nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒10‒17
73 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Ramsey Monetary Policy and GHG Emission Control By Barbara Annicchiarico; Fabio Di Dio
  2. Credit spread variability in U.S. business cycles: The Great Moderation versus the Great Recession By Hylton Hollander and Guangling Liu
  3. Anchoring of Inflation Expectations in Light of Adverse Supply Shocks By Aguilar-Argaez Ana María; Cuadra Gabriel; Ramírez Claudia; Sámano Daniel    
  4. Unconventional Monetary Policy Shocks and the Spillovers to Emerging Markets By Peter Tillmann
  5. An Economical Business-Cycle Model By Pascal Michaillat; Emmanuel Saez
  6. "Coping with Imbalances in the Euro Area: Policy Alternatives Addressing Divergences and Disparities between Member Countries" By Eckhard Hein; Daniel Detzer
  7. Inflation Stabilization and Default Risk in a Currency Union By Okano Eiji; Masashige Hamano; Pierre Picard
  8. Corporate Cash Hoarding in a Model with Liquidity Constraints By Falk Mazelis; ; ;
  9. Fiscal policy: ex ante and ex post By Croushore, Dean; van Norden, Simon
  10. The Macroeconomic Effects of Losing Autonomous Monetary Policy after the Euro Adoption in Poland By Krzysztof MAKARSKI; Michal GRADZEWICZ
  11. Macro Stress Testing at the Bank of Japan By Tomiyuki Kitamura; Satoko Kojima; Koji Nakamura; Kojiro Takahashi; Ikuo Takei
  12. Working Less and Bargain Hunting More: Macro Implications of Sales during Japan's Lost Decades By Nao Sudo; Kozo Ueda; Kota Watanabe; Tsutomu Watanabe
  13. Philippines: 2014 Article IV Consultation-Staff Report; Press Release By International Monetary Fund. Asia and Pacific Dept
  14. Firms´ Entry, Monetary Policy and the International Business Cycle By Lilia CAVALLARI
  15. The effectiveness of countercyclical capital requirements and contingent convertible capital: a dual approach to macroeconomic stability By Hylton Hollander
  16. United Kingdom: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for the United Kingdom By International Monetary Fund. European Dept.
  17. A GARCH Model of Inflation and Inflation Uncertainty in Iran By Mohammad Ali MORADI
  18. Comparing the New Keynesian Phillips Curve with Time Series Models to Forecast Inflation By Fabio Rumler; Maria Teresa Valderrama
  19. Output Growth and Commodity Prices in Latin America: What Has Changed? By Fossati, Sebastian
  20. Monetary policy transmission mechanism in Poland What do we know in 2013? By Tomasz Łyziak; Mariusz Kapuściński; Ewa Stanislawska; Jan Przystupa; Ewa Wrobel; Anna Sznajderska
  21. The zero lower bound and parameter bias in an estimated DSGE model By Yasuo Hirose; Atsushi Inoue
  22. A Bank Lending Channel of Monetary Policy in Spain: Evidence from Bank Balance Sheets By Rafaela PIZARRO-BARCELÓ
  23. The Optimal Monetary Policy Rule For the European Central Bank By Paolo Gelain
  24. The two greatest. Great recession vs. great moderation By María Dolores Gadea-Rivas; Ana Gómez-Loscos; Gabriel Pérez-Quirós
  25. Tonga: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Tonga By International Monetary Fund. Asia and Pacific Dept
  26. The Macroeconomics of a Financial Dutch Disease By Alberto Botta
  27. Angola: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Angola By International Monetary Fund. African Dept.
  28. Inflation Targets Reconsidered: Comments on Paul Krugman By Guido Tabellini
  29. Cross country linkages as determinants of procyclicality of loan loss provisions – empirical importance of SURE specification By Malgorzata A. Olszak; Mateusz Pipien
  30. Distinguishing the components of household financial wealth: the impact of liabilities on assets in Euro Area countries By Merike Kukk
  31. Financial Intermediaries, Leverage Ratios, and Business Cycles By Yasin MIMIR
  32. Fiscal Devaluation and Structural Gaps. By F. Langot; L. Patureau; T. Sopraseuth
  33. Economic Growth and Redistribution Policy: the Role of Fiscal Policy in South Africa By Lumengo Bonga-Bonga
  34. The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth By David Greasley; Nick Hanley; Eoin McLaughlin; Les Oxley
  35. Solution Algorithm to a Class of Monetary Rational Equilibrium Macromodels with Optimal Monetary Policy Design By Frank Hespeler
  36. Explaining exchange rate anomalies in a model with Taylor-rule fundamentals and consistent expectations By Lansing, Kevin J.; Ma, Jun
  37. A Multivariate Analysis of Forecast Disagreement: Confronting Models of Disagreement with SPF Data By Dovern, Jonas
  38. Monetary Policy Rules in Practice: Evidence from Turkey and Israel By Ege YAZGAN; Hakan YILMAZKUDAY
  39. West Bank and Gaza Investment Climate Assessment : Fragmentation and Uncertainty By World Bank Group
  40. A Dynamic Institutional Analysis with a Macroeconomic Model By Jean-Guy LORANGER; Gérard BOISMENU
  41. Effects of Labor Market Reform on the Efficiency of Monetary Policy By Alvaro AGUIAR; Ana Paula RIBEIRO
  42. Belize: 2014 Article IV Consultation-Staff Report; Press Release By International Monetary Fund. Western Hemisphere Dept.
