nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒10‒13
eighty papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Liquidity Traps and Monetary Policy: Managing a Credit Crunch By Buera, Francisco J.; Nicolini, Juan Pablo
  2. A model of the confidence channel of fiscal policy By Bernardo Guimaraes; Caio Machado; Marcel Ribeiro
  3. The effects of a money-financed fiscal stimulus By Jordi Galí
  4. Monetary Policy as a Carry Trade By Marvin Goodfriend
  5. "Endogenous Money and the Natural Rate of Interest: The Reemergence of Liquidity Preference and Animal Spirits in the Post-Keynesian Theory of Capital Markets" By Philip Pilkington
  6. Czech Republic: 2014 Article IV Consultation - Staff Report; Press Release; and Statement by the Executive Director for the Czech Republic By International Monetary Fund. European Dept.
  7. The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic By Michal Franta; Tomas Holub; Petr Kral; Ivana Kubicova; Katerina Smidkova; Borek Vasicek
  8. Structural Stability of the Generalized Taylor Rule By William Barnett; Evgeniya A. Duzhak
  9. Income inequality and macroeconomic instability: a stock-flow consistent approach with heterogeneous agents By Laura Carvalho; Corrado Di Guilmi
  10. Money Market Operations in Fiscal 2012 By Financial Markets Department
  11. Working Less and Bargain Hunting More: Macro Implications of Sales during Japan's Lost Decades By Nao Sudo; Kozo Ueda; Kota Watanabe; Tsutomu Watanabe
  12. Money-Income Granger-Causality in Quantiles By Tae-Hwy Lee; Weiping Yang
  13. The Shimer puzzle(s) in a New Keynesian framework. By A.Pizzo
  14. Shopping time By Petrosky-Nadeau, Nicolas; Wasmer, Etienne; Zeng, Shutian
  15. Limited asset market participation, income inequality and macroeconomic volatility By Giorgio Motta; Patrizio Tirelli
  16. How did we get to where we are now? Reflections on 50 years of macroeconomic and financial econometrics By Michael Wickens
  17. What drives heterogeneity of procyclicality of loan loss provisions in the EU? By Malgorzata Olszak; Mateusz Pipien; Iwona Kowalska; Sylwia Roszkowska
  18. Norway: 2014 Article IV Consultation - Staff Report; Staff Supplement; Press Release; and Statement by the Executive Director for Norway By International Monetary Fund. European Dept.
  19. Central African Economic and Monetary Community (CEMAC) - Staff Report; Press Release; and Statement by the Executive Director for the Central African Economic and Monetary Community By International Monetary Fund. African Dept.
  20. Business Cycles in Oil Exporting Countries: A Declining Role for Oil? By Salman Huseynov; Vugar Ahmadov
  21. Optimal Monetary Policy Rules under Imperfect Commitment: Reconciling Theory with Evidence By KARA Hakan
  22. Quantifying the Effects of Abandoning National Monetary Policy By Oliver HOLTEMÖLLER
  23. Real Effects of Nominal Shocks: a 2-Sector Dynamic Model with Slow Capital Adjustment and Money-in-the-Utility By Peter BENCZUR
  24. Lliquidity, trends, and the great recession By Guerron-Quintana, Pablo; Jinnai, Ryo
  25. Survey-Based Assessment of Household Borrowers' Financial Vulnerability By Mikus Arins; Nadezda Sinenko; Laura Laube
  26. Dynamic Analysis of Macroeconomic Policies in an Asymmetric Monetary Uunion. Lessons for the EMU By Florina Cristina BADARAU
  27. One currency, one price? Euro Changeover related inflation in Estonia By Jaanika Meriküll; Tairi Rõõm
  28. Commercial Property Price Indexes and the System of National Accounts By Diewert, Erwin W.; Fox, Kevin J.; Shimizu, Chihiro
  29. Equilibrium price model for mutual debts By Yadulla Hasanli
  30. Macroeonomic Dynamics in Trinidad & Tobago: Implications for Monetary Policy in a Very Small Oil-Based Economy By WATSON Patrick
  31. Government Debt and Macroeconomic Effects: Analysis with Real-Financial CGE Model By Imene BENNOUR; Tahar ABDESSALEM
  32. Business Cycles and Oil Rich Economies - Hodrick Prescott Filtering Of Oil Revenues for Macroeconomic Modelling in Nigeria By Fred IKLAGA
  33. A global value chain analysis of macroeconomic imbalances in Europe By Stefan Ederer; Peter Reschenhofer
  34. A note on hump-shaped output in the RBC model By Daichi Shirai
  35. European Monetary Union and Fiscal Policy Sustainability By Bodo HERZOG
  36. Austria: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Austria By International Monetary Fund. European Dept.
  37. Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility By MINELLA André; DE FREITAS Paulo Springer; GOLDFAJN Ilan; KFOURY MUINHOS Marcelo
  38. Developing an underlying inflation gauge for China By Marlene Amstad; Ye Huan; Guonan Ma
  39. Fear of Floating and Exchange Rate Pass-Through to Inflation in Egypt By Hoda SELIM
  40. Paraguay: Report on Observance of Standards and Codes (ROSC)—Data Module By International Monetary Fund. Statistics Dept.
  41. Philippines: Selected Issues By International Monetary Fund. Asia and Pacific Dept
  42. Macroeconomic Instability, Capital Accumulation and Growth: The Case of Turkey 1963-1999 By ISMIHAN Mustafa; METIN-OZCAN Kivilcim; TANSEL Aysit
  43. Optimal Monetary Policy with Wealth Effect and Cost Channel By Roberta CARDANI
  44. Aggregate Vs. Disaggregate Euro-Area Macro-Modelling By MONTEFORTE Libero; SIVIERO Stefano
  45. Inflation Uncertainty and Risk Premium in Interest Rates: Case of Turkey By Selahattin BEKMEZ; Cem Mehmet BAYDUR; Esat BAKIMLI
  46. Measuring Systemic Risk in a Post-Crisis World By O. de Bandt; J.-C. Héam; C. Labonne; S. Tavolaro
  47. The Role of Fiscal Stimulus and Monetary Easing in Indonesian Economy during Global Financial Crisis: Financial Computable General Equilibrium Approach By Iskandar SIMORANGKIR; Justina ADAMANTI
  48. Asia Bond Monitor - March 2014 By Asian Development Bank (ADB); ; ;
  49. Nonfinancial Sectors Debt and the U.S. Great Moderation By Grydaki, M.; Bezemer, D.
  50. Homeownership, Informality and the Transmission of Monetary Policy By Ceyhun Elgin; Burak R. Uras
  51. Chad: Request for a Three-Year Arrangement Under the Extended Credit Facility-Staff Report; Press Release; and Statement by the Executive Director for Chad By International Monetary Fund. African Dept.
  52. Art as an Investment under High Inflation: an Empirical Study on Turkish Paintings By Aylin Seckin
  53. Can State and Local Revenue and Expenditure Enhance Economic Growth? A Cross-State Panel Study of Fiscal Activity By Christopher Arthur Clarke; Stephen M. Miller
  54. ICT as an Enabler of Transformation in Ethiopia By Marc Lixi; Mariana Dahan
  55. Time-Varying Coefficient Methods to Measure Inflation Persistence By Balazs VARGA; Zsolt DARVAS
  56. Palestinian Economy, Policy Framework and Growth Prospects: A Modeling Perspective By Yousef DAOUD; Mahmoud ELKHAFIF; Basim MAKHOOL
  57. Tunisia: Fourth Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria-Staff Report; Press Release; and Statement by the Executive Director for Tunisia By International Monetary Fund. Middle East and Central Asia Dept.
