nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒11‒07
106 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Limited Asset Market Participation and the Optimal Fiscal and Monetary Policies By Lorenzo Menna; Patrizio Tirelli
  2. Economic Policy Uncertainty and Inflation Expectations. By K. Istrefi; A. Piloiu
  3. Infrequent fiscal stabilization By Yuting Bai; Tatiana Kirsanova
  4. Fiscal Consolidations: Can We Reap the Gain and Escape the Pain? By Maria Ferrara; Patrizio Tirelli
  5. Euro Area monetary policy shocks: impact on financial asset prices during the crisis? By C.Jardet; A. Monks
  6. Three Scenarios for Interest Rates in the Transition to Normalcy By Cooke, Diana A.; Gavin, Michael K.
  7. Surprise! Euro area inflation has fallen By Marianna Riggi; Fabrizio Venditti
  8. Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries By S. Borağan Aruoba; Pablo Cuba-Borda; Frank Schorfheide
  9. Are US Inflation Expectations Re-Anchored? By Dieter Nautz; Till Strohsal; ;
  10. Financial News, Banks and Business Cycles By Alok Johri; Christopher M. Gunn
  11. Monetary policy stress in EMU during the moderation and the global crisis By Pawel Gajewski
  12. Central Bank Purchases of Private Assets By Williamson, Stephen D.
  13. Time-varying equilibrium rates in small open economies: Evidence for Canada By Tino Berger; Bernd Kempa
  14. Sentiment and the US Business Cycle By Fabio Milani
  15. Uncertainty, Financial Frictions, and Investment Dynamics By Gilchrist, Simon; Sim, Jae W.; Zakrajsek, Egon
  16. The Macroeconomic Effects of Fiscal Consolidation in Dynamic General Equilibrium By Tim Schwarzmüller; Maik Wolters
  17. Financial frictions and the reaction of stock prices to monetary policy shocks By Ozdagli, Ali K.
  18. Learning about Rare Disasters: Implications For Consumption and Asset Prices By Max Gillman; Michal Kejak; Michal Pakos
  19. The role of Fiscal policy in Britain’s Great Inflation By Fan, Jingwen; Minford, Patrick; Ou, Zhirong
  20. "The Determinants of Long-Term Japanese Government Bonds' Low Nominal Yields" By Tanweer Akram; Anupam Das
  21. Coping with imbalances in the Euro area: Policy alternatives addressing divergences and disparities between member countries By Eckhard Hein; Daniel Detzer
  22. On the Sensitivity of Banking Activity Shocks: Evidence from CEMAC Sub-region By Christian Lambert Nguena; Roger Tsafack Nanfosso
  23. Labor Market Reforms and Current Account Imbalances - Beggar-thy-Neighbor Policies in a Currency Union? By Timo Baas; Ansgar Belke
  24. Dynamic prediction pools: an investigation of financial frictions and forecasting performance By Del Negro, Marco; Hasegawa, Raiden B.; Schorfheide, Frank
  25. Why the split of payroll taxation between firms and workers matters for macroeconomic stability By Simon Voigts; ; ;
  26. The Role of the Business Cycle in Exchange Rate Pass-Through: The Case of Finland By Nidhaleddine Ben Cheikh; Christophe Rault
  27. Time-Varying Persistence in US Inflation By Massimiliano Caporin; Rangan Gupta
  28. Russia Economic Report, No. 32, September 2014 : Policy Uncertainty Clouds Medium-Term Prospects By World Bank
  29. Euro area Inflation as a Predictor of National Inflation Rates By Antonella Cavallo; Antonio Ribba
  30. Monetary Policy in Oil Exporting Economies By Drago Bergholt
  31. Implications of different understandings of financial crises for divergent conclusions on the connections between finance and sustainability By Alessandro Vercelli
  32. Effective Exchange Rates in Central and Eastern European Countries: Cyclicality and Relationship with Macroeconomic Fundamentals By Daniel StavaÌrek; Cynthia Miglietti
  33. Heterogeneity of Saving-Investment Causality in WAEMU Zone and Fiscal Coordination Implication By Christian Lambert Nguena
  34. The Role of Government Debt in Economic Growth By António Afonso; José Alves
  35. ECB Policy Responses between 2007 and 2014: a chronological analysis and a money quantity assessment of their effects By Carlos Rodriguez; Carlos A. Carrasco
  36. Sovereign Debt Maturity and Debt-to GDP Dynamics in Six Euro Area Countries By Juan Equiza Goni
  37. Factors behind the Decline in Real Long-Term Government Bond Yields By Romain Bouis; Kei-Ichiro Inaba; Łukasz Rawdanowicz; Ane Kathrine Christensen
  38. How important is variability in consumer credit limits? By Fulford, Scott L.
  39. Bank heterogeneity and capital allocation: evidence from "fracking" shocks By Plosser, Matthew
  40. Income Distribution and Economic Growth in a Multi-Sectoral Kaleckian Model By Hiroshi Nishi
  41. Shopping Time By Nicolas Petrovsky-Nadeau; Etienne Wasmer; Shutian Zeng
  42. Utility functions, fiscal shocks and the open economy - In the search of a positive consumption multiplier By Philipp Wegmueller
  43. Recent Estimates of Exchange Rate Pass-Through to Import Prices in the Euro Area By Nidhaleddine Ben Cheikh; Christophe Rault
  44. Clear Skies : Cambodia Economic Update, October 2014 By World Bank Group
  45. Assessing the Effectiveness of Date-Based Forward Guidance at the Zero Lower Bound with a Non-Gaussian Affine Term-Structure Model By Tsz-Kin Chung; Cho-Hoi Hui; Ka-Fai Li
  46. Bitcoin as money? By Lo, Stephanie; Wang, J. Christina
  47. Forecast Models for Private Consumption By Peussa, Aleksandr
  48. Inspecting the Mechanism Leverage and the Great Recession in the Eurozone By Philippe Martin; Thomas Philippon
  49. Sectoral Interdependence and Business Cycle Synchronization in Small Open Economies By Drago Bergholt; Tommy Sveen
  50. Financial Conditions and Slow Recoveries By Kevin x.d. Huang; Jie Chen; Zhe Li; Jianfei Sun
  51. Generalized Diffusion Indexes of Mexican State and Sectorial Economic Activity By Guerrero Santiago; Martínez-Ovando Juan Carlos
  52. Global liquidity, money growth and UK inflation By Michael Ellington; Costas Milas
  53. Financial Deepening Dynamics and Implication for Financial Policy Coordination in a Monetary Union: the case of WAEMU By Christian Lambert Nguena; Roger Tsafack Nanfosso
  54. Causality between Inflation and Inflation Uncertainty in South Africa: Evidence from a Markov-Switching Vector Autoregressive Model By Adnen Ben Nasr; Mehmet Balcilar; Ahdi N. Ajmi; Goodness C. Aye; Rangan Gupta; Reneé van Eyden
  55. Strategic Complementarities and Nominal Rigidities By Philipp König; Alexander Meyer-Gohde; ; ;
  56. US Inflation Dynamics on Long Range Data By Vasilios Plakandaras; Periklis Gogas; Rangan Gupta; Theophilos Papadimitriou
  57. Taxing Top Earners: A Human Capital Perspective By Mark Huggett; Alejandro Badel
  58. Finance-dominated capitalism in Germany – deep recession and quick recovery By Daniel Detzer; Eckhard Hein
  59. Labor Market Dynamics and Monetary Policy : a speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 22, 2014 By Yellen, Janet L.