  43. Regional Impacts of High Speed Rail in China : Baseline Report for a Case Study of Yunfu in Guangdong Province By Ying Jin; Richard Bullock; Wanli Fang
  44. El impacto de la extracción de recursos naturales en la equidad interpersonal a nivel departamental en el Perú. By Carlos Casas; Alexandra Málaga
  45. Disagreement and Biases in Inflation Expectations of Japanese Households(in Japanese) By UENO Yuko; NAMBA Ryoichi
  46. Financial contagion and market intervention in the 1772-3 credit crisis By Paul Kosmetatos
  47. Imperfect mobility of labor across sectors: a reappraisal of the Balassa-Samuelson effect. By Olivier Cardi; Romain Restout
  48. Multiplicity of monetary steady states By Ryoji Hiraguchi; Keiichiro Kobayashi
  49. Stability Properties of the Nominal Income Targeting Rule in the Open Economy By Baotai WANG
  50. A Macro-econometric Model for the Economy of Lesotho By Igor LEBRUN; Ludovic DOBBELAERE
  51. Why Economic Growth Has Been Weak in Arab Countries: The Role of Exogenous Shocks, Economic Policy Failure and Institutional Defiencies By Peter NUNNENKAMP
  52. Switzerland: Technical Note-Macroprudential Institutional Arrangements and Policies By International Monetary Fund. Monetary and Capital Markets Department
  53. Responses of the Polish Economy to Demand and Supply Shocks under Alternative Fiscal Rules By Magdalena ZACHLOD-JELEC; Piotr KARP
  54. Modelling of Structural Changes in Demand for Money Cointegration Relations By Hannu KOSKINEN
  55. On the Long-Term Macroeconomic Effects of Social Security Spending: Evidence for 12 EU Countries By Alfredo M. Pereira; Jorge M. Andraz
  56. Food Price Pass-Through in the Euro Area: the Role of Asymmetries and Non-Linearities By Luca ONORANTE; Gianluigi FERRUCCI; Rebeca JIMÉNEZ-RODRÍGUEZ
  57. Capital Mobility, Intertemporal Budget Constraint, Government Policy and Country Size By Sal AMIRKHALKHALI; Atul DAR
  58. Economic Activity of Korea by Region - Judged by Coincident Index of Economic Activity By Jiyong HWANG
  59. The Asymmetric Exchange Rate Dynamics in the EMS: a Time-Varying Threshold Test By BESSEC Marie
  60. A Model to Simulate the Long-Term Dynamics of Public Debt By Lucian-Liviu ALBU
  61. Oil Price Shocks and Hawaii´s Economy: an Analysis of the Oil Price-Macroeconomy Relationship By Makena Coffman
  62. Assessing Economic and Fiscal Reforms in Lebanon. A dynamic CGE Analysis with Debt Constraints By Beatriz GAITAN S.; Bernd LUCKE; Jacopo ZOTTI
  63. What determines the relation between domestic saving and investment? - a new look at the Feldstein-Horioka puzzle By Fang Xu; Helmut Herwartz
  64. Disinflation Simulation with Disaggregated Output Gap Model for Hungary By Viktor VÁRPALOTAI
  65. Has the Fed Reacted Asymmetrically to Stock Prices By Søren HOVE RAVN
  66. Exploring Policy Complementarities in Transition Economies: The Case of Kazakhstan By Jibran J Punthakey
  67. Challenges of Russian economic growth: reconstruction or acceleration? By Vladimir Mau
  68. Time-varying betas & macroeconomic influences Creation Date: 1997 By N. Groenewold; P. Fraser
  69. Consumption Externalities, Endogenous Discounting, Heterogeneity and Cycles By Riham BARBAR; Jean-Paul BARINCI
  70. A Macroeconometric Model for the Republic of Macedonia By Vesna BUCEVSKA
  71. Stress-testing banks’ corporate credit portfolio By O. de Bandt; N. Dumontaux; V. Martin; D. Médée
  72. Large Bayesian VARMAs By Joshua C C Chan; Eric Eisenstat; Gary Koop
  73. Weather Conditions and Economic Growth - Is Productivity Hampered by Climate Change? By Thomas Brenner; Daniel Lee

  1. By: Barbara Annicchiarico (DEDI and CEIS, Università di Roma "Tor Vergata"); Fabio Di Dio (Sogei S.p.a. - IT Economia)
    Abstract: We study Ramsey monetary policy in a New Keynesian model embodying pollutant emissions and greenhouse gas emissions control policy. We find that the optimal response of inflation to technology shocks is crucially affected by the environmental regime adopted for emissions control.
    Keywords: Monetary Policy, Ramsey Problem, GHG Emission Control Policy
    JEL: E32 E52 Q58
    Date: 2014–09–24
  2. By: Hylton Hollander and Guangling Liu
    Abstract: This paper establishes the prevailing financial factors that influence credit spread variability, and its impact on the U.S. business cycle over the Great Moderation and Great Recession periods. To do so, we develop a dynamic general equilibrium framework with a central role of financial intermediation and equity assets. Over the Great Moderation and Great Recession periods, we find an important role for bank market power (sticky rate adjustments and loan rate markups) on credit spread variability in the U.S. business cycle. Equity prices exacerbate movements in credit spreads through the financial accelerator channel, but cannot be regarded as a main driving force of credit spread variability. Both the financial accelerator and bank capital channels play a significant role in propagating the movements of credit spreads. We observe a remarkable decline in the influence of technology and monetary policy shocks over three recession periods. From the demand-side of the credit market, the influence of LTV shocks has declined since the 1990-91 recession, while the bank capital requirement shock exacerbates and prolongs credit spread variability over the 2007-09 recession period. Across the three recession periods, there is an increasing trend in the contribution of loan markup shocks to the variability of retail credit spreads.
    Keywords: Financial intermediation, credit spreads, financial frictions, Great Recession
    JEL: E32 E43 E44 E51 E52
    Date: 2014
  3. By: Aguilar-Argaez Ana María; Cuadra Gabriel; Ramírez Claudia; Sámano Daniel    
    Abstract: In order to create an environment of low and stable inflation in Mexico it has been necessary to generate a framework for the conduction of monetary policy focused on price stability along with fiscal discipline. This paper describes some structural achievements to control inflation that have been attained in Mexico. In addition, it shows empirical evidence in favor of the anchoring of inflation expectations, particularly those for the medium and long term, being recently strengthened. Considering three episodes, within the period 2004-2012, in which inflation was subject to different supply shocks, it finds that during the episode in 2012 inflation expectations showed greater stability. Results show that the response from inflation expectations to supply shocks has diminished over time, up to values that are not significantly different from zero. This suggests a strengthening of the credibility of the Bank of Mexico's commitment to price stability.
    Keywords: inflation expectations, anchoring inflation expectations, cost-push shocks.
    JEL: E52 E58 E65
    Date: 2014–09
  4. By: Peter Tillmann (Justus-Liebig-University Giessen and Hong Kong Institute for Monetary Research)
    Abstract: Unconventional monetary policy such as Quantitative Easing (QE) is often considered to have considerable spillover effects on emerging market economies (EME). Aims at quantifying these effects so far mostly use high-frequency data around announcement dates, panels or VAR models. This paper proposes an alternative way to estimate the effects of QE on emerging markets that allows us to include macroeconomic, i.e. low-frequency, data together with announcement dates. A Qual VAR is estimated that integrates binary information of QE announcements with an otherwise standard VAR including US and emerging market variables. The model uncovers the Fed's latent, unobservable propensity for QE and generates impulse responses for EME variables to QE shocks. The results suggest that QE has strong effects on EME's financial conditions and plays a large role in explaining capital inflows, equity prices and exchange rates.