  58. Goodwin "Growth-Cycle Model and the NAIRU By André DRAMAIS
  60. St. Vincent and the Grenadines: 2012 Article IV Consultation By International Monetary Fund. Western Hemisphere Dept.
  61. The Political Economy of Growth, Inequality, the Size and Composition of Government Spending By Klaus Schmidt-Hebbel; José-Carlos Tello
  62. A Risk Map of Markups: Why We Observe Mixed Behaviors of Markups By Seong-Hoon Kim; Seongman Moon
  63. Is cooperative Banks' Reaction to Business Cycle Different? By Claudia GUAGLIANO; Juan LOPEZ
  64. Shifting Regimes in the Relationship between Interest Rates and Inflation: A Threshold Cointegration Approach By MILLION Nicolas
  65. The Challenges of Doing Business in Papua New Guinea: An Analytical Summary of the 2012 Business Environment Survey by the Institute of National Affairs By Asian Development Bank (ADB); ; ;
  66. Turkiye Enflasyon Hedeflemesi Deneyiminde Doviz Kurunun Rolu By Ahmet Benlialper; Hasan Comert
  67. From Policy Rate to Bank Lending Rates: The Chilean Banking Industry By BERSTEIN Solange; FUENTES Rodrigo
  68. Kazakhstan Legislation for Allocation of Mining Exploration Rights : Report 2. Applicability of Results from Report 1 in Kazakhstan and Recommendations on Potential Policy Changes in Kazakhstan By World Bank
  69. Stability of Final Objective of the European Monetary Authorities By Frédérique SIBI
  70. Impact of competition and business cycles on the behaviour of monopolistic markups in the Polish economy By Jan Hagemejer; Michal Gradzewicz
  71. Monthly Report No. 3/2014 By Vasily Astrov; Neil Foster-McGregor; Sandra M. Leitner; Robert Stehrer; Roman Stöllinger
  72. Market Power and Fiscal Policy in OECD Countries By Luis F. COSTA; Antonio AFONSO
  73. Two Short Papers in Macroeconomics Creation Date: 1981 By K.W. Clements; H.Y. Izan
  74. Will Inflation Return? Creation Date: 1994 By E.J. Weber
  75. Global Macroeconomic Shocks and U.S. Agriculture: An Interactive Matrix Approach By William Edmondson; Matthew Shane; Agapi Somwaru
  76. Modeling the Impact of Real and Financial Shocks on Mercosur: the Role of the Exchange Rate Regime By Jean-Pierre Allegret; Alain Sand-Zantman
  77. Capital Budgeting and Fiscal Sustainability in British Columbia By Jean-Francois Wen
  78. The Effect of Macroeconomic Policies on the Wave of FDI to the MENA Countries By Nojoud Habash
  79. IMMPA: A Quantitative Macroeconomic Framework for the Analysis of Poverty Reduction Strategies By AGENOR Pierre-Richard; IZQUIERDO Alejandro; FOFACK Hippolyte
  80. Explaining the Stock Market's Reaction to Macroeconomic Announcements By Aymen Belgacem

  1. By: Buera, Francisco J. (Federal Reserve Bank of Chicago); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis)
    Abstract: We study a model with heterogeneous producers that face collateral and cash-in-advance constraints. These two frictions give rise to a nontrivial financial market in a monetary economy. A tightening of the collateral constraint results in a recession generated by a credit crunch. The model can be used to study the effects on the main macroeconomic variables, and on the welfare of each individual of alternative monetary and fiscal policies following the credit crunch. The model reproduces several features of the recent financial crisis, such as the persistent negative real interest rates, the prolonged period at the zero bound for the nominal interest rate, and the collapse in investment and low inflation in spite of the very large increases in liquidity adopted by the government. The policy implications are in sharp contrast to the prevalent view in most central banks, which is based on the New Keynesian explanation of the liquidity trap.
    Keywords: Liquidity trap; Credit crunch; Collateral constraings; Monetary policy; Ricardian equivalence;
    JEL: E44 E52 E58 E63
    Date: 2014–07–18
  2. By: Bernardo Guimaraes (Escola de Economia de São Paulo (EESP) Fundação Getulio Vargas); Caio Machado (Escola de Economia de São Paulo (EESP) Fundação Getulio Vargas); Marcel Ribeiro (Escola de Economia de São Paulo (EESP) Fundação Getulio Vargas)
    Abstract: This paper presents a simple macroeconomic model where government spending affects aggregate demand directly and indirectly, through an expectational channel. Prices are fully flexible and the model is static, so intertemporal issues play no role. There are three important elements in the model: (i) fixed adjustment costs for investment; (ii) noisy idiosyncratic information about the economy; and (iii) imperfect substitution among private goods and goods provided by the government. An increase in government spending raises the demand for private goods and raises firms’ expectations about what others will be producing and demanding. The optimal level of government expenditure is larger when the desired level of investment is small, which we interpret as times of low economic activity.
    Keywords: fiscal policy, confidence, expectations, fiscal multiplier, aggregate demand
    JEL: E32 E62
    Date: 2014–07
  3. By: Jordi Galí
    Abstract: I analyze the effects of an increase in government purchases financed entirely through seignorage, in both a classical and a New Keynesian framework, and compare them with those resulting from a more conventional debt-financed stimulus. My findings point to the importance of nominal rigidities in shaping those effects. Under a realistic calibration of such rigidities, a money-financed fiscal stimulus is shown to have very strong effects on economic activity, with relatively mild inflationary consequences. If the steady state is sufficiently inefficient, an increase in government purchases may increase welfare even if such spending is wasteful.
    Keywords: seignorage, government spending, fiscal multiplier
    JEL: E32 E52 E62
    Date: 2014–09
  4. By: Marvin Goodfriend (Friends of Allan Meltzer Professor of Economics, Tepper School of Business, Carnegie Mellon University (E-mail: marvingd@
    Abstract: Quantitative monetary policy at the zero interest bound should be understood as a gbond market carry trade.h Net interest earnings on the front end of the monetary carry trade should be retained-to guard against the central bank having to create reserves (or borrow) to pay interest on reserves or managed liabilities on the back end, and to show that interest expenses are paid for in large part by earnings from the front end. In the United States, the Federal Reserve balance sheet reflects the front end of a carry trade in that by the end of 2014, about $3 trillion of reserves paying 0.25% will finance (carry) a like quantity of security holdings averaging 10 years or more in maturity earning 2.5%. The Fed has long asserted independent authority to retain net interest income thought necessary as surplus capital against prospective exposures on its balance sheet. The Fed recognizes that the retention of net interest earnings to build up surplus capital incurs no resource cost for the Treasury or taxpayers. Yet, the Fed has chosen not to build up surplus capital against the carry trade exposure and risk on its balance sheet, jeopardizing the operational credibility of monetary policy for price stability.