  60. Investment Hangover and the Great Recession By Matthew Rognlie; Andrei Shleifer; Alp Simsek
  61. The investment effect of fiscal consolidation By Albrizio, Silvia; Lamp, Stefan
  62. Water Taxation and the Double Dividend Hypothesis By Nicholas Kilimani
  63. Debt Deleveraging and the Zero Bound: Potentially Perverse Effects of Real Exchange Rate Movements By Paul Luk; David Vines
  64. Volatile Lending and Bank Wholesale Funding By Craig, Ben R.; Dinger, Valeriya
  65. Do Tax Cuts Increase Consumption? An Experimental Test of Ricardian Equivalence By Thomas Meissner; Davud Rostam-Afschar; ;
  66. The impact of European Union austerity policy on women's work in Southern Europe By Lina Gálvez-Muñoz 1; Paula Rodríguez-Modroño; Tindara Addabbo
  67. Navigating toward normal: the road back to the future for monetary policy By Williams, John C.
  68. High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk By Fabian Kindermann; Dirk Krueger
  69. The Bank of France and the Open-Market instrument: an impossible wedding? By Nicolas Barbaroux
  70. Investment Gaps after the Crisis By Christine Lewis; Nigel Pain; Jan Strasky; Fusako Menkyna
  71. Leveraging Spatial Development Options for Uttar Pradesh By World Bank Group
  72. Estimating Dynamic Equilibrium Models with Stochastic Volatility By Jesús Fernández-Villaverde; Pablo Guerrón-Quintana; Juan F. Rubio-Ramírez
  73. Choosing the variables to estimate singular DSGE models: Comment By Nikolay, Iskrev
  74. Implementation of open market operations in a time of transition By Potter, Simon M.
  75. Factors generating and transmitting the financial crisis; Functional distribution of income. By Jo Michell
  76. Implications of Liquidity Management of Global Banks for Host Countries - Evidence from Foreign Bank Branches in Hong Kong By Eric Wong; Andrew Tsang; Steven Kong
  77. The Effects of Natural Disasters on Prices and Purchasing Behaviors: The Case of the Great East Japan Earthquake By Abe, Naohito; Moriguchi, Chiaki; Inakura, Noriko
  78. More Jobs, Better Jobs : A Priority for Egypt By World Bank
  79. A Comparative Analysis of the Accuracy and Uncertainty in Real Estate and Macroeconomic Forecasts By Dimitrios Papastamos; George Matysiak; Simon Stevenson
  80. Recent Downturn in Emerging Economies and Macroeconomic Implications for Sustainable Development: A case of India By N R Bhanumurthy
  81. The Challenge of Restoring Debt Sustainability in a Deep Economic Recession: The case of Greece By Platon Monokroussos
  82. Promoting Foreign Investment in Fragile and Conflict-Affected Situations By Robert Whyte; Carlos Griffin
  83. Boom or gloom? Examining the Dutch disease in two-speed economies By Hilde C. Bjørnland; Leif Anders Thorsrud
  84. A note on the granular nature of imports in German manufacturing industries By Joachim Wagner
  85. The Role of Interbank Relationships and Liquidity Needs By Craig, Ben R.; Fecht, Falko; Tumer-Alkan, Gunseli
  86. The elephant in the ground: managing oil and sovereign wealth By Ton van den Bremer; Frederick van der Ploeg; Samuel Wills
  87. The national and regional economy By Dudley, William
  88. Subprime mortgages and the MBSs in generating and transmitting the global financial crisis By Michal Jurek; Pawel Marszalek
  89. Learning and Life Cycle Patterns of Occupational Transitions By Gorry, Aspen; Devon, Gorry; Trachter, Nicholas
  90. Interest rate control during normalization By Potter, Simon M.
  91. Studying the informal aspects of the activity of countries with Social Accounting and Socio- Demographic Matrices By Susana Santos
  92. The Glass Ceiling and the Paper Floor: Gender Differences among Top Earners, 1981–2012 By Guvenen, Fatih; Kaplan, Greg; Song, Jae
  93. A Panel Study of Zombie SMEs in Japan: Identification, Borrowing and Investment Behavior By Kentaro Imai
  94. Capital Income Shares and Income Inequality in 16 EU Member Countries By Eva Schlenker; Kai D. Schmid
  95. Estructura impositiva y capacidad recaudatoria en España: Un análisis comparado con la UE By Pablo Hernández de Cos; David López Rodríguez
  96. Rural-Urban Migration, Structural Transformation, and Housing Markets in China By Garriga, Carlos; Tang, Yang; Wang, Ping
  97. Measuring the sustainability performances of the Italian regions By Luzzati Tommaso; Cheli Bruno; Arcuri S.
  98. Risk Aversion, Financial Stress and Their Non-Linear Impact on Exchange Rates By Tomas Adam; Sona Benecka; Jakub Mateju
  99. The Federal Reserve and the Global Economy : a speech at the Per Jacobsson Foundation Lecture, 2014 Annual Meetings of the International Monetary Fund and the World Bank Group, Washington, D.C., October 11, 2014 By Fischer, Stanley
  100. Une baisse du chômage encourageante?: Non : le marché du travail français est structurellement malade By Stéphane Auray; Nicolas Lepage-Saucier
  101. Note on Green Growth for Bhutan By Urvashi Narain; Michael Toman; Zhiyun Jiang
  102. K-state switching models with time-varying transition distributions – Does credit growth signal stronger effects of variables on inflation? By Sylvia Kaufmann
  103. Trade and unions: Can exporters benefit from collective bargaining? By Capuano, Stella; Hauptmann, Andreas; Schmerer, Hans-Jörg
  104. Offsets to compulsory superannuation: do people consciously choose their level of retirement saving? By Akshay Shanker; Sacha Vidler
  105. Risparmio dei lavoratori e contrattazione in un modello di capitalismo come gioco differenziale By G. Gozzi
  106. To Adjust or not to Adjust after a Cost-Push Shock? A Simple Duopoly Model with (and without) Resilience By L. Lambertini; L. Marattin

  1. By: Lorenzo Menna; Patrizio Tirelli
    Abstract: In the workhorse DSGE model, the optimal steady state inflation rate is near to zero or slightly negative and inflation is almost completely stabilized along the business cycle (Schmitt-Grohè and Uribe, 2011). We reconsider the issue, allowing for agent heterogeneity in the access to the market for interest bearing assets. We show that inflation reduces inequality and that LAMP can justify relatively high optimal inflation rates. When we calibrate the share of constrained agents to fit the wealth Gini index for the US, the optimal inflation rate is well above 2%. The optimal response to shocks is also a¤ected. Rather than using public debt to smooth tax distortions, the Ramsey planner front loads tax rates and reduces public debt variations in order to limit the redistributive e¤ects of debt service payments.
    Keywords: trend in�ation, monetary and �scal policy, Ramsey plan, Limited Asset Market Participation.
    JEL: E52 E58 J51 E24
    Date: 2014–10
  2. By: K. Istrefi; A. Piloiu
    Abstract: Theory and evidence suggest that in an environment of well-anchored expectations, temporary economic news or shocks should not affect agents' expectations of inflation in the long term. Our estimated structural VARs show that both long- and short-term inflation expectations are sensitive to policy-related uncertainty shocks. While economic activity contracts, long-term inflation expectations raise in response to such shocks. These results suggest that observed uncertainty about the stance and perceived effectiveness of policy raises concerns about future inflation and entails additional risks to central banks' hard-won inflation credibility.
    Keywords: Policy uncertainty; central banks; inflation expectations; structural VAR.
    JEL: E02 E31 E58 E63 P16
    Date: 2014
  3. By: Yuting Bai; Tatiana Kirsanova
    Abstract: This paper studies discretionary non-cooperative monetary and …fiscal policy stabilization in a New Keynesian model, where the …fiscal policymaker uses a distortionary tax as the policy instrument and operates with long periods between optimal time-consistent adjustments of the instrument. We demonstrate that longer …fiscal cycles result in stronger complementarities between the optimal actions of the monetary and …fiscal policymakers. When the …fiscal cycle is not very long, the complementarities lead to expectation traps. However, with a sufficiently long …fiscal cycle –one year in our model –no learnable time-consistent equilibrium exists. Constraining the …fiscal policymaker in its actions may help to avoid these adverse effects.
    Keywords: Monetary and fiscal policy interactions, distortionary taxes, discretionary policy, LQ RE models
    JEL: E31 E52 E58 E61 C61
    Date: 2014
  4. By: Maria Ferrara; Patrizio Tirelli
    Abstract: Under limited asset market participation fiscal consolidations have a deep and prolonged deflationary effect, causing substantial short term welfare losses to households whose access to financial markets is limited. We show that it is possible to both reduce public debt and boost consumption of constrained households. This is obtained by allowing taxes to immediately undershoot their post-consolidation steady-state values. A similar result is achieved if temporary public transfers to constrained households are exploited to stimulate demand. We also find that an interest rate rule which reacts not only to inflation but also to the output gap is an effective complement to fiscal policy as a stabilization tool. In fact, the output gap target induces the Central Bank to implement a stronger interest rate cut which triggers a surge in the consumption of Ricardian households. This, in turn, has beneficial effects on labor incomes and on RT households' consumption. We obtain the apparently paradoxical result that such a policy allows to obtain better control of inflation, limiting deflationary pressures.