    JEL: E32 E44 F32
    Date: 2014–08
  5. By: Pascal Michaillat (Centre for Macroeconomics (CFM); Economics Department London School of Economics (LSE)); Emmanuel Saez (Department of Economics University of California-Berkeley)
    Abstract: In recent decades, advanced economies have experienced low and stable inflation and long periods of liquidity trap. We construct an alternative business-cycle model capturing these two features by adding two assumptions to a money-in-the-utility-function model: the labor market is subject to matching frictions, and real wealth enters the utility function. These assumptions modify the two core equations of the standard New Keynesian model. With matching frictions, we can analyze equilibria in which inflation is fixed and not determined by a forward-looking Phillips curve. With wealth in the utility, the Euler equation is modified and we can obtain steady-state equilibria with a liquidity trap, positive inflation, and labor market slack. The model is simple enough to inspect the mechanisms behind cyclical fluctuations and to study the effects of conventional and unconventional monetary and fiscal policies. As a byproduct, the model provides microfoundations for the classical IS-LM model. Finally, we show how directed search can be combined with costly price adjustments to generate a forward-looking Phillips curve and recover some insights from the New Keynesian model.
    Date: 2014–09
  6. By: Eckhard Hein; Daniel Detzer
    Abstract: In this paper we outline alternative policy recommendations addressing the problems of differential inflation, divergence in competitiveness, and associated current account imbalances within the euro area. The major purpose of these alternative policy proposals is to generate sustainably high demand and output growth in the euro area as a whole, providing high levels of noninflationary employment, as well as preventing "export-led mercantilist" and "debt-led consumption boom" types of development, both within the euro area and with respect to the role of the euro area in the world economy. We provide a basic framework in order to systematically address the related issues, making use of Anthony Thirlwall's model of a "balance-of-payments-constrained growth rate." Based on this framework, we outline the required stance for alternative economic policies and then discuss the implications for alternative monetary, wage/incomes, and fiscal policies in the euro area as a whole, as well as the consequences for structural and regional policies in the euro-area periphery in particular.
    Keywords: Competitiveness; Current Account Imbalances; Differential Inflation Rates; Euro Area Economic Policies
    JEL: E61 E62 E63 E64
    Date: 2014–09
  7. By: Okano Eiji (Nagoya City University,); Masashige Hamano (Sophia University); Pierre Picard (University of Luxembourg)
    Abstract: By developing a class of dynamic stochastic general equilibrium models with nominal rigidities and assuming a two-country currency union with sovereign risk, we show that there is not necessarily a trade-off between the prevention of default risk and stabilizing inflation. Under optimal monetary and fiscal policy, comprising a de facto inflation stabilization policy, the tax rate as an optimal fiscal policy tool plays an important role in stabilizing inflation, although not completely because of the distorted steady state. Changes in the tax rate to minimize welfare costs via stabilizing inflation then improve the fiscal surplus, and because of this and the incompletely stabilized inflation, the default rate does not increase as much.
    Keywords: Sovereign Risk; European Crisis; Optimal Monetary Policy; Fiscal Theory of the Price Level; Currency Union
    JEL: E52 E60 F41 F47
    Date: 2014–09
  8. By: Falk Mazelis; ; ;
    Abstract: This paper studies the role of uncertainty in the corporate cash hoarding puzzle. The baseline model is a stochastic neoclassical growth model featuring idiosyncratic and uninsurable productivity shocks and a cash-in-advance constraint on new in- vestments on the individual rm level. Individual agents' choices regarding cash holdings are analyzed. After a wealth threshold is reached, the cash-in-advance con- straint ceases to have an eect on the agent's behavior. The resulting aggregate cash holdings of households increases with uncertainty. Aggregate consumption is also higher, but the added volatility of consumption decreases lifetime utility. Al- lowing rms to borrow and lend available unused cash increases average variables. An exogenous increase in the interest rate at which they intermediate funds leads to increased intermediation activity, corresponding to the lending channel of monetary policy transmission.
    Keywords: CO2 Emission Allowances, CO2 Emission Trading, Spot Price Modelling, Markov Switching GARCH Models, Volatility Forecasting
    JEL: C63 E21 E41 D81
    Date: 2014–09
  9. By: Croushore, Dean (Federal Reserve Bank of Philadelphia); van Norden, Simon (Federal Reserve Bank of Philadelphia)
    Abstract: The surge in fiscal deficits since 2008 has put a renewed focus on the authors’ understanding of fiscal policy. The interaction of fiscal and monetary policy during this period has also been the subject of much discussion and analysis. This paper gives new insight into past fiscal policy and its influence on monetary policy by examining the U.S. Federal Reserve Board staff’s Greenbook forecasts of fiscal policy. The authors create a real-time database of the Greenbook forecasts of fiscal policy, examine the forecast performance in terms of bias and effciency, and explore the implications for the interaction of fiscal policy and monetary policy. The authors also attempt to provide advice for fiscal policy by showing how policymakers learn over time about the trajectory of the U.S. federal government’s fiscal balance as well as the changing roles of structural and cyclical factors.
    Keywords: Fiscal policy; Deficits; Forecasting; FOMC; Greenbook
    JEL: E62 H68
    Date: 2014–09–22
  10. By: Krzysztof MAKARSKI; Michal GRADZEWICZ
  11. By: Tomiyuki Kitamura (Bank of Japan); Satoko Kojima (Bank of Japan); Koji Nakamura (Bank of Japan); Kojiro Takahashi (Bank of Japan); Ikuo Takei (Bank of Japan)
    Abstract: Since the global financial crisis, macro stress testing has attracted much attention in many countries as a method to evaluate potential risks of financial system. The Bank of Japan has conducted macro stress testing with various scenarios reflecting financial and economic conditions at each point in time, and published the results in the semi-annual Financial System Report. This paper explains the framework of macro stress testing reported in the Financial System Report. The framework has been improved over time to ensure it appropriately analyzes risk factors in Japan's financial system. Current notable features of the Bank's macro stress testing are as follows. First, it includes a mechanism reflecting the feedback loop between the financial and economic sectors by using the FMM, a medium-sized structural macro model comprising two sectors: financial and macroeconomic. Second, it can analyze not only aggregate figures such as capital adequacy ratios and net interest income, but also those for individual financial institutions.