    Keywords: bond market carry trade, Federal Reserve surplus capital, Federal Reserve Treasury remittances, inflation objective, interest on reserves, monetary policy at the zero interest bound, term premium
    JEL: E31 E43 E52 E58 E63
    Date: 2014–09
  5. By: Philip Pilkington
    Abstract: Since the beginning of the fall of monetarism in the mid-1980s, mainstream macroeconomics has incorporated many of the principles of post-Keynesian endogenous money theory. This paper argues that the most important critical component of post-Keynesian monetary theory today is its rejection of the "natural rate of interest." By examining the hidden assumptions of the loanable funds doctrine as it was modified in light of the idea of a natural rate of interest--specifically, its implicit reliance on an "efficient markets hypothesis" view of capital markets--this paper seeks to show that the mainstream view of capital markets is completely at odds with the world of fundamental uncertainty addressed by post-Keynesian economists, a world in which Keynesian liquidity preference and animal spirits rule the roost. This perspective also allows us to shed new light on the debate that has sprung up around the work of Hyman Minsky, calling into question to what extent he rejected the loanable funds view of financial markets. When Minsky's theories are examined against the backdrop of the natural rate of interest version of the loanable funds theory, it quickly becomes clear that Minsky does not fall into the loanable funds camp.
    Keywords: Capital Markets; Financial Economics; Financial Market Theory; Macroeconomics; Monetary Economics; Monetary Theory
    JEL: E00 E12 E40 E43 E44
    Date: 2014–09
  6. By: International Monetary Fund. European Dept.
    Abstract: Growth is gaining momentum, led by strong external demand while domestic demand is also picking up. The central bank’s foreign exchange intervention policy has helped stem deflationary pressures but inflation is still well below target. Following substantial fiscal adjustment over the past three years, an easing of the fiscal stance is underway and the new government’s medium-term fiscal plans have not yet been fully elaborated. The financial system is sound and resilient to shocks, and improvements in the regulatory and supervisory architecture are ongoing. The challenge for the authorities is to create the conditions for strong and sustainable growth while maintaining macroeconomic stability.
    Keywords: Article IV consultation reports;Economic recovery;Fiscal policy;Labor markets;Fiscal reforms;Monetary policy;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Czech Republic;
    Date: 2014–09–02
  7. By: Michal Franta; Tomas Holub; Petr Kral; Ivana Kubicova; Katerina Smidkova; Borek Vasicek
    Abstract: This study examines the use of the exchange rate by the Czech National Bank as a monetary policy instrument at the zero lower bound on interest rates. It provides a review of the economic literature on unconventional monetary policy instruments and particularly on the possibility of using the exchange rate. It explains the CNB’s reasons for further easing monetary policy and for choosing the exchange rate instrument and its specific level, and discusses its expected benefits in the case of the Czech Republic. It also explains why the CNB ultimately decided to transparently declare a one-sided exchange rate commitment with potentially unlimited foreign exchange interventions. The article concludes by assessing the impacts of the exchange rate weakening on the Czech economy to date, as compared to what the CNB had expected, and by describing the public debate of the CNB’s action and related changes in its communication strategy.
    Keywords: Asymmetric exchange rate commitment, deflation, exchange rate, foreign exchange interventions, inflation expectations, monetary policy, unconventional instruments, zero lower bound
    JEL: E31 E37 E58 F31
    Date: 2014–09
  8. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Evgeniya A. Duzhak (Zicklin School of Business, Baruch College, City University of New York)
    Abstract: This paper analyzes the dynamical properties of monetary models with regime switching. We start with the analysis of the evolution of inflation when policy is guided by a simple monetary rule where coe- cients switch with the policy regime. We rule out the possibility of a Hopf bifurcation and demonstrate the existence of a period doubling bifurca- tion. As a result, a small change in the parameters (e.g. a more active policy response) can lead to a drastic change in the path of in ation. We demonstrate that while the New Keynesian model with a current-looking Taylor rule is not prone to bifurcations, a hybrid rule exhibits the same pattern of period doubling bifurcations as the basic setup.
    Keywords: New Keynesian, Taylor Rule, regime switching, bifurcation analysis, structural stability.
    JEL: C14 C22 E37 E32
  9. By: Laura Carvalho; Corrado Di Guilmi
    Abstract: This paper introduces heterogeneous microeconomic behavior into a demand-driven stock-flow consistent model with endogenous credit creation, so as to study the joint dynamics of both the personal and the functional distribution of income, household debt and aggregate demand. The distinctive feature is in that the aggregation of heterogeneous agents is not performed numerically as in traditional agent-based models, but by means of an innovative analytical methodology, originally developed in statistical mechanics and recently imported into macroeconomics. Numerical and analytical results reveal that while boosting aggregate demand, a raise in the minimum wage and a reduction in wage inequality can also lead the economy toward more sustainable paths in both household debt and the degree of ’financialisation’. These results are shown to be the exact opposite to the observed responses of the economy to a raise in the interest rate charged on bank loans.
    Keywords: Stock-flow consistent model, heterogeneous agents, master equation, income inequality, financial instability
    JEL: C63 D31 E21 E25
    Date: 2014–09
  10. By: Financial Markets Department (Bank of Japan)
    Abstract: During fiscal 2012 (April 1, 2012 to March 31, 2013), the Bank of Japan continued to pursue powerful monetary easing through such measures as the virtually zero interest rate policy and purchases of financial assets.
    Date: 2013–06–19
  11. By: Nao Sudo (Bank of Japan); Kozo Ueda (Waseda University); Kota Watanabe (Meiji University); Tsutomu Watanabe (University of Tokyo)
    Abstract: Standard New Keynesian models have often neglected temporary sales. In this paper, we ask whether this treatment is appropriate. In the empirical part of the pa- per, we provide evidence using Japanese scanner data covering the last two decades that the frequency of sales was closely related with macroeconomic developments. Specifically, we find that the frequency of sales and hours worked move in opposite directions in response to technology shocks, producing a negative correlation be- tween the two. We then construct a dynamic stochastic general equilibrium model that takes households' decisions regarding their allocation of time for work, leisure, and bargain hunting into account. Using this model, we show that the rise in the frequency of sales, which is observed in the data, can be accounted for by the decline in hours worked during Japan's lost decades. We also find that the real effect of monetary policy shocks weakens by around 40% due to the presence of temporary sales, but monetary policy still matters.
    Keywords: sales; monetary policy; lost decades; time use
    JEL: E3 E5
    Date: 2014–09
  12. By: Tae-Hwy Lee (Department of Economics, University of California Riverside); Weiping Yang (University of California, Riverside)
    Abstract: The causal relationship between money and income (output) has been an important topic and has been extensively studied. However, those empirical studies are almost entirely on Granger-causality in the conditional mean. Compared to conditional mean, conditional quantiles give a broader picture of an economy in various scenarios. In this paper, we explore whether forecasting conditional quantiles of output growth can be improved using money growth information. We compare the check loss values of quantile forecasts of output growth with and without using past information on money growth, and assess the statistical significance of the loss-differentials. Using U.S. monthly series of real personal income or industrial production for income and output, and M1 or M2 for money, we find that out-of-sample quantile forecasting for output growth is significantly improved by accounting for past money growth information, particularly in tails of the output growth conditional distribution. On the other hand, money-income Granger-causality in the conditional mean is quite weak and unstable. These empirical findings in this paper have not been observed in the money-income literature. The new results of this paper have an important implication on monetary policy, because they imply that the effectiveness of monetary policy has been under-estimated by merely testing Granger-causality in conditional mean. Money does Granger-cause income more strongly than it has been known and therefore information on money growth can (and should) be more utilized in implementing monetary policy.