    Keywords: Fiscal Consolidation, DSGE modelling, Rule of Thumb Con- sumers, Fiscal Policy, Monetary Policy, Zero Lower Bound
    JEL: E32 E62 E63
    Date: 2014–10
  5. By: C.Jardet; A. Monks
    Abstract: We use high-frequency intraday interest rate data to measure euro area monetary policy shocks on the days of ECB interest rate announcements between 2002 and 2013. In line with Gürkaynak et al. (2005), we look at monetary policy shocks along two time dimensions: one related to the current level of short-term interest rates and a second related to expectations for the future path of these rates. We undertake regression analysis in order to determine the impact of monetary policy shocks on euro-denominated financial asset prices and confirm that shocks related to the future path of monetary policy are an important driver, particularly for longer-term bond yields. We find that this relationship has changed for certain asset classes since the onset of the crisis, notably the sovereign bonds of stressed euro area countries. These findings highlight the changed nature of the monetary policy transmission mechanism for some euro area countries during the sovereign debt crisis.
    Keywords: Monetary policy, ECB, Transmission mechanism, financial crisis.
    JEL: E43 E52 E58 E61 E65
    Date: 2014
  6. By: Cooke, Diana A. (Federal Reserve Bank of St. Louis); Gavin, Michael K. (Federal Reserve Bank of St. Louis)
    Abstract: This article develops time-series models to represent three alternative, potential monetary policy regimes as monetary policy returns to normal. The first regime is a return to the high and volatile inflation rate of the 1970s. The second regime, the one that most Federal Reserve officials and business economists expect, is a return to the credible low inflation policy that characterized the U.S. economy from 1983 to 2007, a period that has come to be known as the Great Moderation. The third regime is one in which policymakers decide to keep policy interest rates at or near zero for the foreseeable future. Japanese data are used to estimate this regime. These time-series models include four variables, per capita GDP growth, CPI inflation, the policy rate and the 10-year bond rate. These models are used to forecast the U.S. economy from 2008 through 2013 and represent the possible outcomes for interest rates that may follow the return of monetary policy to normal. Here, normal depends on the policy regime that follows the liftoff of the federal funds rate target that is expected in mid-2015.
    Keywords: Exit strategy; Credibility; Interest rate policy
    JEL: E43 E47 E52 E58 E65
    Date: 2014–10–03
  7. By: Marianna Riggi (Bank of Italy); Fabrizio Venditti (Bank of Italy)
    Abstract: Between 2013 and 2014, following the recession triggered by the sovereign debt crisis, euro-area inflation decreased sharply. Although a fall in the inflation rate was to be expected, given the severity of the recession, professional forecasters failed to anticipate it. A possible explanation for this forecast failure lies in a break in the cyclicality of inflation, which was unaccounted for in forecasting models. We probe this explanation in the context of a simple backward-looking Phillips curve and find that the sensitivity of inflation to the output gap has recently increased. We rationalize this result through a structural model, in which a steepening of the Phillips curve arises either from lower nominal rigidities (a decrease in the average duration of prices) or from fewer strategic complementarities in price-setting due to a reduction in the number of firms in the economy.
    Keywords: inflation, Phillips curve, structural break, strategic complementarities
    JEL: E31 E37 C53
    Date: 2014–09
  8. By: S. Borağan Aruoba (Department of Economics, University of Maryland); Pablo Cuba-Borda (Department of Economics, University of Maryland); Frank Schorfheide (Department of Economics, University of Pennsylvania)
    Abstract: We propose and solve a small-scale New-Keynesian model with Markov sunspot shocks that move the economy between a targeted-inflation regime and a deflation regime and fit it to data from the U.S. and Japan. For the U.S. we find that adverse demand shocks have moved the economy to the zero lower bound (ZLB) in 2009 and an expansive monetary policy has kept it there subsequently. In contrast, Japan has experienced a switch to the deflation regime in 1999 and remained there since then, except for a short period. The two scenarios have drastically different implications for macroeconomic policies. Fiscal multipliers are about 20% smaller in the deflationary regime, despite the economy remaining at the ZLB. While a commitment by the central bank to keep rates near the ZLB doubles the fiscal multipliers in the targeted-inflation regime (U.S.), it has no effect in the deflation regime (Japan).
    Keywords: DSGE Models, Government Spending Multiplier, Japan, Multiple Equilibria, Nonlinear Filtering, Nonlinear Solution Methods, Sunspots, U.S., ZLB
    JEL: C5 E4 E5
    Date: 2012–09–10
  9. By: Dieter Nautz; Till Strohsal; ;
    Abstract: Anchored inflation expectations are of key importance for monetary policy. If long-terminflation expectations arewell-anchored, they should be unaffected by short-termeconomic news. This letter introduces newsregressions with multiple endogenous breaks to investigate the de- and re-anchoring of US inflation expectations. We confirm earlier evidence on the de-anchoring of expectations driven by the outbreak of the crisis. Our results indicate that expectations have not been re-anchored ever since.
    Keywords: Anchoring of Inflation Expectations, Break-Even Inflation Rates, News-Regressions, Multiple Structural Break Tests
    JEL: E31 E52 E58 C22
    Date: 2014–10
  10. By: Alok Johri; Christopher M. Gunn
    Abstract: Can variations in the expected future return on a portfolio of sovereign bonds itself have real effects on a small open economy? We build a model where banks face a capital sufficiency requirement to demonstrate that news about a fall in the expected return on a portfolio of long bonds can lead to an immediate recession. Even if the news never materializes, the model can generate a severe recession followed by a slow recovery. The presence of long bonds in bank portfolios causes the news to have an immediate impact on bank capital via an immediate fall in bond prices. The portfolio adjustment induced by the capital sufficiency requirements leads to a rise in loan rates while aggregate output, investment and employment collapse. The model contributes to the news-shock literature by showing that imperfect signals about future financial returns can create business cycles without relying on the usual suspects: variation in domestic fundamentals such as technology shocks, preference shocks and fiscal policy. It also contributes to the emerging economy business cycle literature in that disturbances in world financial markets can lead to domestic business cycles without relying on shocks to the world interest rate or to country spreads.
    Keywords: expectations-driven business cycles, news shocks, financial intermediation, business cycles, small open economy, capital adequacy requirements
    JEL: E3 E44 F4 G21
    Date: 2014–10
  11. By: Pawel Gajewski (University of Lodz, Faculty of Economics and Sociology)
    Abstract: This paper re-examines the problem of monetary policy stress in the EMU, both prior to the crisis as well as after its outbreak. It aims to (firstly) reconfirm that monetary policy during the great moderation (i.e. until late 2008) was responsible for fuelling the process of imbalance accumulation in the EMU, and (secondly) to determine to what extent the stress was caused by macroeconomic divergences. We employ a forward-looking Taylor-type monetary policy reaction function with realtime forecasted data to mimic the ECB monetary policy during the great moderation. The estimated coefficients are subsequently used to create counterfactual series of ruleconsistent country-specific interest rates and compute monetary policy stress in EMU individual member states. The results confirm that peripheral countries were exposed to risks emerging from excessively low interest rates, while the “core” countries had to live with too-high interest rates, and the stress was generally stronger in the former case. Interestingly, the bulk of it was non-fundamental, i.e. not caused by inflation and output gap differentials between countries. There are several potential sources of this stress and we show that missed forecasts were making an important contribution and they were mainly responsible for pushing the interest rate below its rule-consistent level.
    Keywords: monetary stress, crisis, Taylor rule, EMU
    JEL: C22 E52 E58
    Date: 2014–08
  12. By: Williamson, Stephen D. (Federal Reserve Bank of St. Louis)
    Abstract: A model is constructed in which consumers and banks have incentives to fake the quality of collateral. Conventional monetary easing can exacerbate these problems, in that the mispresentation of collateral becomes more profitable, thus increasing haircuts and interest rate differentials. Central bank purchases of private mortgages may not be feasible, due to misrepresentation of asset quality. If feasible, central bank asset purchase programs work by circumventing suboptimal fiscal policy, not by mitigating incentive problems in asset markets.
    Keywords: monetary policy; fiscal policy
    JEL: E31 E5 E58
    Date: 2014–10–01
  13. By: Tino Berger; Bernd Kempa
    Abstract: This paper estimates equilibrium rates of macroeconomic aggregates for small open economies. We simultaneously identify the transitory and permanent components of output, inflation, the interest rate and the exchange rate by means of a multivariate trend-cycle decomposition. Realizations of the observed macroeconomic aggregates are explained in terms of unobserved equilibrium rates and unobserved transitory components. The transitory components of the variables are linked to each other through an aggregate demand equation, a Phillips curve, and an equation specifying the interest rate-exchange rate nexus. The model is then applied to Canadian data.
