returns, Predictability, Oil price
    JEL: C22 E37 G17 Q43
    Date: 2014–08
  59. By: Marcio Garcia (Department of Economics PUC-Rio); Marcelo Medeiros (Department of Economics PUC-Rio); Francisco Eduardo de Luna e Almeida Santos (Department of Economics PUC-Rio)
    Abstract: The estimation of the impact of macroeconomic announcements in the Brazilian futuresmarkets is used to uncover the relationship between macroeconomic fundamentals andasset prices. Using intraday data from October 2008 to January 2011, we find thatexternal macroeconomic announcements dominate price changes in the ForeignExchange and Ibovespa futures markets, while the impact of the domestic ones ismainly restricted to Interest Rate futures contracts. We additionally propose aninvestment strategy based on the conditional price reaction of each market that showedpromising results in an out-of-sample study, where we are able to correctly identifyreturns’ signals, conditional on the surprise’s signal, in approximately 70% of the cases.Finally, we provide evidence that price reactions are conditional on the state of theeconomy and document the impact on volume and bid-ask spreads.
    Date: 2014–05
  60. By: Goodness C. Aye; Stephen M. Miller; Rangan Gupta; Mehmet Balcilar
    Abstract: This paper employs classical bivariate, factor augmented (FA), slab-and-spike variable selection (SSVS)-based, and Bayesian semi-parametric shrinkage (BSS)-based predictive regression models to forecast US real private residential fixed investment over an out-ofsample period from 1983:Q1 to 2011:Q2, based on an in-sample estimates for 1963:Q1 to 1982:Q4. Both large-scale (188 macroeconomic series) and small-scale (20 macroeconomic series) FA, SSVS, and BSS predictive regressions, as well as 20 bivariate regression models, capture the influence of fundamentals in forecasting residential investment. We evaluate the ex-post out-of-sample forecast performance of the 26 models using the relative average Mean Square Error for one-, two-, four-, and eight-quarters-ahead forecasts and test their significance based on the McCracken (2004, 2007) MSE-F statistic. We find that, on average, the SSVS-Large model provides the best forecasts amongst all the models. We also find that one of the individual regression models, using house for sale (H4SALE) as a predictor, performs best at the four- and eight-quarters-ahead horizons. Finally, we use these two models to predict the relevant turning points of the residential investment, via an ex-ante forecast exercise from 2011:Q3 to 2012:Q4. The SSVS-Large model forecasts the turning points more accurately, although the H4SALE model does better toward the end of the sample. Our results suggest that economy-wide factors, in addition to specific housing market variables, prove important when forecasting in the real estate market.
    Keywords: Private residential investment, predictive regressions, factoraugmented models, Bayesian shrinkage, forecasting
    JEL: C32 E22 E27
    Date: 2014–08–29
  61. By: Mohamed Arouri; Christophe Rault; Frederic Teulon
    Abstract: We contribute to the literature by studying of economic policy uncertainty (EPU) for major net oil importers (USA, Europe and China) on Gulf Cooperation Council (GCC) stock markets. We use panel data methods to estimate different specification. We find that (i) an increase in EPU affect negatively stock returns (ii) this effect is persistent and interacts with oil price changes and (iii) an increase in EPU has a delayed positive effect on volatility.
    Keywords: Economic policy uncertainty (EPU), GCC stock markets, Oil price, Volatility.
    Date: 2014–08–29
  62. By: Fernando Rios-Avila; Julie L. Hotchkiss
    Abstract: In the late 1990s low unemployment rates, increases in the minimum wage, and improvements in labor productivity contributed to a boost in wages, which translated into 12.4 percent cumulative growth in real wages from the late '90s until 2002. Real wages then stagnated despite continued growth in labor productivity. This period between 2002 and 2013 has become known as the decade of flat wages. However, over the same period there were significant changes in the composition of the labor market. In particular, the labor force has aged and become more educated. Increases in age, experience, and education could in fact be propping up observed real wages--meaning that wages of workers with a specific age and education profile may have actually declined over the decade. This is exactly what we uncover in this policy note: what appears to have been a decade of flat real wages was actually a decade of declining real wages within age/education worker profiles.
    Date: 2014–06
  63. By: Tepper, Alexander (Federal Reserve Bank of New York); Borowiecki, Karol Jan (Department of Business and Economics)
    Abstract: We employ a model of leverage-induced explosive behavior in financial markets to develop a measure of financial market instability. Specifically, we derive a quantitative condition for how large levered investors can become relative to the whole market before the demand curve for securities suddenly becomes upward-sloping and small price declines cascade as levered investors are forced to liquidate. The size and leverage of all levered investors and the elasticity of demand of unlevered investors define the minimum market size for stability (or MinMaSS), the smallest market size that can support a given group of levered investors. The ratio of actual market size to MinMaSS is termed the instability ratio, and can give regulators and policymakers advance warning of financial crises. We apply the instability ratio in an investigation of the 1998 demise of the hedge fund Long-Term Capital Management. We find that a forced liquidation of the fund threatened to destabilize some financial markets, particularly for bank funding and equity volatility.