    Keywords: Money-income Granger-causality, Conditional mean, Conditional quantiles, Conditional distribution
    JEL: C32 C5 E4 E5
    Date: 2014–09
  13. By: A.Pizzo
    Abstract: In this paper I shed light on the issues of the (low) volatilities of labor market variables implied by the search and matching model and the (high) values of the correlations between these variables and labor productivity. On the one hand, Shimer (2005) claims that “Not only there is little amplification, but there is also no propagation of the labor productivity shock in the [search and matching] model.” On the other, starting from Galì (1999) empirical evidence about the reaction of employment to a neutral positive technological shock seems to indicate a recessionary effect in the short term, thus casting doubts about the whole transmission mechanism as described by Shimer (2005) in line with a RBC framework. I claim that a New Keynesian model with nominal rigidities is able to replicate the set of moments of both volatilities and correlations; the model presents two distinctive features: employment decreases after a positive technological shock and the calibration strategy in choosing the vacancy posting cost is different with respect of Shimer (2005) and in line with the RBC tradition. I show also that the use of the traditional separable preferences in consumption and leisure worsens the Shimer's critique, via the consequences of wealth effects on labor supply.
    Keywords: labor market fluctuations, technology shock, price rigidities.
    JEL: E24 E32 J60
    Date: 2014
  14. By: Petrosky-Nadeau, Nicolas (Federal Reserve Bank of San Francisco); Wasmer, Etienne (Sciences Po); Zeng, Shutian (Carnegie Mellon University)
    Abstract: The renewal of interest in macroeconomic theories of search frictions in the goods market requires a deeper understanding of the cyclical properties of the intensive margins in this market. We review the theoretical mechanisms that promote either procyclical or countercyclical movements in time spent searching for consumer goods and services, and then use the American Time Use Survey to measure shopping time through the Great Recession. Average time spent searching declined in the aggregate over the period 2008-2010 compared to 2005-2007, and the decline was largest for the unemployed who went from spending more to less time searching for goods than the employed. Cross-state regressions point towards a procyclicality of consumer search in the goods market. At the individual level, time allocated to different shopping activities is increasing in individual and household income. Overall, this body of evidence supports procyclical consumer search effort in the goods market and a conclusion that price comparisons cannot be a driver of business cycles.
    Keywords: Goods market search; time allocation; American Time Use Survey; business cycles.
    JEL: D12 E32 J22
    Date: 2014–09
  15. By: Giorgio Motta; Patrizio Tirelli
    Abstract: By introducing external consumption habits and Limited Asset Market Participation in an otherwise standard New Keynesian DSGE model we uncover a causality link between limited asset market participation, consumption inequality and macroeconomic volatility. We also obtain that monetary contractions have redistributive effects in favour of asset holders, broadly confirming the findings in Coibion et al. (2012). Finally we analyze the impact of redistributive fiscal policies that target consumption inequality between households groups. Such policies have beneficial implications for macroeconomic stability, bringing the dynamic performance of the model close to the one generated by representative-agent DSGE models.
    Keywords: limited asset market participation, DGSE, determinacy, consumption habits, income inequality, redistribution
    Date: 2014
  16. By: Michael Wickens
    Abstract: This lecture is about how best to evaluate economic theories in macroeconomics and finance, and the lessons that can be learned from the past use and misuse of evidence. It is argued that all macro/finance models are ‘false’ so should not be judged solely on the realism of their assumptions. The role of theory is to explain the data, They should therefore be judged by their ability to do this. Data mining will often improve the statistical properties of a model but it does not improve economic understanding. These propositions are illustrated with examples from the last fifty years of macro and financial econometrics.
    Keywords: Theory and evidence in economics, DSGE modelling, time series modelling, asset price modelling
    JEL: B1 C1 E1 G1
    Date: 2014–09
  17. By: Malgorzata Olszak (University of Warsaw, Faculty of Management); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland); Iwona Kowalska (University of Warsaw, Faculty of Management); Sylwia Roszkowska (Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland)
    Abstract: This paper documents a large cross-bank and cross-country variation in the relationship between loan loss provisions and the business cycle and explores bank management specific, bank-activity specific and country specific (institutional and regulatory) features that explain this diversity in the European Union. Our results indicate that LLP in large, publicly traded and commercial banks, as well as in banks reporting in consolidated statements’ format, are more procyclical. Better investor protection and more restrictive bank regulations reduce the procyclicality of LLP. Additional evidence shows that moral hazard resulting from deposit insurance renders LLP more procyclical. We do not find support for the view that better quality of market monitoring mitigates the risk-taking behavior of banks. Our findings clearly indicate the empirical importance of earnings management for LLP procyclicality. Sensitivity of LLP to the business cycle seems to be limited in the case of banks which engage in more income smoothing and which apply prudent credit risk management.
    Keywords: loan loss provisions, procyclicality, earnings management, investor protection, bank regulation, bank supervision
    JEL: E32 E44 G21
    Date: 2014–05
  18. By: International Monetary Fund. European Dept.
    Abstract: A conservative minority government took office in October 2013, ending eight years of Labor party-led governments. No major policy shift has taken place so far, but the government’s economic policy platform emphasizes lower taxes, more infrastructure investment, greater private ownership, and measures to improve productivity and competitiveness. New challenges are emerging as oil-related investment is peaking and competitiveness concerns are becoming more pressing.
    Keywords: Article IV consultation reports;Economic growth;Monetary policy;Inflation targeting;Fiscal policy;Fiscal reforms;Macroprudential Policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Norway;
    Date: 2014–08–29
  19. By: International Monetary Fund. African Dept.
    Abstract: Regional growth weakened in 2013 due to a fall in oil production in most countries. GDP growth is expected to pick-up in 2014 due to the recovery of oil production and the continuation of the implementation of public investment plans in most of CEMAC countries. Despite large spending of oil wealth during the last years, poverty, income inequality and unemployment remain high. The business climate is one of the most challenging in Africa. The region’s most pressing challenge is to implement structural reforms to promote sustainable and inclusive growth while adopting macro policies to preserve financial stability, ensure an efficient use of oil revenues and increase resilience to shocks.
    Keywords: Economic growth;Central African Economic and Monetary Community;Economic integration;Fiscal policy;Monetary policy;Financial sector;Bank supervision;Economic indicators;Staff Reports;Press releases;
    Date: 2014–08–26
  20. By: Salman Huseynov; Vugar Ahmadov
    Abstract: In this paper, we investigate business cycle regularities in oil exporting countries. We ask the question whether oil exporting countries are all alike or whether economic fluctuations and the response dynamics of macroeconomic variables are similar. Besides we also test for the possible sources of economic fluctuations and whether the oil is the main culprit behind business cycles in oil exporting countries. In this paper, we use different empirical methodologies to gain insights about the nature of the business cycles in the oil exporting countries. First, we draw on annual data to document stylized facts on economic fluctuations in these economies. Second, we also use principle component analysis and extract principle component of the panel on economic variables of the countries under the study. Third, we invoke to the methodology proposed by Giannone, Lenza and Primiceri (2012) to analyze impulse-response functions of GDP, household consumption, government expenditure, investment and import in 13 oil exporting countries under the study. In this study, we investigate the nature and possible sources of economic fluctuations in oil exporting countries using principle component and impulse-response analysis. The principal component analysis shows that the first two components can be statistically significantly explained by world GDP, but not by oil prices. We further develop our study using impulse-response analysis and find that a global demand shock is as important as oil supply and oil demand shocks in determining the dynamics of macroeconomic variables of interest. Though previous studies in this field underline the importance of institutional factors, we find that rising global political and economic integration can play a critical role in explaining business cycles of these economies. With increasing integration into the world economic system, oil exporting countries have become more susceptible to world business cycles, the sources of economic fluctuations have become more diversified, and consequently, the role of oil has declined over time. These results have crucial policy implications for the role of the fiscal and monetary policy in managing economic fluctuations in these economies.