    Keywords: stress testing; macroprudential policy
    JEL: E44 G21
    Date: 2014–10–08
  12. By: Nao Sudo; Kozo Ueda; Kota Watanabe; Tsutomu Watanabe
    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 paper, 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 between 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
  13. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Context. Growth remains rapid, but has moderated from the 7¼ percent recorded in 2013. Remittances and accommodative monetary and financial conditions remain the primary growth drivers, despite volatile capital flows, slowing activity in the region and severe natural disasters. Inflation has picked up to over 4 percent, while the current account remains in surplus. Local financial markets were moderately impacted by the Fed’s “taper talk and action,†weakening the peso and equity prices. Credit growth has quickened, especially to construction. Potential growth has risen to about 6?6¼ percent. However, persistent weakness in the business climate is a risk to sustained growth and hinders job creation. Foreign ownership restrictions, inadequate infrastructure and high doing-business costs have held back overall investment and employment. Along with frequent natural disasters, this has kept poverty elevated, thereby sustaining outward migration. Outlook and risks. Normalizing financial conditions are forecast to ease growth to 6?6½ percent over the medium term, while keeping inflation within the band and moderating the current account surplus. Abrupt changes in global financial conditions and a sharp growth slowdown in EMs are among the external growth risks. On the domestic front, excessive flow of real and financial resources to the property sector could increase volatility of asset prices and GDP growth over the longer run. Policy recommendations. A more restrictive policy stance is needed to preserve macro- financial stability, with rebalancing of the mix to allow higher public investment spending, while implementing reforms to sustain vibrant growth and make it more inclusive: • Absorbing liquidity and raising official interest rates would address second-round inflation effects and potential overheating and financial stability risks. Allowing the exchange rate to adjust more fully to structural inflows, while smoothing the effect of cyclical flows, would limit further sustained reserve buildup. • Addressing specific risks from real estate and large credit exposures requires further targeted measures and broadening the BSP’s mandate to include financial stability. This would help prevent diversion of systemic risk to shadow banking and strengthen tools to manage risks from deepening cross-border financial integration. • Raising the fiscal deficit from below 1½ percent of GDP in 2013 to 2 percent of GDP in 2014 to accommodate reconstruction spending should be accompanied by tighter monetary and financial conditions. Mobilizing sizable additional stable revenue would ensure room for structural spending priorities while preserving fiscal prudence. • Improving the investment climate by relaxing foreign ownership limits, reducing red tape, limiting tax holidays, and reducing labor and product market rigidities would enhance competition, support PPP execution and create employment opportunities within the Philippines.
    Keywords: Article IV consultation reports;Economic growth;Monetary policy;Financial sector;Fiscal policy;Government expenditures;Revenue mobilization;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Philippines;
    Date: 2014–08–08
  14. By: Lilia CAVALLARI
  15. By: Hylton Hollander (Department of Economics, University of Stellenbosch)
    Abstract: This paper studies the effectiveness of countercyclical capital requirements and contingent convertible capital (CoCos) in limiting financial instability, and its associated influence on the real economy. To do this, I augment both features into a standard real business cycle framework with an equity market and a banking sector. The model is calibrated to real U.S. data and used for simulations. The findings suggest that CoCos effectively re-capitalize the banking sector and foster the objectives of countercyclical capital requirements (i.e., Basel III). Under financial shocks, CoCos provide an effective automatic stabilization effect on the financial cycle and the real economy. Conversely, a countercyclical capital adequacy rule dominates CoCos in the stabilization of real shocks.
    Keywords: Contingent convertible debt, bank capital, bank regulation, Basel
    JEL: G28 G38 E44
    Date: 2014
  16. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES The economy has rebounded strongly and prospects are promising. Headwinds that previously held back the economy—relating notably to credit conditions and confidence—have eased. Nonetheless, sustaining strong growth will depend on a recovery in productivity growth and further demand rebalancing. The housing market brings risks of financial vulnerabilities. Sterling is moderately overvalued. The overall policy mix is appropriate, but policy settings might need to be adjusted quickly. Effective monetary conditions are very supportive, compensating for ongoing fiscal consolidation: ? Accommodative monetary policy is appropriate for now, given weak inflation pressures, but policy might need to be adjusted quickly if inflation takes off. Interest rate increases may also need to be considered if macroprudential tools are insufficient to deal with financial stability risks from the housing market. ? The authorities have recently implemented macroprudential measures, including limiting the share of high loan-to-income mortgages lenders can issue, establishing them as the primary defense against housing-related risks. They should stand ready to tighten these limits should current settings prove ineffective in reining in those risks. ? A lasting solution to house price pressures requires measures to address insufficient supply. Significant planning reforms have been undertaken, but political consensus is needed to make further progress in this area. ? High deficits and rising debt mean that fiscal consolidation needs to continue. The pace and composition of deficit reduction over the near term is appropriate. Further reducing the deficit over the medium term will be challenging; both revenue and expenditure measures should be considered, keeping in mind both equity and efficiency. ? The financial sector is more robust, the new financial architecture is settling in, and significant changes have been made to banks’ liquidity backstops to adapt to changing needs. Implementing macroprudential policy will be a test of the new architecture. Some problems—such as Too Important To Fail and bank misconduct— persist, and new challenges, such as from shadow banking, are emerging.
    Keywords: Article IV consultation reports;Economic growth;Financial sector;Banks;Housing;Financial risk;Monetary policy;Fiscal policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;United Kingdom;
    Date: 2014–07–28
  17. By: Mohammad Ali MORADI
  18. By: Fabio Rumler; Maria Teresa Valderrama
  19. By: Fossati, Sebastian (University of Alberta, Department of Economics)
    Abstract: This paper documents important changes in real GDP growth of six large Latin American countries. The main results can be summarized as follows. First, there is evidence of a structural break in real GDP towards stronger mean growth and a substantial reduction in volatility. Second, the timing of the breaks suggests that the important changes in economic policies of the 1980s and 1990s have been effective in permanently improving economic growth in the region. Third, there is evidence of a positive and linear relationship between real GDP growth and the growth rate of commodity prices. As a result, the sustained increase in commodity prices observed in recent years explains an important share of growth in the region since 2003.
    Keywords: Latin America; business cycle; structural break; commodity prices
    JEL: E32
    Date: 2014–09–01
  20. By: Tomasz Łyziak (Narodowy Bank Polski / Instytut Ekonomiczny); Mariusz Kapuściński (Narodowy Bank Polski / Instytut Ekonomiczny); Ewa Stanislawska (Narodowy Bank Polski); Jan Przystupa (National Bank of Poland, Institute for Market, Consumption and Business Cycles Research); Ewa Wrobel (National Bank of Poland and University of Warsaw); Anna Sznajderska (National Bank of Poland)
    Abstract: For a central bank knowledge of the monetary policy transmission mechanism is a prerequisite for achieving its final goal, i.e. price stability. Therefore, this area of analyses and research is of key importance for central banks, including Narodowy Bank Polski (NBP). Every two years since 2011, the Research Bureau of the Economic Institute at NBP, prepares a report on the functioning of the transmission mechanism in Poland. Our aim is to gather the results of the most recent studies and to present them in a non-technical manner. Though we remain within the New-Keynesian school, we treat the theoretical achievements – according to Mayer’s (1996) terminology – rather in terms of empirical-science theory than formalistic theory. Therefore, the studies presented in this report share a common empirical character and aim at finding the most complete answer to the question on the role of monetary policy for the main economic variables in Poland. In our analyses we employ a broad set of various modelling tools. Thus, following monetary transmission literature, we use structural vector autoregression models (SVAR) as they are an important tool of inference on stylized facts, main transmission channels and their effectiveness. To examine the strength and delays in the transmission mechanism and ways in which the central bank affects the economy, we use classic structural models, i.e. the new version of the structural monetary transmission model (MMT 2.0) and the model based on the Global Projection Models, adjusted for specific features of the Polish economy, called QMOTR. In contrast to the previously used models, the new ones explicitly treat equilibria of the main macroeconomic categories and allow for a higher degree of forward-lookingness. To assess the impact of the exchange rate on the real sector, we use another structural model, i.e. the natural exchange rate model, NATREX. Finally, to analyse interest rate pass-through we apply error correction models (ECM). As in the previous report (Demchuk et al., 2012), presentation of model results is preceded by an assessment of the structural features of the Polish economy, which are potentially important for the functioning of the monetary policy transmission.