    Keywords: unobserved components, potential output, natural rate of interest, equilibrium exchange rate
    JEL: C11 C32 E32 E43 F41
    Date: 2014–10
  14. By: Fabio Milani (Department of Economics, University of California-Irvine)
    Abstract: Psychological factors are commonly believed to play a role on cyclical economic fluctuations, but they are typically omitted from state-of-the-art macroeconomic models. This paper introduces “sentiment†in a medium-scale DSGE model of the U.S. economy and tests the empirical contribution of sentiment shocks to business cycle fluctuations. The assumption of rational expectations is relaxed. The paper exploits, instead, observed data on expectations in the estimation. The observed expectations are assumed to be formed from a near-rational learning model. Agents are endowed with a perceived law of motion that resembles the model solution under rational expectations, but they lack knowledge about the solution’s reduced- form coefficients. They attempt to learn those coefficients over time using available time series at each point in the sample and updating their beliefs through constant-gain learning. In each period, however, they may form expectations that fall above or below those implied by the learning model. These deviations capture excesses of optimism and pessimism, which can be quite persistent and which are defined as sentiment in the model. Different sentiment shocks are identified in the empirical analysis: waves of undue optimism and pessimism may refer to expected future consumption, future investment, or future inflationary pressures. The results show that exogenous variations in sentiment are responsible for a sizable (above forty percent) portion of historical U.S. business cycle fluctuations. Sentiment shocks related to investment decisions, which evoke Keynes’ animal spirits, play the largest role. When the model is estimated imposing the rational expectations hypothesis, instead, the role of structural investment- specific and neutral technology shocks significantly expands to capture the omitted contribution of sentiment.
    Keywords: Sentiment; Animal spirits; Learning; DSGE model; Sources of business cycle fluctuations; Observed survey Expectations
    JEL: E31 E32 E50 E52 E58 F41
    Date: 2014–09
  15. By: Gilchrist, Simon (Boston University); Sim, Jae W. (Board of Governors of the Federal Reserve System (U.S.)); Zakrajsek, Egon (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Micro- and macro-level evidence indicates that fluctuations in idiosyncratic uncertainty have a large effect on investment; the impact of uncertainty on investment occurs primarily through changes in credit spreads; and innovations in credit spreads have a strong effect on investment, irrespective of the level of uncertainty. These findings raise a question regarding the economic significance of the traditional "wait-and-see" effect of uncertainty shocks and point to financial distortions as the main mechanism through which fluctuations in uncertainty affect macroeconomic outcomes. The relative importance of these two mechanisms is analyzed within a quantitative general equilibrium model, featuring heterogeneous firms that face time-varying idiosyncratic uncertainty, irreversibility, nonconvex capital adjustment costs, and financial frictions. The model successfully replicates the stylized facts concerning the macroeconomic implications of uncertainty and financial shocks. By influencing the effective supply of credit, both types of shocks exert a powerful effect on investment and generate countercyclical credit spreads and procyclical leverage, dynamics consistent with the data and counter to those implied by the technology-driven real business cycle models.
    Keywords: Time-varying volatility; asset specificity; capital liquidity shocks; costly external finance; firm heterogeneity; general equilibrium
    JEL: E22 E32 G31
    Date: 2014–04–01
  16. By: Tim Schwarzmüller; Maik Wolters
    Abstract: We provide a systematic analysis of fiscal consolidation in a medium-scale dynamic general equilibrium model. Our results show that the choice of the consolidation instrument is very important, not only with respect to the short- and long-run output effects of the different consolidation strategies, but also regarding the welfare effects and the distributional consequences. Moreover, we show that these aspects become even more important if fiscal consolidation has to be conducted at a binding zero lower bound on nominal interest rates because in this case the negative short-run output costs increase. Our comprehensive analysis of the transmission channels of various fiscal consolidation measures shows that in particular the presence of credit-constrained households who cannot smooth consumption has a large impact on the overall output and welfare effects of fiscal consolidation. Further, it turns out to be important whether a fiscal instrument directly affects private production factors negatively as it is the case for consolidation via government investment and taxes on labor and capital. In these cases the short-run output contraction is large and persistent because either the private or the public capital stock decreases. By contrast, for a consolidation via government consumption, transfers or the consumption tax rate, output recovers much faster
    Keywords: fiscal consolidation, government debt, distortionary taxes, zero lower bound, welfare, monetary-fiscal policy interaction
    JEL: E32 E62 E63 H61 H62 H63
    Date: 2014–09
  17. By: Ozdagli, Ali K. (Federal Reserve Bank of Boston)
    Abstract: This paper reveals and tests a new theoretical implication of the credit channel of monetary policy: as financial frictions (monitoring or auditing costs) increase, the reaction of stock prices to monetary policy shocks decreases. Correspondingly, towards the end of the Enron accounting scandal, the stock prices of firms sharing the same auditor as Enron responded by about 50 to 60 basis points less than other firms to a 10 basis point reduction in the federal funds target rate. This effect is particularly strong among more opaque firms for which financial statements likely provide a more important monitoring tool.
    Keywords: financial constraints; stock market; credit channel; monetary policy
    JEL: E44 E52 G12 G32
    Date: 2014–07–29
  18. By: Max Gillman (Department of Economics, University of Missouri-St. Louis); Michal Kejak; Michal Pakos
    Abstract: Rietz (1988) and Barro (2006) subject consumption and dividends to rare disasters in the growth rate. We extend their framework and subject consumption and dividends to rare disasters in the growth persistence. We model growth persistence by means of two hidden types of economic slowdowns: recessions and lost decades. We estimate the model based on the post-war U.S. data using maximum likelihood and find that it can simultaneously match a wide array of dynamic pricing phenomena in the equity and bond markets. The key intuition for our results stems from the inability to discriminate between the short and the long recessions ex ante.
    Keywords: Asset Pricing, Rare Events, Learning, Stagnation, Long-Run Risk, Peso Problem.
    JEL: E13 E21 E32 E43 E44 G12
    Date: 2014–03
  19. By: Fan, Jingwen (Cardiff Business School); Minford, Patrick (Cardiff Business School); Ou, Zhirong (Cardiff Business School)
    Abstract: We investigate whether the Fiscal Theory of the Price Level (FTPL) can explain UK inflation in the 1970s. We confront the identification problem involved by setting up the FTPL as a structural model for the episode and pitting it against an alternative Orthodox model; the models have a reduced form that is common in form but, because each model is over-identified, numerically distinct. We use indirect inference to test which model could be generating the VECM approximation to the reduced form that we estimate on the data for the episode. Neither model is rejected, though the Orthodox model outperforms the FTPL. But the best account of the period assumes that expectations were a probability-weighted combination of the two regimes. Fiscal policy has a substantial role in this weighted model. A similar model accounts for the 1980s though the role of fiscal policy gets smaller.
    Keywords: UK Inflation; Fiscal Theory of the Price Level; Identification; Testing; Indirect inference
    JEL: E31 E37 E62 E65
    Date: 2014–10
  20. By: Tanweer Akram; Anupam Das
    Abstract: During the past two decades of economic stagnation and persistent deflation in Japan, chronic fiscal deficits have led to elevated and rising ratios of government debt to nominal GDP. Nevertheless, long-term Japanese government bonds' (JGBs) nominal yields initially declined and have stayed remarkably low and stable since then. This is contrary to the received wisdom of the existing literature, which holds that higher government deficits and indebtedness shall exert upward pressures on government bonds' nominal yields. This paper seeks to understand the determinants of JGBs' nominal yields. It examines the relationship between JGBs' nominal yields and short-term interest rates and other relevant factors, such as low inflation and persistent deflationary pressures and tepid growth. Low short-term interest rates, induced by monetary policy, have been the main reason for JGBs' low nominal yields. It is also argued that Japan has monetary sovereignty, which gives the government of Japan the ability to meet its debt obligations. It enables the Bank of Japan to exert downward pressure on JGBs' nominal yields by allowing it to keep short-term interest rates low and to use other tools of monetary policy. The argument that current short-term interest rates and monetary policy are the primary drivers of long-term interest rates follows Keynes's (1930) insights.