    Keywords: Oil Exporting Countries (Algeria, Angola, Azerbaijan, Iran, Kazakhstan, Kuwait, Nigeria, Norway, Oman, Russia, Saudi Arabia, United Arab Emirates and Venezuela), Monetary issues, Energy
    Date: 2014–10–01
  21. By: KARA Hakan
  22. By: Oliver HOLTEMÖLLER
  23. By: Peter BENCZUR
  24. By: Guerron-Quintana, Pablo (Federal Reserve Bank of Philadelphia); Jinnai, Ryo (Texas A &M University)
    Abstract: The authors study the impact that the liquidity crunch in 2008-2009 had on the U.S. economy’s growth trend. To this end, the authors propose a model featuring endogenous productivity a la Romer and a liquidity friction a la Kiyotaki-Moore. A key finding in the authors’ study is that liquidity declined around the Lehman Brothers’ demise, which led to the severe contraction in the economy. This liquidity shock was a tail event. Improving conditions in financial markets were crucial in the subsequent recovery. Had conditions remained at their worst level in 2008, output would have been 20 percent below its actual level in 2011. The authors show that a subsidy to entrepreneurs would have gone a long way averting the crisis.
    Keywords: Liquidity; Economic Growth
    Date: 2014–08–21
  25. By: Mikus Arins; Nadezda Sinenko; Laura Laube
    Abstract: This Discussion Paper is an attempt to provide insight into the debt servicing capacity of Latvian households and its sustainability under the impact of different macroeconomic shocks based on individual household data obtained by surveying households with at least one loan for house purchase. To assess the financial situation of these households, changes in the household solvency are modelled under the impact of different economic shocks (shrinking employment income, rising interest rates, loss of jobs) and the obtained results are generalised to the aggregate portfolio of loans granted by Latvian credit institutions to households for house purchase. The results obtained lead to a conclusion that following the financial crisis household solvency is still fragile and possible negative shocks might contribute to higher potential losses of credit institutions. At the same time possible losses to lenders arising from such adverse shocks might be lower than two years ago since the value of collateral has increased with real estate prices moving up, while outstanding loans granted for house purchase have declined.
    Keywords: analysis of household solvency, stress tests, sensitivity analysis, financial margin, macroeconomic shock scenario, microdata
    JEL: C15 C35 D14 E21 G21
    Date: 2014–08–12
  26. By: Florina Cristina BADARAU
  27. By: Jaanika Meriküll; Tairi Rõõm
    Abstract: This paper studies euro changeover-related inflation using disaggregated price level data. The difference-in-differences approach is used and the control group for the treatment country, Estonia, is built from 12 euro area countries. The Nielsen Company disaggregated price data are employed at product, brand and shop-type level. The results indicate that while the overall inflationary effect of euro adoption was modest, the effects were significantly different across various market segments. Changeoverrelated inflation was higher for products that were relatively cheaper than the euro area average. Inflationary effects were stronger in smaller shops.
    Keywords: euro, currency changeover, market concentration, consumer behaviour
    JEL: D49 P46 E58
    Date: 2014–10–10
  28. By: Diewert, Erwin W.; Fox, Kevin J.; Shimizu, Chihiro
    Abstract: The paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts. Property price indexes are required for the stocks of commercial properties in the Balance Sheets of the country. Related service price indexes for the land and structure input components of a commercial property are required in the Production Accounts of the country if the Multifactor Productivity of the Commercial Property Industry is calculated as part of the System of National accounts. The paper reviews existing methods for constructing an overall Commercial Property Price Index (CPPI) and concludes that most methods are biased (due to their neglect of depreciation) and more importantly, not able to provide separate land and structure subindexes. A class of hedonic regression models that is not subject to these problems is discussed.
    Keywords: Commercial property price indexes, Net Operating Income, discounted cash flow, System of National Accounts, Balance Sheets, methods of depreciation, land and structure prices, hedonic regressions, repeat sales method
    JEL: C2 C23 C43 D12 E31 R21
    Date: 2014–09
  29. By: Yadulla Hasanli
    Abstract: See full paper See full paper See full paper
    Keywords: See full paper, Monetary issues, Monetary issues
    Date: 2014–10–01
  30. By: WATSON Patrick
  31. By: Imene BENNOUR; Tahar ABDESSALEM
  32. By: Fred IKLAGA
  33. By: Stefan Ederer; Peter Reschenhofer
    Abstract: This paper assesses whether or to what extent the macroeconomic imbalances, which emerged in the ‘North’ and ‘South’ of the European Monetary Union before the financial and economic crisis of 2008/09, are symmetric. Firstly, we calculate bilateral exports and imports between all EU member states, applying the concept of ’trade in value added’, and discuss their role in the emergence of trade surpluses and deficits. Secondly, we decompose the changes in the trade balances into the effects of shifts in final demand on the one side and changes in the global production patterns on the other. Thirdly, we quantify to what extent an increase in domestic demand in the North and a decrease in the South would support the elimination of these imbalances. Finally, we calculate a hypothetical scenario in which final demand would expand similarly in all EMU member states. Thereby we evaluate how the macroeconomic imbalances would have evolved in the case of more balanced demand developments in the EMU in the past, as well as how adjustment could possibly happen in the future.
    Keywords: European Monetary Union, macroeconomic imbalances, global value chains, input-output analysis
    JEL: C67 E60 F14 F15
    Date: 2014–09
  34. By: Daichi Shirai
    Abstract: This note shows that a standard real business cycle model with a specific parameter range can weakly generate a hump-shaped output response output to productivity shocks. This result requires only that the technology shocks are nearly random walk.