    Date: 2014
  21. By: Yasuo Hirose (Keio University); Atsushi Inoue (Vanderbilt University)
    Abstract: This paper examines how and to what extent parameter estimates can be biased in a dynamic stochastic general equilibrium (DSGE) model that omits the zero lower bound (ZLB) constraint on the nominal interest rate. Our Monte Carlo experiments using a standard sticky-price DSGE model show that no significant bias is detected in parameter estimates and that the estimated impulse response functions are quite similar to the true ones. However, as the probability of hitting the ZLB increases, the parameter bias becomes larger and therefore leads to substantial differences between the estimated and true impulse responses. It is also demonstrated that the model missing the ZLB causes biased estimates of structural shocks even with the virtually unbiased parameters.
    JEL: E3 E5
    Date: 2014–09–09
  22. By: Rafaela PIZARRO-BARCELÓ
  23. By: Paolo Gelain
  24. By: María Dolores Gadea-Rivas (University of Zaragoza); Ana Gómez-Loscos (Banco de España); Gabriel Pérez-Quirós (Banco de España and CEPR)
    Abstract: Many have argued that the Great Recession of 2008 marked the end of the Great Moderation of the eighties and nineties. Through painstaking empirical analysis of the data, this paper shows this is not the case. Output volatility remains subdued despite the turmoil created by the Great Recession. This fi nding has important implications for policymaking since lower output volatility (the hallmark of the Great Moderation) is associated with weaker recoveries.
    Keywords: business cycle, volatility, recoveries
    JEL: C22 E32
    Date: 2014–09
  25. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Context: Tonga’s economy is rebounding, partially owing to a recovery in agricultural exports. The outlook for tourism is also improving. The reconstruction from a recent cyclone is expected to lead to both a temporary boost to growth and additional financing needs. Risks to the inflation outlook and the external position are low. Fiscal Policy: The projected fiscal cost relating to the cyclone will be largely met by confirmed funding mainly from donor agencies. In the near term, the authorities should focus on reconstruction activities, while a medium-term fiscal strategy should aim at gradually stabilizing and then reducing the debt-to-GDP ratio, in order to improve Tonga’s moderate risk of debt distress. This will require careful execution of investments related to the 2019 South Pacific Games. Monetary Policy: The deleveraging cycle of the Tongan banks appears to be ending, and thus National Reserve Bank of Tonga should prepare to gradually withdraw liquidity and tighten monetary conditions once the current signs of a recovery of credit growth are confirmed. The authorities plan to lower the cost of credit through supportive credit policies, including by commercializing the Tonga Development Bank. The successful implementation of such plan requires sound safeguards, including a robust governance structure and firm risk management and accountability frameworks. Structural Policy: Structural reforms to facilitate the functioning of credit markets need to be implemented with renewed vigor. The authorities’ intention to gradually phase out existing ad hoc tax incentives is well placed. The promotion of foreign direct investments should focus on business-enabling structural reforms, while the use of tax incentives should be minimized and well targeted.
    Keywords: Article IV consultation reports;Economic growth;Exports;Agricultural sector;Tourism;Fiscal policy;Financial intermediation;Monetary policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Tonga;
    Date: 2014–08–06
  26. By: Alberto Botta (Department of Political and Social Sciences, University of Pavia and Department of Law and Economics, Mediterranean University of Reggio Calabria)
    Abstract: In this paper we describe the medium-run macroeconomic effects and long-run development consequences of a financial Dutch disease that may takes place in a small developing country with abundant natural resources. The first move of such a peculiar Dutch disease is on financial markets. An initial surge in FDI flows targeting domestic natural resources sets in motion a perverse cycle between exchange rate appreciation and mounting short-term capital flows. Such a spiral easily turns out to give rise to exchange rate volatility, foreign capital reversals, and sharp macroeconomic instability. In the long run, such acute macroeconomic instability as well as overdependence on natural resource exports all dampen the development of non-traditional tradable good sectors and curtail labor productivity dynamics. We advise the introduction of constraints to short-term capital inflows, in the form of taxes on exchange rate-based capital gains, to tame exchange rate/capital flows boom-and-bust cycles. We provide support to a developmentalist monetary policy that targets competitive nominal and real exchange rates in order to favor the process of production and export diversification. Such a policy stand can be particularly effective to counter-act the long-run negative effects of the financial Dutch disease we describe.
    Keywords: Financial Dutch Disease, exchange rate volatility, macroeconomic instability, developmentalist monetary policy