    Keywords: Japanese Government Bonds (JGBs); Long-Term Interest Rates; Monetary Sovereignty; Nominal Bond Yields
    JEL: E43 E50 E60
    Date: 2014–10
  21. By: Eckhard Hein (Berlin School of Economics and Law and Institute for International Political Economy); Daniel Detzer (Berlin School of Economics and Law and Institute for International)
    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 non-inflationary 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 Thirlwall’s (1979; 2002) model of a ‘balance-of-payments-constrained growth rate’ (BPCGR). Based on this framework, we outline the required stance for alternative economic policies and then we 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: Differential inflation rates, current account imbalances, competitiveness, Euro area economic policies
    JEL: E61 E62 E63 E64
    Date: 2014–09–01
  22. By: Christian Lambert Nguena (Association of African Young Economists); Roger Tsafack Nanfosso (Economic Policy Management Program)
    Abstract: This paper qualitatively and quantitatively assesses the degree of resilience in the financial intermediary sector of the Economic and Monetary Community of Central African States (CEMAC) to macroeconomic shocks and discusses the relevant policy implications. Using GMM and a battery of estimations techniques, the panel-based investigations broadly show that the sub-region is vulnerable to macroeconomic shocks. Lower bank provisions result on the one hand from shortages or decreases in long-term financing, real exchange and GDP per capita growth rate on the other hand from increases of interest rates. Whereas the change in interest rate increases net income commission, the effect is negative from lower levels of short-term financing. The incidence of changes in interest rates on the interest rate margin of banks is ambiguous. The findings broadly confirm the need to incorporate macroeconomic shocks in financial policy decision making. The paper contributes at the same to the knowledge on stock management in monetary zones and the need to: (1) timely intervene to mitigate potential shocks and; (2) increase control to sustain the credibility of the banking system.
    Keywords: Macroeconomic shock, Panel data econometrics, Shocks management, Banking economics
    JEL: E44 G10 O16 O50
    Date: 2013–06
  23. By: Timo Baas; Ansgar Belke
    Abstract: Member countries of the European Monetary Union (EMU) initiated wideranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbor policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyze the impact of labor market reforms on the transmission of macroeconomic shocks in both, non-reforming and reforming countries. By analyzing the impact of reforms on foreign debt, we contribute to the debate on whether labor market reforms increase or reduce current account imbalances.
    Keywords: Current account deficit; labor market reforms; DSGE models; search and matching labor market
    JEL: E24 E32 J64 F32
    Date: 2014–09
  24. By: Del Negro, Marco (Federal Reserve Bank of New York); Hasegawa, Raiden B.; Schorfheide, Frank
    Abstract: We provide a novel methodology for estimating time-varying weights in linear prediction pools, which we call dynamic pools, and use it to investigate the relative forecasting performance of dynamic stochastic general equilibrium (DSGE) models, with and without financial frictions, for output growth and inflation in the period 1992 to 2011. We find strong evidence of time variation in the pool’s weights, reflecting the fact that the DSGE model with financial frictions produces superior forecasts in periods of financial distress but doesn’t perform as well in tranquil periods. The dynamic pool’s weights react in a timely fashion to changes in the environment, leading to real-time forecast improvements relative to other methods of density forecast combination, such as Bayesian model averaging, optimal (static) pools, and equal weights. We show how a policymaker dealing with model uncertainty could have used a dynamic pool to perform a counterfactual exercise (responding to the gap in labor market conditions) in the immediate aftermath of the Lehman crisis.
    Keywords: Bayesian estimation; DSGE models; financial frictions; forecasting; Great Recession; linear prediction pools
    JEL: C53 E31 E32 E37
    Date: 2014–10–01
  25. By: Simon Voigts; ; ;
    Abstract: Conventional wisdom states that the statutory split of payroll taxa- tion between rms and workers is of no macroeconomic relevance, because the tax incidence is fully determined by the market structure. This pa- per breaks with this view by establishing a theoretical link between the statutory split and the average volatility of prices and wages. It is shown that shifting taxation towards workers signicantly reduces the volatility in nominal variables without entailing long-run redistribution. The gain in stability of prices and wages reduces ineciencies in the equilibrium allocation of the stochastic model and thereby reduces welfare costs of business cycle uctuations. In a standard DSGE model, welfare costs un- der the full taxation of rms are 11.25% larger than under the full taxation of workers.
    Keywords: Payroll taxes, social security, business cycles, automatic stabilizers, optimal taxation
    JEL: H55 H21 E30 E32 E60
    Date: 2014–10
  26. By: Nidhaleddine Ben Cheikh; Christophe Rault
    Abstract: In this paper we investigate whether exchange rate pass-through (ERPT) responds nonlinearly to economic activity along the business cycle. Using quarterly data spanning the period 1975:1 to 2011:1, we explore the existence of nonlinearities in ERPT to CPI inflation for the Finnish economy. Within a logistic smooth transition framework, our investigations reveal a strong regime-dependence of pass-through, depending positively on economic activity. Besides, point estimates indicate that the long-run pass-through coefficient is equal to 0.15% (weakly significant) when GDP growth is below a threshold of 3%. However, when the Finnish economy’s growth rate speeds up - above the threshold of 3% - ERPT elasticity increases to 0.47%. These results provide some useful guidance on how policymakers should act over different phases of the business cycle. More specifically, monetary policy should factor in the nonlinear mechanism of ERPT over the business cycle in order to prevent exchange rate movements from fueling a continuous inflationary process.
    Keywords: Exchange rate pass-through, Inflation, Business cycle, Smooth Transition Regression models
    JEL: C22 E31 F31
    Date: 2014–06–01
  27. By: Massimiliano Caporin (Department of Economics and Management “Marco Fanno ”, University of Padova); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: The persistence property of inflation is an important issue for not only economists, but, especially for central banks, given that the degree of inflation persistence determines the extent to which central banks can control inflation. Also, not only is the level of inflation persistence that is important in economic analyses, but also the question of whether the persistence varies over time, for instance, across business cycle phases, is equally pertinent, since assuming constant persistence across states of the economy, is sure to lead to misguided policy decisions. Against this backdrop, we extend the literature on long-memory models of inflation persistence for the US economy over the monthly period of 1876:2-2014:5, by developing an autoregressive fractionally integrated moving average-generalized autoregressive conditional heteroskedastic (ARFIMA-GARCH) model, with a time-varying memory coefficient which varies across expansions and recessions. In sum, we find that, inflation persistence does vary across recessions and expansions, with it being significantly higher in the former than in the latter. As an aside, we also show that, persistence of inflation volatility however, is higher during expansions than in recessions. Understandably, our results have important policy implications.
    Keywords: Persistence, US Inflation Rate, Time-Varying Long Memory
    JEL: C12 C13 C22 C51 E31 E52
    Date: 2014–10
  28. By: World Bank
    Keywords: Environmental Economics and Policies Finance and Financial Sector Development - Currencies and Exchange Rates Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth Environment
    Date: 2014–09
  29. By: Antonella Cavallo; Antonio Ribba
    Abstract: The stability of inflation differentials is an important condition for the smooth working of a currency area, such as the European Economic and Monetary Union. In the presence of stability, changes in national inflation rates, while holding Euro-area inflation fixed contemporaneously, should be only transitory. If this is the case, the rate of inflation of the whole area can also be interpreted as a predictor, at least in the long run, of the different national inflation rates. However, in this paper we show that this condition is satisfied only for a small number of countries, including France and Italy. Better convergence results for inflation differentials are, instead, found for the USA. Some policy implications are drawn for the Eurozone.
    Keywords: Inflation Differentials; Euro area; Structural Cointegrated VARs; Permanent-transitory Decompositions;
    JEL: E31 C32
    Date: 2013–10
  30. By: Drago Bergholt
    Abstract: How should monetary policy be constructed when national income depends on oil exports? I set up a general equilibrium model for an oil exporting small open economy to analyze this question. Fundamentals include an oil sector and domestic non-oil firms – some of which are linked to oil markets via supply chains. In the model, the intermediate production network implies transmission of international oil shocks to all domestic industries. The presence of wage and price rigidities at the sector level leads to non-trivial trade-offs between different stabilization tar- gets. I characterize Ramsey-optimal monetary policy in this environment, and use the framework to shed light on i) welfare implications of the supply chain channel, and ii) costs of alternative policy rules. Three results emerge: First, optimal policy puts high weight on nominal wage stability. In contrast, attempts to target impulses from the oil sector can be disastrous for welfare. Second, while oil sector activities contribute to macroeconomic fluctuations, they do not change the nature of optimal policy. Third, operational Taylor rules with high interest rate inertia can approximate the Ramsey equilibrium reasonably well.