    Date: 2014–09
  35. By: Bodo HERZOG
  36. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context: Austria did not experience a severe boom-bust cycle and came through the crisis relatively well. The main impact was on the banking sector and public debt. With cyclical slack low and the recovery taking hold, this is the time to resolve crisis legacies and address long-standing structural issues. Outlook and risks: The recovery is taking hold, driven by a pick-up in exports. The most acute risks are mainly geopolitical and could in particular lead to financial spillovers. Financial sector policies: Bank restructuring should now be rapidly completed and bad asset disposal accelerated. Large internationally active banks should stand ready for further capital increases, and the EU banking union framework needs to be swiftly transposed at the national level. Public expenditure reforms: More decisive expenditure reforms in key areas such as pensions, health care, subsidies, and fiscal federalism would generate savings that could be used for both an accelerated debt reduction and lower labor taxation. Boosting potential output growth: Enhancing IT adaptation, improving the performance of the education system, facilitating access to financing for innovative start- ups, and reducing administrative barriers for new businesses would raise potential growth and labor productivity.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Government expenditures;Labor productivity;Fiscal reforms;Banking sector;Bank restructuring;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Austria;
    Date: 2014–09–15
  37. By: MINELLA André; DE FREITAS Paulo Springer; GOLDFAJN Ilan; KFOURY MUINHOS Marcelo
  38. By: Marlene Amstad; Ye Huan; Guonan Ma
    Abstract: The headline consumer price inflation (CPI) is often considered too noisy, narrowly defined, and/or slowly available for policymaking. On the other hand, traditional core inflation measures may reduce volatility but do not address other issues and may even exclude important information. This paper develops a new underlying inflation gauge (UIG) for China which differentiates between trend and noise, is available daily and uses a broad set of variables that potentially influence inflation. Its construction follows the works at other major central banks, adopts the methodology of a dynamic factor model that extracts the lower frequency components as developed by Forni et al. (2000) and draws on the experience of the People's Bank of China in modelling inflation. The paper is the first application of this type of dynamic factor model for inflation to any large emerging market economy. Our UIG for China is less noisy but still closely tracks the headline CPI. It does not suffer from the excess volatility reduction that plagues traditional core inflation measures and instead provides additional information. Finally, when forecasting the headline CPI, our UIG for China outperforms traditional core measures over different samples.
    Keywords: Inflation, Dynamic Factor Models, Core Inflation, Monetary Policy, Forecasting, China
    Date: 2014–09
  39. By: Hoda SELIM
  40. By: International Monetary Fund. Statistics Dept.
    Abstract: OVERALL ASSESSMENT This Report on the Observance of Standards and Codes (ROSC)—Data Module provides an update of the assessment conducted in February 2006, which was based on the July 2003 version of the IMF’s Data Quality Assessment Framework (DQAF). This ROSC Data Module is the first complete report based on the May 2012 vintage of the DQAF that covers six datasets, namely, national accounts (NA), consumer price index (CPI), producer price index (PPI), government finance statistics (GFS) and public sector debt statistics, monetary statistics, and balance of payments (BOP) and international investment position (IIP) statistics. The agencies that compile and disseminate these statistics are the Central Bank of Paraguay (CBP) for all datasets but GFS, which are compiled and disseminated by the Ministry of Finance (MOF). Following the 2006 ROSC Data Module mission, Paraguay made significant improvements in the compilation and dissemination of macroeconomic statistics, including (i) adequate methodological treatment of the two large binational hydroelectrical enterprises to properly reflect their contribution to Paraguay’s GDP, BOP, and other international accounts; (ii) compilation and dissemination of quarterly national accounts and integrated economic accounts for the total economy up to net lending; (iii) new CPI series (December 2007=100) and PPI series (June 2011=100), with several methodological improvements (introduction of an adequate treatment of seasonal products and use of improved estimation techniques for missing prices), among others. Paraguay participates in the General Data Dissemination System (GDDS) since September 2001, and the metadata for its macroeconomic statistics are posted on the IMF’s Dissemination Standards Bulletin Board (DSBB). Paraguay meets GDDS recommendations for the coverage, periodicity, and timeliness of data, with the following two exceptions: (i) in the financial sector, the depository corporations (DC) survey is compiled on a monthly basis with a one-month lag but is not disseminated; and (ii) in the external sector, the debt service payment schedules for both public and private external debt are not disseminated. Appendix I provides an overview of Paraguay's dissemination practices compared to the GDDS. At the request of the authorities, Paraguay’s current data dissemination practices were also reviewed against the requirements of the Special Data Dissemination Standard (SDDS). A detailed description of Paraguay current practices against the SDDS is presented in Appendix IV of the accompanying detailed assessment document (Volume III).
    Keywords: Reports on the Observance of Standards and Codes;Data quality assessment framework;General Data Dissemination System;Statistics;National accounts;Consumer price indexes;Producer price indexes;Public debt;Government finance statistics;Monetary statistics;Balance of payments statistics;International investment position;Paraguay;
    Date: 2014–08–18
  41. By: International Monetary Fund. Asia and Pacific Dept
    Keywords: Inflation;Monetary policy;Employment;Labor markets;Banks;Financial institutions;Selected Issues Papers;Philippines;
    Date: 2014–08–08
  42. By: ISMIHAN Mustafa; METIN-OZCAN Kivilcim; TANSEL Aysit
  43. By: Roberta CARDANI
  44. By: MONTEFORTE Libero; SIVIERO Stefano
  45. By: Selahattin BEKMEZ; Cem Mehmet BAYDUR; Esat BAKIMLI
  46. By: O. de Bandt; J.-C. Héam; C. Labonne; S. Tavolaro
    Abstract: In response to the very large number of quantitative indicators that have been put forward to measure the level of systemic risk since the start of the subprime crisis, the paper surveys the different indicators available in the economic and financial literature. It distinguishes between (i) indicators related to institutions, based either on market data or regulatory/accounting data; (ii) indicators addressing risks in financial markets and infrastructures; (iii) indicators measuring interconnections and network effects - where research is currently very active-; and (iv) comprehensive indicators. All these indicators are critically assessed and ways forward for a better understanding of systemic risk are suggested.
    Keywords: systemic risk, market data, balance sheet data, regulatory data, financial network, funding liquidity.
    JEL: G2 G3 E44
    Date: 2013
  47. By: Iskandar SIMORANGKIR; Justina ADAMANTI
  48. 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: adb, asian development bank, asdb, asia, pacific, poverty asia, bonds, asian bonds, local currency bonds, capital flows, liquidity, monetary policy, hedging, Federal Reserve, financial contagion, sukuk, Islamic finance, Shariah, volatility, lending, borrowing, bond yield, tapering, market crash
    Date: 2014–03
  49. By: Grydaki, M.; Bezemer, D. (Groningen University)
    Abstract: During the Great Moderation, borrowing by the U.S. nonfinancial sectors structurally exceeded GDP growth. Using flow-of-fund data, we test the hypothesis that this measure of debt buildup was leading to lower output volatility. We estimate univariate GARCH models in order to obtain estimates for the volatility of output growth. We estimate a VAR model over two periods, 1954-1978 (before the Great Moderation) and 1984-2008 (during the Great Moderation). We test whether the relation between credit growth and GDP volatility changed between the two periods, controlling for the stance of monetary policy, for inflation, and for the endogeneity of credit to growth. Results from Granger causality tests, impulse response functions, forecast error variance decompositions and a counterfactual simulation suggest that credit growth in the nonfinancial sectors in excess of output growth was among the causal factors of the decline in output volatility during the Great Moderation. We discuss implications.