    JEL: O14 F32 O24
    Date: 2014–09
  27. By: International Monetary Fund. African Dept.
    Abstract: KEY ISSUES Context and outlook: Angola’s recent economic developments have been positive, but softening oil revenue and limited proven oil reserves highlight the need to contain emerging fiscal deficits, preserve policy buffers, and continue diversifying the economy. Focus of consultation: Discussions focused on mitigating the main risks to the macroeconomic framework and, inter alia, policies to return to structural fiscal surpluses over the medium term, and to support economic diversification and inclusive growth, the modernization of the monetary policy framework, and financial stability. Key policy recommendations: • Return to structural fiscal surpluses in line with the objective set forth in Angola’s Sovereign Wealth Fund, by mobilizing additional nonoil tax revenue, improving the efficiency of public investment, and reducing current spending, including by phasing out the costly and regressive fuel subsidies—while mitigating the impact on the poor through well-targeted social assistance. • Adopt an improved medium-term fiscal framework, focusing on the structural fiscal balance to limit the impact of the oil sector on the nonoil economy. • Develop a coherent asset-liability management framework, including a well-designed stabilization fund to shield the budget from oil revenue fluctuations. • Further improve public financial management systems to avoid, inter alia, a recurrence in the future of domestic payments arrears. • Continue improving the business climate to boost economic development, diversification, and competitiveness. • In transitioning over the medium-term toward an inflation targeting regime, enhance the central bank’s capacity to collect and analyze high-frequency economic data, and continue de-dollarizing the economy. • Further strengthen the financial system, by continuing to improve the transparency and accountability of banks, and enhancing bank supervision. • Manage public guarantees transparently and with a view to minimize fiscal costs, as envisaged in the recently-approved law on public guarantees.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Public investment;Financial management;Monetary policy;Reserves;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Angola;
    Date: 2014–09–05
  28. By: Guido Tabellini
    Abstract: Paul Krugman has written a very timely paper. It discusses an old issue, that has become very relevant again. My comments address two questions. First, should inflation targeting be reconsidered? Here my answer is a clear and resounding yes. Inflation targeting performed very well in the fight against inflation and in stabilizing inflation expectations. But now, even leaving issues of financial stability aside, monetary policy is faced with different challenges. Second, which features of the inflation targeting framework should be changed? Here I argue that other aspects of the framework are more important than the numerical value of the target. In addressing these questions, I review Paul Krugman’s arguments, agreeing with many but not all of them.
    Date: 2014
  29. By: Malgorzata A. Olszak (Faculty of Management,University of Warsaw); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland)
    Abstract: Procyclicality in banking may result in financial instability and therefore be destructive to economic growth. The sensitivity of different banking balance sheet and income statement variables to the business cycle is diversified and may be prone to increasing integration of financial markets. In this paper we address the problem of the influence of financial integration on the transmission of economic shocks from one country to another and consequently on the sensitivity of loan loss provisions to the business cycle. We also aim to find out whether earnings management hypotheses are supported throughout the whole business cycle. Application of the SURE approach to 13 OECD countries in 1995-2009 shows that the procyclicality of LLP is statistically significant almost in thewhole sample of countries. Independent of the econometric specification, the earnings management hypotheses are hardly supported.
    Keywords: loan loss provisions, procyclicality, earnings management
    JEL: E32 G21 G28
    Date: 2013–09
  30. By: Merike Kukk
    Abstract: The paper investigates the interdependence of household financial liabilities and assets, with special focus on the impact of liabilities on households’ holdings of financial assets. The paper uses the new ECB Household Finance and Consumption Survey from 2009–2010 covering euro area countries. The paper estimates a system of equations for households’ financial liabilities and assets, taking account of endogeneity and selection bias. The results indicate that higher household liabilities are related to lower holdings of financial assets. The findings are consistent with the hypothesis that wider use of credit leads to lower savings. The paper highlights that the distinction between the components of households’ wealth provides additional insights into households’ financial behaviour
    Keywords: household debt, household wealth, financial assets, liabilities, financial vulnerability
    JEL: D14 E21 D12
    Date: 2014–10–10
  31. By: Yasin MIMIR
  32. By: F. Langot; L. Patureau; T. Sopraseuth
    Abstract: The paper characterizes the optimal tax scheme in an open economy with structural inefficiencies on the labor market and on government size. On analytical grounds first, we show that the economy can use fiscal revaluation to exploit the terms of trade externality and to dampen the impact of an excessive public spending. However, if real labor market rigidities are large enough, fiscal devaluation may be desirable. Second, we provide a quantitative assessment of the optimal tax reform using France as the benchmark economy. Our results show that France would benefit more from fiscal devaluation than a economy where the labor market is more flexible, as the US. We also show that the welfare gains from the optimal tax reform crucially depend on the ability of the government to target its optimal size.
    Keywords: Consumption tax, payroll tax, Ramsey allocation, labor market search, open economy, public spending.
    JEL: E27 E62 H21 J38
    Date: 2014
  33. By: Lumengo Bonga-Bonga
  34. By: David Greasley (School of History, Classics and Archaeology, University of Edinburgh); Nick Hanley (School of Geography and Sustainable Development, University of St. Andrews); Eoin McLaughlin (School of Geography and Sustainable Development, University of St. Andrews); Les Oxley (Department of Economics, University of Waikato)
    Abstract: Modern macroeconomic theory utilises optimal control techniques to model the maximisation of individual well-being using a lifetime utility function. Agents face choices over current and future consumption (with resultant implied savings decisions) seeking to maximise the present value of current plus future well-being. However, such inter-temporal welfare- maximising assumptions remain empirically untested. In the work presented here we test whether welfare was in (historical) fact maximised in the US between 1870 -2000 and find empirical support for the optimising basis of growth theory, but only once a comprehensive view of what constitutes a country’s wealth or capital is taken into account.
    Keywords: inter-temporal utility maximisation;modern growth theory; US; comprehensive wealth
    JEL: E21 E22 C61
    Date: 2014–08
  35. By: Frank Hespeler
  36. By: Lansing, Kevin J. (Federal Reserve Bank of San Francisco); Ma, Jun (University of Alabama)
    Abstract: We introduce a form of boundedly-rational expectations into a standard asset-pricing model of the exchange rate, where cross-country interest rate differentials are governed by Taylor-type rules. We postulate that agents augment a lagged-information random walk forecast with a term that relates to news about Taylor-rule fundamentals. We solve for a “consistent expectations equilibrium,” in which the coefficient on fundamental news in the agent’s forecast rule is pinned down using the moments of observable data. The forecast errors observed by the agent are close to white noise, making it di¢ cult for the agent to detect any misspecification. We show that the model generates volatility and persistence that is remarkably similar to that observed in monthly bilateral exchange rate data (relative to the U.S.) for Canada, Japan, and the U.K. over the period 1974 to 2012. Moreover, we show that regressions performed on model-generated data can deliver the well-documented forward premium anomaly whereby a high interest rate currency tends to appreciate, thus violating the uncovered interest rate parity condition.
    JEL: D83 D84 E44 F31 G17
    Date: 2014–09
  37. By: Dovern, Jonas
    Abstract: This paper documents multivariate forecast disagreement among professional forecasters of the Euro area economy and discusses implications for models of heterogeneous expectation formation. Disagreement varies over time and is strongly counter-cyclical. Disagreement is positively correlated with general (economic) uncertainty. Aggregate supply shocks drive disagreement about the long-run state of the economy while aggregate demand shocks have an impact on the level of disagreement about the short-run outlook for the economy. Forecasters disagree about the structure of the economy and the degree to which individual forecasters disagree with the average forecast tends to persist over time. This suggests that models of heterogeneous expectation formation, which are currently not able to generate those last two features, need to be modified. Introducing learning mechanisms and heterogeneous signal-to-noise ratios could reconcile the benchmark model for disagreement with the observed facts.