    Keywords: Leverage; financial crisis; financial stability; minimum market size for stability (MinMass); instability ratio; Long-Term Capital Management (LTCM)
    JEL: E58 G01 G10 G20 G21
    Date: 2014–08–26
  64. By: Schamis, Graciela (Instituto para la Integración de América Latina y el Caribe, INTAL); Ramos, Alejandro (Instituto para la Integración de América Latina y el Caribe, INTAL); Carciofi, Ricardo (Instituto para la Integración de América Latina y el Caribe, INTAL); Campos, Rosario (Instituto para la Integración de América Latina y el Caribe, INTAL); Gayá, Romina (Instituto para la Integración de América Latina y el Caribe, INTAL); Michalczewsky, Kathia (Instituto para la Integración de América Latina y el Caribe, INTAL); Lucángeli, Jorge (Instituto para la Integración de América Latina y el Caribe, INTAL); Mesquita Moreira, Mauricio
    Abstract: Desde 1996, el Instituto para la Integración de América Latina y el Caribe del BID (BID-INTAL) ha publicado la edición anual del Informe MERCOSUR, con el objeto de documentar los aspectos más importantes del desarrollo económico y comercial de esta entidad regional, haciendo un recuento ordenado de los principales aspectos de su evolución durante el período del estudio. Este Informe Nº 18, corresponde al período comprendido entre el segundo semestre de 2012 y el primer semestre de 2013, y al igual que aquéllos que le precedieron, se inscribe dentro de un ámbito más amplio de actividades realizadas por el Banco Interamericano de Desarrollo (BID) orientadas a analizar y fortalecer los procesos de integración regional y multilateral de América Latina y el Caribe, como el del Mercado Común del Sur (MERCOSUR), creado por el Tratado de Asunción y suscrito en 1991, que presentamos en esta oportunidad.
    JEL: F15 F21 F4 F5 O4
    Date: 2013–12
  65. By: Satpayev, Dossim
    Abstract: In Kazakhstan, uncover of numerous corruption scandals involving government officials has become almost a normal feature of life. Behind the high-profile acts of waging a battle against corruption, however, is a serious and systemic phenomenon. The most endemic form of corruption is the various transfers of funds in the state structures and national companies which remain opaque and thus unaccounted for. There are questions about the volumes and spending of revenues earned from natural resources, and there is no independent monitoring and control of the flow of funds in national oil and gas companies. The main actors involved in the shadow economy are state officials and informal pressure groups, who distribute resources among themselves, and accumulate wealth by way of legalising informal incomes or obtaining official business using connections. While important decision making is carried out among the close circles of the elite, formal institutions remain weak and ineffective.
    Keywords: Kazakhstan, Corruption, Economic conditions, Politics, Shadow economy, Informal networks, Informal pressure groups
    JEL: D73 E26
    Date: 2014–08
  66. By: Jorg Bibow
    Abstract: Contrary to German chancellor Angela Merkel's recent claim, the euro crisis is not nearly over but remains unresolved, leaving the eurozone extraordinarily vulnerable to renewed stresses. In fact, as the reforms agreed to so far have failed to turn the flawed and dysfunctional euro regime into a viable one, the current calm in financial markets is deceiving, and unlikely to last. The euro regime's essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. In this public policy brief, Research Associate Jorg Bibow proposes a Euro Treasury scheme to properly fix the regime and resolve the euro crisis. The Euro Treasury would establish the treasury-central bank axis of power that exists at the center of control in sovereign states. Since the eurozone is not actually a sovereign state, the proposed treasury is specifically designed not to be a transfer union; no mutualization of existing national public debts is involved either. The Euro Treasury would be the means to pool future eurozone public investment spending, funded by proper eurozone treasury securities, and benefits and contributions would be shared across the currency union based on members' GDP shares. The Euro Treasury would not only heal the euro's potentially fatal birth defects but also provide the needed stimulus to end the crisis in the eurozone.
    Date: 2014–08
  67. By: Ihtisham Abdul Malik; Ghamz-e-Ali Siyal; Alias Bin Abdullah; Arif Alam; Khalid Zaman
    Abstract: The objective of the study is to examine the relationship between macroeconomic factors (i.e., population growth; urbanization, industrialization, exchange rate, price level, food production index and live stock production index) and renewable energy in Pakistan over a period of 1975-2012. In addition, this study uses oil rent as an intervening variable to overcome the biasness of the single equation model. The results indicate that macroeconomic factors positively contributed to renewable energy consumption in Pakistan. The causality test indicate that there is a unidirectional causality running towards macroeconomic factors to renewable energy in Pakistan, however, renewable energy Granger cause oil rent but not via other route. In addition, there is bidirectional causality between exchange rate and live stock production in Pakistan. Variance decomposition analysis shows that economic growth has a major contribution to increase renewable energy in Pakistan.
    Keywords: Renewable energy; oil rent; exchange rate; consumer price index; Pakistan.
    Date: 2014–08–29

This nep-mac issue is ©2014 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.