    Date: 2014
  50. By: Ceyhun Elgin; Burak R. Uras
    Date: 2014–09
  51. By: International Monetary Fund. African Dept.
    Abstract: KEY ISSUES Context: Chad is a fragile country with weak institutional capacity that needs to manage volatile and exhaustible oil revenues prudently to tackle its large development needs. Chad is enjoying a period of domestic political stability, but major regional security issues are imposing significant fiscal costs in both the short and medium term. Macroeconomic policy over the last few years has achieved a gradual tightening of the underlying fiscal policy stance together with a sizable increase in public investment. Satisfactory performance under an SMP in 2013 demonstrated the authorities’ commitment to improved macroeconomic management and has set the ground for an upper credit tranche arrangement with the Fund. Policy Framework: The government’s medium-term economic program, anchored by the 2013-2015 National Development Plan (NDP), aims at reinforcing economic growth and making it more inclusive, while maintaining macroeconomic stability and fiscal sustainability. Given the continued heavy dependence on volatile oil revenues that are projected to decline over the long-term and the currently high risk of debt distress, macroeconomic policies target a sustained fiscal adjustment, a buildup of liquidity buffers, and economic diversification. Those objectives will be underpinned by a reform agenda focused on strengthening public financial and debt management and improving the business environment. Request for an Extended Credit Facility arrangement: In the attached letter of intent, the authorities request a three-year arrangement under the Extended Credit Facility (ECF) in the amount of SDR 79.92 million (120 percent of quota) in support of their medium-term economic program. The ECF arrangement is expected to address the country’s protracted balance of payments’ problems resulting from a trend reduction in oil revenues, maintain adequate international reserves’ coverage, and play a catalytic role for bilateral and multilateral assistance to Chad. The accompanying memorandum of economic and financial policies spells out in more detail the objectives of the program and policy actions that the government of Chad envisages to undertake during 2014–17.
    Date: 2014–09–16
  52. By: Aylin Seckin
  53. By: Christopher Arthur Clarke (Washington State University); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: The slow economic recovery since the 2008 financial crisis and Great Recession requires state and local governments to continue to make difficult decisions concerning which taxes to raise and which expenditures to decrease in order to maintain a balanced budget. As expenditures usually raise economic growth and taxes generally hinder it, seeking the optimum combination of taxes and expenditures encourages prosperity in a state. In this paper, we study the effects of various expenditures and revenue combinations on growth in real state personal income per capita, using a sample of annual observations from 1977 to 2010 for 49 states and the District of Columbia. We find that state and local governments overfund education and parks, recreation, and natural resources while they underfund hospitals and health spending, once netted for charges and user fees. State and local governments also underutilize corporate income taxes as a source of revenue. Finally, we also estimate non-linear and short- and long-run specifications, which generally support prior findings.
    Keywords: Regional growth, state and local finance
    JEL: E62 H21 H70 O40 R11
    Date: 2014–09
  54. By: Marc Lixi; Mariana Dahan
    Keywords: Macroeconomics and Economic Growth - Knowledge Economy Information and Communication Technologies - ICT Policy and Strategies Technology Industry Education - Education for the Knowledge Economy Private Sector Development - E-Business Industry
    Date: 2014–01
  55. By: Balazs VARGA; Zsolt DARVAS
  56. By: Yousef DAOUD; Mahmoud ELKHAFIF; Basim MAKHOOL
  57. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: EXECUTIVE SUMMARY Context. On June 7, 2013, the Executive Board approved a 24-month Stand-By Arrangement in an amount equivalent to 400 percent of quota (SDR 1.146 billion or about $1.75 billion). To date, SDR 573 million equivalent to $877 million has been disbursed. The pillars of the program are to: (i) achieve short-term macroeconomic stability; (ii) lay the foundation for stronger and more inclusive growth; and (iii) protect the most vulnerable. Background. Progress in the political transition is leading to increased donor support this year, including from regional partners. On the economic front, growth remains timid, headline inflation has increased, and rising external imbalances have continued to put pressure on foreign reserves. Program implementation has been satisfactory. All quantitative performance criteria have been met. On the structural reform agenda, the authorities have made up for some key delays in areas that include reforming public banks, setting up a household support program, and the tax administration modernization agenda. Program strategy. Prudent fiscal policy, tighter monetary policy, and greater exchange rate flexibility need to be sustained and intensified to contain high external and fiscal deficits, anchor inflationary expectations, and bolster the still lackluster investors’ confidence. Important steps have been taken to strengthen the financial system, notably with the design of public bank restructuring plans, but implementation will be key. Progress on structural reforms—in particular, to improve the business climate—is critical for improving the conditions for private sector-led and inclusive growth. Risks to program implementation are important. Main risks relate to regional and domestic security tensions, setbacks in the political transition, and weaker economic activity in major trading partners. The implementation of program policies will continue to be tested by a difficult social environment and opposition from vested interests. The completion of the fourth review will make SDR 143.25 million (about $220 million) available.
    Keywords: Stand-by arrangement reviews;Economic growth;Fiscal consolidation;Government expenditures;Fiscal reforms;Monetary policy;Economic indicators;Debt sustainability analysis;Staff Reports;Letters of Intent;Press releases;Performance criteria modifications;Tunisia;
    Date: 2014–09–15
  58. By: André DRAMAIS
  59. By: Enghin Atalay
    Abstract: I quantify the contribution of sectoral shocks to business cycle fluctuations in aggregate output. I develop a multi-industry general equilibrium model in which each industry employs the material and capital goods produced by other sectors, and then estimate this model using data on U.S. industries sales, output prices, and input choices. Maximum likelihood estimates indicate that industry-specific shocks account for nearly two-thirds of the volatility of aggregate output, substantially larger than previously assessed. Identification of the relative importance of industry-specific shocks comes primarily from data on industries intermediate input purchases, data that earlier estimations of multi-industry models have ignored.
    Date: 2014–09
  60. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: KEY ISSUES Background: Activity is slowly recovering after a cumulative decline of about 5 percent during 2008–10. Expansionary fiscal policies—largely to counteract the impact of the global slowdown and the two successive natural disasters—led to a deterioration in fiscal balances, with public debt up by about 10½ percent of GDP over this period. The fiscal deficit, however, is expected to narrow this year, largely reflecting cuts in capital spending. In the financial sector, non performing loans remain above prudential guidelines; provisioning and profitability are low; and supervision remains weak. Policy Challenges: Further fiscal consolidation—including by rebalancing government expenditure toward growth and employment generating public sector projects—is required to ensure medium-term sustained growth as well as keep public sector debt on a downward trajectory. In this regard, improving the efficiency of revenue collection and reducing current spending—especially on the wage bill, which is high relative to revenues—will be crucial to allow the government to maneuver fiscal policy. Financial sector weaknesses also need to be addressed, including through strengthening of supervisory and regulatory standards, to promote effective financial intermediation that supports private sector growth. Structural reforms, including infrastructure enhancements and labor market reforms are critical to improve competitiveness and ensure medium-term growth and current account sustainability.
    Keywords: Article IV consultation reports;Fiscal policy;Government expenditures;Fiscal consolidation;Public enterprises;Fiscal reforms;Banking sector;Nonbank financial sector;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;St. Vincent and the Grenadines;
    Date: 2014–08–21
  61. By: Klaus Schmidt-Hebbel (Catholic University of Chile); José-Carlos Tello (Catholic University of Peru)
    Abstract: This paper develops a dynamic general-equilibrium political-economy model for the optimal size and composition of public spending. An analytical solution is derived from majority voting for three government spending categories: public consumption goods and transfers (valued by households), as well as productive government services (complementing private capital in an endogenous-growth technology). Inequality is reflected by a discrete distribution of infinitely-lived agents that differ by their initial capital holdings. In contrast to the previous literature that derives monotonic (typically negative) relations between inequality and growth in one-dimensional voting environments, this paper establishes conditions, in an environment of multi-dimensional voting, under which a non-monotonic, inverted U-shape relation between inequality and growth is obtained. This more general result – that inequality and growth could be negatively or positively related – could be consistent with the ambiguous or inconclusive results documented in the empirical literature on the inequality-growth nexus. The paper also shows that the political-economy equilibrium obtained under multi-dimensional voting for the initial period is time-consistent.