    Keywords: Macroeconomic expectations; forecasts; noisy information; survey data; disagreement
    Date: 2014–09–19
  39. By: World Bank Group
    Keywords: Finance and Financial Sector Development - Access to Finance Banks and Banking Reform Social Protections and Labor - Labor Policies Economic Theory and Research Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth
    Date: 2014–01
  40. By: Jean-Guy LORANGER; Gérard BOISMENU
  41. By: Alvaro AGUIAR; Ana Paula RIBEIRO
  42. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: KEY ISSUES Outlook and risks. The economy will remain vulnerable over the medium term, with sluggish real GDP growth, rising public debt and widening external current account deficits. International reserves could decline to uncomfortably low levels. The financial system would continue to be hampered by high NPLs and low capital buffers, especially at a systemic bank. Main fiscal risks include a court decision that could lead to a larger than expected compensation to the former owners of the nationalized companies, weaknesses in a systemic bank, and the cost of the new public bank. Focus of the Consultation. Discussions focused on measures that would place public debt on a sustainable path; address weaknesses in the financial system, particularly in a systemic bank; buttress external sector resilience; and enhance competitiveness and inclusive growth. Key policy advice. ? Improve the primary fiscal balance to about 4.5 percent of GDP starting in 2015. This could be achieved mainly by allowing spending on goods and services to rise only in line with inflation; containing the expansion in the wage bill; requiring public workers to contribute to their pensions; and by widening the tax base and strengthening revenue administration. Active debt management, including refinancing of expensive debt with low-earning deposits (essentially from PetroCaribe), would support these efforts. ? Address banking sector vulnerabilities through improving capital buffers. ? Improve public financial management (PFM) to contain low-quality spending, strengthen budget formulation, preparation, and execution, and improve the coverage and accuracy of budget documents. ? Further improve the business environment to attract more private investment, boost competitiveness, and enhance job-creating and inclusive growth. Implementation of staff advice. Implementation of recent staff advice is mixed. The breathing room provided by the debt restructuring was not used to improve the primary fiscal balance. The authorities plan to review exemptions and zero-ratings under the GST.
  43. By: Ying Jin; Richard Bullock; Wanli Fang
    Keywords: Transport Economics Policy and Planning Water Resources - Water and Industry Economic Theory and Research Roads and Highways Private Sector Development - E-Business Transport Macroeconomics and Economic Growth
    Date: 2013–06
  44. By: Carlos Casas (Departamento de Economía, Universidad del Pacífico); Alexandra Málaga (Departamento de Economía, Universidad del Pacífico)
    Abstract: el objetivo del presente estudio será medir el impacto de las rentas generadas por las industrias extractivas en los diversos territorios beneficiarios sobre la equidad interpersonal del ingreso medido a través del coeficiente de Gini. Para ello se tomará como unidad territorial representativa al departamento. Se calculará el índice de Gini a nivel departamental desde el año 2004 en que existe representatividad de los datos a dicho nivel. El indicador de las rentas generadas por la industria minera serán los precios internacionales de los minerales que exporta el país.
    Keywords: Impacto, Extracción, Recursos, Naturales, Equidad, Interpersonal, Departamento, Perú, Minería, Canon, Crecimiento, Conflicto
    JEL: E62 H23 H50 H72 O15
    Date: 2013–12
  45. By: UENO Yuko; NAMBA Ryoichi
    Abstract: This study examines how Japanese consumers’ inflation expectations are formed by the use of micro-level dataset of the prediction error of expected inflation rate. Recently in Japan, the interest is growing in the policies that intend to work on the inflation expectations of consumers and firms. Effects of such policy depend on expectation formation mechanism of economic agents. In particular, whether expectations are rational or adaptive, homogenous or heterogenous is an important factor that affects its effectiveness. We examine underlying mechanism of Japanese consumers’ inflation expectations by analyzing the raw data of “Consumer Confidence Survey”. From the data, we find that both statistically significant upward bias and disagreement among households exist in a persistent manner. Our study shows that“Model of asymmetric cost of forecast error” is consistent with this upward bias, while a gap remains from the level of rational expectation. In addition, we offer the empirical evidence that expectation heterogeneity among various groups can be explained with their characteristics only to a limited extent. Among others, we find that the age effect on inflation expectations looks inverted U-shaped.
    Date: 2013–07
  46. By: Paul Kosmetatos (Darwin College, Cambridge)
    Abstract: The 1772-3 credit crisis impressed its contemporaries for its suddenness, geographical range, and for arising during a time of relative peace and robust economic growth. It also arguably displayed an early instance of a Lender of Last Resort (LLR) in action, some thirty years before the classical articulation of the concept. This paper investigates whether financial contagion was at work in 1772-3, and describes its possible routes of transmission. It furthermore identifies the agents of market intervention, and discusses whether theirs was a conscious policy to limit systemic risk, or ad hoc improvisation in response to other considerations.
    Keywords: Monetary economics, Financial markets and institutions, Financial crises
    JEL: B12 E58 G01 N13 N23
  47. By: Olivier Cardi; Romain Restout
    Abstract: This paper investigates the relative price and relative wage effects of a higher productivity in the traded sector compared with the non traded sector in a two-sector open economy model with imperfect substitutability in hours worked across sectors. The Balassa- Samuelson [1964] model predicts that a rise in the sectoral productivity ratio by 1% raises the relative price of non tradables by 1% while leaving unchanged the non traded wage-traded wage ratio. Applying cointegration methods to a panel of fourteen OECD countries over the period 1970-2007, our estimates show that the relative price rises by only 0.78% and the relative wage falls by 0.27%. While our first set of empirical findings cast doubt on the quantitative predictions of the Balassa-Samuelson model, our second set of evidence highlights the role of imperfect labor mobility: the relative price responds more to a productivity differential between tradables and non tradables while the reaction of the relative wage is more muted in countries with higher intersectoral reallocation of labor. We show that the ability of the two-sector model to account for our evidence quantitatively relies upon two ingredients: i) imperfect mobility of labor across sectors, and ii) physical capital accumulation. Finally, our numerical results reveal that the model predicts the relative price response pretty well, and to a lesser extent the relative wage response.
    Keywords: Relative price of non tradables; Sectoral wages; Productivity growth; Sectoral labor reallocation; Investment.
    JEL: E22 F11 F41 F43
    Date: 2014
  48. By: Ryoji Hiraguchi; Keiichiro Kobayashi
    Abstract: In the Lagos-Wright model of money, monetary frictions alone cannot be a source of equilibrium multiplicity. However, the conclusion depends on the assumption that the agents always enter the centralized market after completing a transaction in the decentralized markets. In this paper, we investigate a monetary model in which the centralized market opens once, but the decentralized markets open twice in each period. We show that as the sellers money balances affect the buyers problem in the first decentralized market, there may be multiple stationary equilibria.