    Keywords: Monetary policy, oil exports, small open economy, Ramsey equilibrium, DSGE
    JEL: E52 F41 Q33 Q43
    Date: 2014–07
  31. By: Alessandro Vercelli (University of Siena)
    Abstract: The reasons and implications of different understandings of the ongoing financial crisis may be thoroughly assessed by starting the investigation from a taxonomy of the competing visions of the capitalist system and of the approach required to understand it. This paper focuses in particular on the nexus between money/credit/finance (from now on “money”) on one side and the real economy on the other side and is articulated in a sequence of sections grouped in three parts. The first part sketches the historical and conceptual path that leads from the early reflections on money to the recent insights on financialisation, stressing only the basic conceptual options and their implications. The analysis starts from the quantitative aspects of money that have been since long a crucial object of political economy, then economics and finally macroeconomics. Section 2 I sketches a bird’s eye view of the mainstream approach from Hume to Woodford; then section 3 outlines the parallel evolution of the heterodox point of view from Marx to Minsky. Section 4 discusses the main views of orthodox and heterodox economists on money as structure. Section 5 investigates why the different paradigms mentioned above lead to different understandings of the meaning and role of financialisation. The second part sketches the conceptual path that leads from the early reflections on economic crises to different understandings of the great crises and to contrasting views on the sustainability of the economic system. Section 6 I discusses the foundations and implications of different views on business-cycle crises while section 7 I considers the main approaches to the understanding and control of great crises. Finally section 8 examines the concepts of sustainability associated to the paradigms analysed above. The third part investigates the interaction between financialisation and sustainability from the synchronic point of view (section 9), and then from the diachronic point of view (section 10), focusing on their broad policy implications. Section 11 concludes.
    Keywords: financial crises, financialisation, sustainability
    JEL: B10 B20 B E32 E44 G10 G20 Q01
  32. By: Daniel StavaÌrek (Department of Finance and Accounting, School of Business Administration, Silesian University); Cynthia Miglietti (Department of Applied Sciences, Firelands College, Bowling Green State University)
    Abstract: This paper provides direct empirical evidence on the nature of the relationship between effective exchange rates and selected macroeconomic fundamentals in nine central and Eastern European countries. Therefore, the paper addresses a key precondition of numerous exchange rate determination models and theories that will explain the role of exchange rates in the economy. Additionaly, short-term volatility and medium-term variability of effective exchange rates are examined. The results suggest that flexible exchange rate arrangements are reflected in higher volatility and variability of nominal as well as real effective exchange rates. Furthermore, the results provide mixed evidence in intensity, direction and cyclicality but show a weak correlation between exchange rates and fundamentals. Sufficiently high coefficients are found only for the money supply. Consequently, using fundamentals for the determination of exchange rates and using the exchange rate for an explanation of economic development can be limited for the countries analyzed.
    Keywords: effective exchange rates, volatility, variability, cycle, high/low analysis, peak/trough analysis, cross correlation
    JEL: E32 E44 F31
    Date: 2014–10
  33. By: Christian Lambert Nguena (Association of African Young Economists)
    Abstract: Monetary unions are characterized by contemporary institutional arrangements that entrust monetary policy to a supranational entity while fiscal policies are framed by rules imposed on the budget deficit. Limits on public deficits are usually justified by the idea that government deficits reduce national savings, which ultimately reducesdomestic investment and economic growth. However, this idea that domestic savings must necessarily increase if investment increases cannot be taken for granted. Moreover, it is possible that within the union, countries reveal different saving-investment causality, which is capable of rendering considerable credibility and effectiveness of budgetary rules of government deficits systematic prohibition as a means to revitalize investment. This study raises the question of domestic savings-investment causality in the WAEMU zone. It has been determined in each country from a methodology based on co integration vector representations analyze leading to error correction. The existence of a causality heterogeneity between savings-investment in the WAEMU zone leads to consider a new model of fiscal coordination incorporating this heterogeneity, including the adoption of a new budget rule more flexible based on a structural balance without public investment.
    Keywords: Monetary union, Saving-investment causality, Heterogeneity, Fiscal coordination
    JEL: C51 C59 E62 F43 H50 O40
    Date: 2013–08
  34. By: António Afonso; José Alves
    Abstract: We study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 European countries from 1970 until 2012. We also consider debt-to-GDP ratio interactions with monetary, public finance, institutional and macroeconomic variables. Our results show a negative impact of -0.01% for each 1% increment of public debt, although debt service has a 10 times worse effect on growth. In addition, we find average debt ratio thresholds of around 75%. Belonging to the Eurozone has a detrimental effect of at least -0.5% for real per capita GDP, and the banking crisis is the most harmful crisis for growth.
    Keywords: government debt, economic growth, debt thresholds.
    JEL: E62 H63 O47
    Date: 2014–09
  35. By: Carlos Rodriguez; Carlos A. Carrasco (University of the Basque Country (UPV/EHU))
    Abstract: In this paper, we analyse the ECB policy measures in place since the outbreak of the financial crisis. First, we discuss the categorisation of the measures implemented by the ECB. Second, we study the phases of the crises and the concrete policy responses. Third, we conduct a comparative analysis of the ECB and the FED responses at the beginning of the crises with regard to the financial system structure, the determinants of the balance sheet size and composition, the risk absorbed, and the exit strategy involved. Finally, we discuss the effectiveness of the ECB’s monetary policy from a traditional monetarist perspective during the entire period, by analysing its impact on monetary aggregates and the money multiplier.
    Keywords: ECB, unconventional monetary policy, money multiplier, monetary aggregates, European crises
    JEL: E52 E58 F15 N14
    Date: 2014–09–01
  36. By: Juan Equiza Goni
    Abstract: At a time when debt-to-GDP ratios are closely monitored in the Euro area, thispaper generates a set of stylized facts about sovereign debt and yields. First, Ipresent a new dataset on outstanding debt securities and yields for six EA countries(Belgium, Finland, France, Germany, Italy and Spain) from 1991 to 2013 that Ibuilt combining different sources. Thus, I can document, for example, that EAdebt duration increased by 2 years, mainly driven by demand. Second, based onthe government budget constraint, I calculate past contributions of returns on debtwith different maturities, inflation and other factors to EA debt-to-GDP changes andcompare them with the US experience. While primary deficits played an importantrole in the latter, returns on debt is the key factor in EA countries, especially whenlarge capital gains were paid to long-term bondholders before the introduction of theEuro. Also, although GDP growth contributions were similar, the EA relied moreon inflation and the US on real output growth. Finally, I estimate that 1% futurepermanently higher inflation would reduce EA debt ratios by 4%, an effect 2.4 timeshigher than the expected change in the US.
    JEL: E23 E31 E43 G12 H63
    Date: 2014–10
  37. By: Romain Bouis; Kei-Ichiro Inaba; Łukasz Rawdanowicz; Ane Kathrine Christensen
    Abstract: This paper describes developments in real long-term interest rates in the main OECD economies and surveys their various determinants. Real long-term government bond yields declined from the 1980s to very low levels in the recent period, though they have not reached the historical lows of the 1970s. The decline in real interest rates has been driven by a combination of factors whose importance has varied over time. In the 1990s, the decline in inflation levels and in volatility was key. In the 2000s, purchases of US government bonds by official investors in emerging market economies, played an important role. More recently, quantitative easing and other unconventional monetary policy action, and possibly the Basel-III-induced increase in bank demand for safe assets, have been main drivers. Higher perceptions of risks after the last crisis do not seem to have put lasting downward pressures on government bond yields. Facteurs à l'origine de la baisse des rendements des obligations d'État à long terme Ce document décrit l’évolution des taux d’intérêt réels à long terme dans les principales économies de l’OCDE et en recense les différents facteurs déterminants. Les rendements réels des obligations d’État à long terme ont diminué à partir des années 80 pour s’établir récemment à des niveaux très peu élevés, sans toutefois atteindre les plus bas niveaux historiques des années 70. La baisse des taux d'intérêt réels est attribuable à une combinaison de facteurs dont l'importance a varié au fil du temps. Dans les années 90, la baisse de l’inflation et la volatilité ont été les principaux facteurs. Dans les années 2000, les achats d’obligations d’État américaines par les investisseurs officiels des économies de marché émergentes ont joué un rôle important. Plus récemment, ce sont l’assouplissement quantitatif ainsi que d'autres mesures non conventionnelles de politique monétaire, et potentiellement l'augmentation de la demande d’actifs sûrs de la part des établissements bancaires, induite par l’Accord de Bâle III, qui ont primé. La plus grande perception des risques depuis la dernière crise ne semble pas avoir durablement pesé sur les rendements des obligations d’État.