    Keywords: inequality, endogenous growth, multidimensional voting, endogenous taxation
    JEL: D72 E62 H11 H31
    Date: 2014–09
  62. By: Seong-Hoon Kim (University of St Andrews); Seongman Moon (Universidad Carlos III de Madrid)
    Abstract: This paper proposes an explanation for mixed evidence on the behaviors of markups. The key mechanism consists of two complementary channels of risk internalization that arise when firms face uninsurable business risks. One channel is based on passive risk consideration, through which firms raise prices to abide by riskier business thereby associating higher production with higher prices. The other channel is based on active risk management, through which firms lower prices to handle riskier business thereby associating higher production with lower prices. The relative responsiveness of the two channels to a shock depends on each firm’s fundamental characteristics and leads to a sharp division of markup cyclicality across sectors.
    Keywords: markups, risk internalization, technology, market power, cost channel, hedging channel
    JEL: D21 E32
    Date: 2013–12–01
  63. By: Claudia GUAGLIANO; Juan LOPEZ
  64. By: MILLION Nicolas
  65. By: Asian Development Bank (ADB); (Pacific Department, ADB); ;
    Abstract: This report summarizes key results from a 2012 survey of businesses in Papua New Guinea. It compares the results with the 2002 and 2007 surveys and shows that, while the business environment has improved since 2002, doing business in Papua New Guinea remains extremely challenging. Continued concerted efforts to improve the business environment will help sustain economic growth to build on opportunities the resource boom generated.
    Keywords: Economic growth, Private sector development, Papua New Guinea, adb, asian development bank, asdb, asia, pacific, poverty asia, doing business in papua new guinea, png, institute of national affairs, private sector, economic growth, public-private partnership, private sector assessment, business, png 2012 analytical summary, 2012 business environment survey, psdi
    Date: 2014–02
  66. By: Ahmet Benlialper (Department of Economics, Ipek University); Hasan Comert (Department of Economics, METU)
    Abstract: Doviz kuru ortuk bir politika araci olarak enflasyon hedeflemesi uygulayan gelismekte olan ulkelerde kullanilmis olabilir mi? Bu makale bu soruyu cevaplamak ve enflasyonun belirleyicilerini incelemek icin ornek olarak Turkiye’nin 2002-2008 arasindaki enflasyon hedeflemesi deneyimini incelemektedir. Makalenin temel bulgulari sunlardir: Birinci olarak, Vektor Autoregressif (VAR) modelinden elde edilen sonuclar gostermektedir ki, bu donemde Turkiye’de enflasyonun temel belirleyicileri talep yanli unsurlar degil uluslararasi meta fiyatlari ve doviz kuru gibi arz yanli unsurlardir. Bu durumda, yerli paranin (TL’nin) bu donemde onemli olcude degerlendigini de dusundugumuzde, Turkiye Cumhuriyeti Merkez Bankasi’nin (TCMB) enflasyonla mucadelesinde liranin degerlenmesinden faydalandigi aciktir (bkz. Sekil 2). Bir baska deyisle, 2002-2008 yillari arasinda Turkiye’de yasanan dezenflasyon sureci onemli olcude doviz kurlarinda yasanan gelismelerle aciklanabilir. Ikincisi, ampirik kanitlar gostermektedir ki, TL’nin degerlenmesi TCMB’nin doviz kuruna yonelik asimetrik politika durusuyla iliskilidir. Hem VAR modeliyle yapilan ekonometrik analize hem de betimleyici istatistiklere gore soz konusu donemde liranin degerlenmesine izin verilmis/desteklenmis buna karsin deger kaybi durumunda saldirgan bir sekilde mudahale edilmistir. Biz enflasyon rejimleri altindaki bu durusu “ortuk asimetrik doviz kuru capasi” olarak tanimliyoruz.
    Keywords: Turkiye Ekonomisi, Enflasyon Hedeflemesi, Doviz Kuru, Merkez Bankasi Politikalari.
    JEL: E58 E52 F31
    Date: 2014–09
  67. By: BERSTEIN Solange; FUENTES Rodrigo
  68. By: World Bank
    Keywords: Education - Knowledge for Development Information and Communication Technologies - ICT Policy and Strategies Technology Industry Social Protections and Labor - Labor Policies Finance and Financial Sector Development - Debt Markets Industry
    Date: 2013–07
  69. By: Frédérique SIBI
  70. By: Jan Hagemejer; Michal Gradzewicz
  71. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Neil Foster-McGregor (The Vienna Institute for International Economic Studies, wiiw); Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Graph of the month Share of foreign value added in the exports of selected countries Opinion corner What might be the economic consequences of a potential territorial break-up of Ukraine? (by Vasily Astrov) Trade integration, vertical specialisation and employment growth in the new Member States (by Sandra Leitner and Robert Stehrer) Trade in jobs a counterfactual exercise (by Robert Stehrer and Roman Stöllinger) Vertical trade and business cycle correlations (by Neil Foster-McGregor) Recommended reading Statistical Annex Selected monthly data on the economic situation in Central, East and Southeast Europe
    Keywords: value added, foreign trade, Ukraine, territorial break-up, trade integration, vertical specialisation, employment, exports, imports, vertical trade, business cycles
    Date: 2014–03
  72. By: Luis F. COSTA; Antonio AFONSO
  73. By: K.W. Clements; H.Y. Izan
  74. By: E.J. Weber
  75. By: William Edmondson; Matthew Shane; Agapi Somwaru
  76. By: Jean-Pierre Allegret; Alain Sand-Zantman
  77. By: Jean-Francois Wen (University of Calgary)
    Abstract: This paper makes four contributions to the theory and practice of capital budgeting. First, it provides a discussion of capital budgeting in the public sector and demonstrates the relationship between fi…scal sustainability and balanced operating budgets. Second, it uses the Public Accounts data to decompose the overall budget defi…cit into operating and capital account de…ficits based on a model grounded in economic theory. Third, it derives the user cost of capital taking into account the marginal cost of public funds and infl‡ation. Fourth, it applies the analysis to British Columbia to comment on the sustainability of …fiscal policy in the province over the period 2005-2017. The public net debt over this period is on the cusp of unsustainability, as the run up in debt since 2008 largely erased the reductions in debt achieved between 2004 and 2008. Thus fi…scal restraint is required by the provincial government over the next several years as a prudent measure against future adverse shocks to the budget.
    Date: 2014–05–01
  78. By: Nojoud Habash
  79. By: AGENOR Pierre-Richard; IZQUIERDO Alejandro; FOFACK Hippolyte
  80. By: Aymen Belgacem (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans)
    Abstract: This paper aims to study the impact of macroeconomic announcements on stock returns. More specifically, it intends to measure the average response of the French stock market and to provide some theoretical explanations regarding the sources of this reaction. Using intraday data, the study shows that, according to previous studies, there is a little evidence of market reactions to those surprises. This result may be explained partly by the simultaneous revision of future cash flows and future interest rates, which renders the net effect on equities insignificantly different from zero.
    Keywords: Asset Prices ; Macroeconomic Announcements ; Event Study ; Present Value Model
    Date: 2013

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