    Date: 2014–09
  49. By: Baotai WANG
  50. By: Igor LEBRUN; Ludovic DOBBELAERE
  51. By: Peter NUNNENKAMP
  52. By: International Monetary Fund. Monetary and Capital Markets Department
    Keywords: Financial Sector Assessment Program;Macroprudential Policy;Monetary policy;Banking sector;Bank supervision;Switzerland;
    Date: 2014–09–03
  53. By: Magdalena ZACHLOD-JELEC; Piotr KARP
  54. By: Hannu KOSKINEN
  55. By: Alfredo M. Pereira (Department of Economics, College of William and Mary, Williamsburg); Jorge M. Andraz (Faculdade de Economia, Universidade do Algarve, CEFAGE (UALG))
    Abstract: We estimate the long-term impact of social security and social protection spending in a set of twelve EU countries. We estimate country-specific VARs relating GDP, unemployment, savings, and social spending. We find that social spending has a negative effect in most countries while the effects on savings are either not significant or positive but small. In turn, the negative effects on output are significant and in some cases large. Unemployment is the dominant channel through which social spending affects output. Our results imply that any increase in generosity would, under the current situation, bring detrimental macroeconomic effects. In addition, a less distortionary tax mix should be used to finance redistributive spending and the insurance component of the systems should be changed in the direction of a capitalization regime based on defined contributions. Obviously, this transition would take time and would not be costless but neither is maintaining the status quo.
    Keywords: Social security spending; Unemployment; Saving; Output; Fiscal multipliers; VAR; EU.
    JEL: C32 C51 C52 H55
    Date: 2014
  58. By: Jiyong HWANG
  59. By: BESSEC Marie
  60. By: Lucian-Liviu ALBU
  61. By: Makena Coffman
  62. By: Beatriz GAITAN S.; Bernd LUCKE; Jacopo ZOTTI
  63. By: Fang Xu; Helmut Herwartz
  64. By: Viktor VÁRPALOTAI
  65. By: Søren HOVE RAVN
  66. By: Jibran J Punthakey
    Abstract: Policy complementarities have often been overlooked in transition economies, leading to the exclusion or partial adoption of reforms. This paper examines the key determinants of successful transition strategies, and concludes that an approach exploiting complementary relationships and interactions between policies is most likely to result in a welfare improvement. Based on nine policy areas from the European Bank for Reconstruction and Development (EBRD) Transition Indicators database, composite indicators measuring reform implementation and complementarity are constructed. Panel data estimates for 30 countries over the period 1989 to 2012 demonstrate a positive association between improvements in reform complementarity and economic growth. Moreover, the effects are found to persist over time for up to two years after the initial policy change, and are robust to the inclusion of a wide range of control variables. Applying these findings to the case of Kazakhstan illustrates that comprehensive reforms to a targeted group of complementary policies generate sustained increases in output growth, whereas a partial reform strategy results in a loss of welfare.
    Keywords: economic growth, transition economies, panel data, structural reforms, Kazakhstan, complementarity, reform indicators
    JEL: C33 O40 P2
    Date: 2014–09–24
  67. By: Vladimir Mau (Gaidar Institute for Economic Policy)
    Abstract: In 2013 the Russian economy entered a new phase of socio-economic development. The period of tempestuous development, during which the primary trends and objectives had been those of recovery and which had lasted almost twelve years (1999–2012), had come to an end. The crisis of 2009 did not end in a replacement of this growth model; on the contrary it perpetuated its existence, given the need for a return to pre-crisis levels of output. The need for a new model became one of practical necessity, since rates of economic growth fell to a level that was unprecedented, a deceleration that could not be attributed exclusively, or even predominantly, to external factors. Corresponding conclusion was politically executed in the President’s Address of 12 December 2013. The internal factors at work within the Russian economy have to be examined in the context of the continuing global economic crisis. This crisis provides not only the economic but also the socio-economic background to Russian economic development and in particular circumstances it can be a significant factor in the adoption of internal political decisions.?
    Keywords: Russian economy; economic growth;
    JEL: O52 P27
    Date: 2014
  68. By: N. Groenewold; P. Fraser
  69. By: Riham BARBAR; Jean-Paul BARINCI
  70. By: Vesna BUCEVSKA
  71. By: O. de Bandt; N. Dumontaux; V. Martin; D. Médée
    Abstract: The paper describes the methods used by the French Banking Supervision Authority (ACP) to run stress tests for the corporate credit portfolio, through credit migration matrices (or transition matrices). This approach is currently used for “top-down” stress tests exercises. Developed for Basel II, it is still relevant under the Basel III framework. It includes sufficient flexibility to accommodate the severe crisis period observed recently. The paper introduces the basic model underlying the approach, largely based on Merton’s model; it then describes carefully the different steps for its practical implementation, providing hints on how it can be extended to other banking sectors. Finally the paper comments a few outputs of a stress testing exercise.
    Keywords: credit risk, corporate, stress tests, migration matrices.
    JEL: G21 G28 G32 E44
    Date: 2013
  72. By: Joshua C C Chan (Australian National University); Eric Eisenstat (University of Bucharest); Gary Koop (Department of Economics, University of Strathclyde)
    Abstract: Abstract: Vector Autoregressive Moving Average (VARMA) models have many theoretical properties which should make them popular among empirical macroeconomists. However, they are rarely used in practice due to over-parameterization concerns, difficult - ties in ensuring identification and computational challenges. With the growing interest in multivariate time series models of high dimension, these problems with VARMAs become even more acute, accounting for the dominance of VARs in this field. In this paper, we develop a Bayesian approach for inference in VARMAs which surmounts these problems. It jointly ensures identification and parsimony in the context of an efficient Markov chain Monte Carlo (MCMC) algorithm. We use this approach in a macroeconomic application involving up to twelve dependent variables. We find our algorithm to work successfully and provide insights beyond those provided by VARs
    Keywords: VARMA identification, Markov Chain Monte Carlo, Bayesian, stochastic search variable selection
    JEL: C11 C32 E37
    Date: 2014–09
  73. By: Thomas Brenner (Economic Geography and Location Research, Philipps-University, Marburg); Daniel Lee (German Meteorological Service, Offenbach)
    Abstract: Climate change researchers predict a dramatic increase in global average temperature over the next decades. We use past temperature and precipitation fluctuations to investigate whether changes in temperature and precipitation are associated with decreases in economic growth. A GMM panel regression is used to analyze the effects of the average yearly heat index and precipitation on economic growth in 105 countries for the time period 1991-2009.
    Keywords: national growth, heat, average yearly temperature, growth effects, panel GMM
    JEL: O11 O13 E10 C23
    Date: 2014–10–14

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