    Keywords: monetary policy, foreign exchange reserve accumulation, real interest rates, government bond yields, quantitative easing, assouplissement quantitatif, rendements des obligations d’État, accumulation des réserves de change, politique monétaire, taux d’intérêt réels
    JEL: E43 E58 G15
    Date: 2014–10–13
  38. By: Fulford, Scott L. (Boston College)
    Abstract: Credit limit variability is a crucial aspect of the consumption, savings, and debt decisions of households in the United States. Using a large panel, this paper first demonstrates that individuals gain and lose access to credit frequently and often have their credit limits reduced unexpectedly. Credit limit volatility is larger than most estimates of income volatility and varies over the business cycle. While typical models of intertemporal consumption fix the credit limit, I introduce a model with variable credit limits. Variable credit limits create a reason for households to hold both high interest debts and low interest savings at the same time, since the savings act as insurance. Simulating the model using the estimates of credit limit volatility, I show that it explains all of the credit card puzzle: why around a third of households in the United States hold both debt and liquid savings at the same time. The approach also offers an important new channel through which financial system uncertainty affects household decisions.
    Keywords: credit card puzzle; intertemporal consumption; precaution; credit limits; household finance
    JEL: D14 D91 E21
    Date: 2010–06–01
  39. By: Plosser, Matthew (Federal Reserve Bank of New York)
    Abstract: This paper empirically investigates banks’ investment allocations over the recent business cycle. I identify unsolicited deposit shocks resulting from unconventional energy development and estimate bank allocations of these deposits. In the pre-recession period, banks lend 38 percent of incremental deposits; however, during the downturn, banks favor liquid assets and lending allocations fall to 22 percent. Banks with low risk tolerance or less access to liquidity are particularly sensitive to the decline in economic conditions, choosing securities and cash, respectively. The findings identify significant heterogeneity in the willingness of banks to allocate capital during adverse times.
    Keywords: financial intermediation; banks; business cycles
    JEL: E32 G21
    Date: 2014–10–01
  40. By: Hiroshi Nishi
    Abstract: This study builds an income distribution and growth model within a simple multi-sectoral Kaleckian framework. The model has heterogeneous features in each sector in that the responses of saving and investment to changes in macroeconomic performance differ sectorally, and there are also different sectoral shares of saving and investment. We consider the determinants that establish the economic growth regime (i.e. wage-led and profit-led) and the stable output growth rate adjustment within this framework. By doing so, we reveal the sectoral composition of saving and investment and that elasticity of saving and investment matter for the formation of a growth regime and the stability of the output growth rate at the aggregate level.
    Keywords: Multi-sectoral Kaleckian model; Income distribution; Sectoral heterogeneity
    JEL: B50 E12 O41
    Date: 2014–10
  41. By: Nicolas Petrovsky-Nadeau (Tepper School of Business); Etienne Wasmer (Département d'économie); Shutian Zeng
    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: 2014–10
  42. By: Philipp Wegmueller
    Abstract: This paper analyzes the dynamic effects of a fiscal policy shock and its transmission mechanism in a small open economy and compares the responses under different specifications of the utility function. The traditional Mundell-Flemming model tells that fiscal policy is more effective under a peg than under a float. This result is not confirmed for a baseline small open economy model with separable preferences. The present paper offers a survey of non-separable utility found in the literature on fiscal policy shocks and compares their implications for the transmission mechanism. The aim is to overturn the negative wealth effect of an increase in government spending, which causes a decrease in private consumption under the baseline separable utility function. Using a plausible calibration of the model, I find that if the complementarity between consumption and hours worked is large enough, then the response of private consumption is likely to be positive, although the assumptions have to be strong. This result holds for any specification of exchange rate regime.
    Keywords: Fiscal Shocks; Non-Separable Utility; Exchange Rate Regimes; Private Consumption
    JEL: E52 E62 F41
    Date: 2014–10
  43. By: Nidhaleddine Ben Cheikh; Christophe Rault
    Abstract: This paper provides an update on the exchange rate pass-through (ERPT) estimates for 12 Euro area (EA) countries. First, based on quarterly data over the 1990-2012 period, our study does not find a significant heterogeneity in the degree of pass-through across the monetary union members, in contrast to previous empirical studies. As we use a longer time span for the post-EA era than existing studies, this is not surprising, since the process of monetary union has entailed some convergence towards more stable macroeconomic conditions across Euro Area (EA) Member States. Second, when assessing the stability of pass-through elasticities we find very weak evidence of a decline around the inception of the Euro in 1999. However, our results reveal that a downtrend in ERPT estimates became apparent starting from the beginning of the 1990s. This observed decline was synchronous to the shift towards reduced inflation regimes in our sample of countries. Finally, we notice that the distinction between “peripheral” and “core” EA economies in terms of pass-through has significantly decreased over the last two decades.
    Keywords: Exchange Rate Pass-Through, Import Prices, Euro area
    JEL: E31 F31 F40
    Date: 2014–08–01
  44. By: World Bank Group
    Keywords: Environmental Economics and Policies Finance and Financial Sector Development - Currencies and Exchange Rates Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth Environment
    Date: 2014–10
  45. By: Tsz-Kin Chung (Tokyo Metropolitan University); Cho-Hoi Hui (Hong Kong Monetary Authority); Ka-Fai Li (Hong Kong Monetary Authority)
    Abstract: Using a non-Gaussian affine term-structure model, this paper evaluates the effectiveness of the date-based forward guidance at the zero lower bound. The model extracts the expected dynamics of two state variables (the short-term interest rate and its mean) embedded in the entire Treasury yield curve. Using simulations and an event study, we find that the model's dynamics were significantly altered by the first announcement of date-based forward guidance in August 2011 and speculation about tapering in May 2013. The model offers a probabilistic approach in assessing the market's perception towards the Federal Reserve's projections of the federal funds rate.
    JEL: E43 E43 E52 E58
    Date: 2014–08
  46. By: Lo, Stephanie (Harvard University); Wang, J. Christina (Federal Reserve Bank of Boston)
    Abstract: The spectacular rise late last year in the price of Bitcoin, the dominant virtual currency, has attracted much public attention as well as scholarly interest. This policy brief discusses how some features of Bitcoin, as designed and executed to date, have hampered its ability to perform the functions required of a fiat money––as a medium of exchange, unit of account, and store of value. Furthermore, we document how various forms of intermediaries have emerged and evolved within the Bitcoin network, particularly noting the convergence toward concentrated processing, both on and off the blockchain. We argue that much of this process would have been predicted by established theories of financial intermediation, and we consider the theories’ implication for the future evolution of intermediaries serving users of Bitcoin or alternative virtual currencies. We then compare Bitcoin with other innovations to facilitate payment services, from competing alternative digital currencies to electronic payment protocols. We conclude with a broad consideration of the major factors that will likely shape the future development of Bitcoin versus other alternative payment systems. We predict that Bitcoin’s lasting legacy will be the innovations it has spurred to payment technology, although the payment system will remain dominated by large processors because of economies of scale.
    Keywords: money; medium of exchange; liquidity; speculative bubble
    JEL: E41 E42 E51 G12 G21
    Date: 2014–09–04
  47. By: Peussa, Aleksandr
    Abstract: The share of private consumption in gross domestic product is significant; therefore, private consumption has a great influence on economic growth, which makes it a major concept in economics. The purpose of the paper is to estimate and evaluate different forecasting models for private consumption. The first part of the paper focuses on the aggregate consumption. The models are estimated using yearly and quarterly data. The goal of second part of the paper is to estimate and evaluate forecasting models for the components of private consumption. Private consumption can be divided by the duration principle or by product categories. There are three competing statistical models for components of private consumption. All models are presented in the second part of the report and the aim is to choose the best model using statistical methods of model evaluation (R-squared, AIC, BIC).
    Keywords: Aggregate consumption, private consumption, economic forecasts, logistic regression
    JEL: C43 C52 C53 E21 E27 C82
    Date: 2014–10–14
  48. By: Philippe Martin (Département d'économie); Thomas Philippon (Department of Mechanical Engineering, Massachusetts Institute of Technology)
    Abstract: We provide a first comprehensive account of the dynamics of Eurozone countries from the creation of the Euro to the Great recession. We model each country as an open economy within a monetary union and analyze the dynamics of private leverage, fiscal policy and spreads. Our parsimonious model can replicate the time-series for nominal GDP, employment, and net exports of Eurozone countries between 2000 and 2012. We then ask how periphery countries would have fared with: (i) more conservative fiscal policies; macro-prudential tools to control private leverage; (iii) a central bank acting earlier to limit sovereign spreads; and (iv) the possibility to recoup the competitiveness they lost in the boom. To perform these counterfactual experiments, we use U.S. states as a control group that did not suffer from a sudden stop. We find that periphery countries could have stabilized their employment if they had followed more conservative fiscal policies during the boom. This is especially true in Greece. For Ireland, however, given the size of the private leverage boom, such a policy would have required buying back almost all of the public debt. Macro-prudential policy would have been helpful, especially in Ireland and Spain. However, in presence of a spending bias in fiscal rules, macro-prudential policies would have led to less prudent fiscal policies in the boom. Central bank actions would have stabilized employment during the bust but not public debt. Finally, if these countries had been able to regain in the bust the competitiveness they lost in the boom, they would have experienced a shorter and milder recession.
    Date: 2014–10
  49. By: Drago Bergholt; Tommy Sveen
    Abstract: Existing DSGE models are not able to reproduce the observed influence of international business cycles on small open economies. We construct a two-sector New Keynesian model to address this puzzle. The set-up takes into account intermediate trade and producer heterogeneity, where goods and service industries differ in terms of i) price flexibility, ii) trade intensity, iii) technology, iv) I-O structure, and v) the volatility of productivity innovations. The combination of intermediate markets and heterogeneous producers makes international business cycles highly important for the small economy, even if it has a large service sector. Exploiting I-O matrices of Canadian and US industries, the model is able to reproduce the role of international disturbances typically found in empirical studies. Model simulations deliver cross-country correlations in macroeconomic variables of about 0.7, with half of the variation in domestic variables attributed to foreign shocks.
    Keywords: small open economy, multi-sector, international trade, international business cycle
    JEL: E32 F41 F44
    Date: 2014
  50. By: Kevin x.d. Huang (Vanderbilt University); Jie Chen (Shanghai University of Finance and Economics); Zhe Li (Shanghai University of Finance and Economics); Jianfei Sun (Shanghai Jiao Tong University)
    Abstract: We argue that financial frictions and financial shocks can be an important factor behind the slow recoveries from the three most recent recessions. To illustrate this point, we augment a simple RBC model with a collateral constraint whose tightness is randomly disturbed by a shock that prescribes the general financial condition in the economy. We present evidence that such financial shock has become more persistent since the mid 1980s. We show that this can be an important contributor to the recent slow recoveries, and that a main mechanism may have to do with just-in-time-uses of capital and labor in the face of tight credit conditions during the recoveries. To assess the importance of such financial shock relative to other shocks in contributing to the slow recoveries, we enrich a New Keynesian model, which features various structural shocks and frictions widely considered in the literature, with the financial frictions and financial shocks studied in our parsimonious model. Our structural estimates of this comprehensive model indicate that financial shocks can play a dominant role in accounting for the slow recoveries, especially in employment growth rate.
    Keywords: Collateral constraint; Financial shock; Slow recovery; Capital shortage; Extensive margin; Intensive margin
    JEL: E2 E3
    Date: 2014–06–06
  51. By: Guerrero Santiago; Martínez-Ovando Juan Carlos
    Abstract: In this research we develop generalized diffusion indexes for the Mexican state and sectorial economic activity. These indexes summarize the dynamics of the local cycles in a way that they are consistent with the aggregate economic activity. The proposed index includes three dimensions of the local dynamic activity: i) the variation of local cycles (positive or negative), ii) the magnitude of these variations and iii) the weight of local components (states and/or sectors) on the aggregate economic activity. The main contribution of these indexes is that they admit sub-aggregations of regions and/or sectors that are more precise and informative than their counterparts. We show two applications. In the first one, we develop the generalized diffusion index for the Mexican economy using state economic coincident indexes. In the second one, we create a diffusion index of the state and sectorial economic activity using the State Quarterly Indicator of Economic activity (ITAEE by its Spanish acronym) produced by INEGI.
    Keywords: Diffusion index, Coincident indexes, Economic cycles, Monitoring.
    JEL: C1 C5 E3
    Date: 2014–07
  52. By: Michael Ellington (University of Liverpool Management School, UK); Costas Milas (University of Liverpool Management School, UK)
    Abstract: This paper examines the inflationary impact of domestic and global liquidity conditions on UK inflation through the lens of monetary aggregates. To do so, we rely on standard linear models as well as non-linear models that allow for regime switching behaviour in terms of a contained regime (when domestic money growth is relatively concealed) versus an uncontained regime (when domestic money growth is unusually unconcealed). We find that global liquidity yields inflationary pressures in the UK over and above the impact of domestic money growth, spare capacity and money disequilibria (the latter accounting for the property sector and financial asset markets). All effects are regime-switching as they depend on whether domestic money growth is contained within or exceeds threshold boundaries. Finally, broad (M4) money has greater explanatory power than divisia money in modelling UK inflation.
    Date: 2014–10
  53. By: Christian Lambert Nguena (Association of African Young Economists); Roger Tsafack Nanfosso (Econimic Policy Management Program)
    Abstract: This article aims to investigate the implication of financial deepening dynamics for financial policy coordination in the WAEMU sub-region. For this purpose we adopted a hypothetical-deductive theoretical approach and an empirical investigation in bothstatic and dynamic panel data econometrics that has allowed us to identify some stylized facts on this issue and have led to the following global recommendations based on our empirical investigation: The converging dynamics is evident in the sub-region and implies that after five years, financial policies harmonization would have an optimal impact; This highlights the feasibility of common effectiveness monetary policy targeting indirectly financial depth in the sub-region; However member states should work within five years towards harmonizing cross-country differences in structural and institutional characteristics that hamper the effectiveness of financial policies. Especially they should implement a financial policy whose mainly aim to increase the level of savings rate, GDP per capita growth rate and density and reduce the level of reserves in the sub-region.
    Keywords: Economic convergence, Financial deepening, Panel data econometrics, WAEMU sub-region, Principal component analysis
    JEL: E44 F15 F42 F36 G10 O16 O50 P52
    Date: 2013–07
  54. By: Adnen Ben Nasr (Institut Supérieur de Gestion de Tunis, Université de Tunis, Tunisia.); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus , via Mersin 10,Turkey; Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.); Ahdi N. Ajmi (College of Sciences and Humanities in Slayel, Salman bin Abdulaziz University, Kingdom of Saudi Arabia.); Goodness C. Aye (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria); Reneé van Eyden (Department of Economics, University of Pretoria)
    Abstract: This study investigates the asymmetric and time-varying causality between inflation and inflation uncertainty in South Africa within a conditional Gaussian Markov switching vector autoregressive (MS-VAR) model framework. The MS-VAR model is capable of determining both the sign and direction of causality. We account for the nonlinear, long memory and seasonal features of inflation series simultaneously by measuring inflation uncertainty as the conditional variance of inflation generated by recursive estimation of a Seasonal Fractionally Integrated Smooth Transition Autoregressive Asymmetric Power GARCH (SEA-FISTAR-APGARCH) model using monthly data for the period 1921:01 to 2012:12. The recursive, rather than a full-sample, estimation allows us to obtain a time-varying measure of uncertainty and better mimics the real-time scenario faced by economic agents and/or policy makers. The inferred probabilities from the four-state MS-VAR model show evidence of a time-varying relationship. The conditional (i.e. lead-lag) and regime-prediction Granger causality provide evidence in favour of Friedman’s hypothesis. This implies that past information on inflation can help improve the one-step-ahead prediction of inflation uncertainty but not vice versa. Our results have some important policy implications.
    Keywords: Inflation, inflation uncertainty, seasonality, long memory, time-varying causality, Markov switching model
    JEL: C12 C32 E31
    Date: 2014–10
  55. By: Philipp König; Alexander Meyer-Gohde; ; ;
    Abstract: We reconsider the canonical model of price setting with menu costs by Ball and Romer (1990). Their original model exhibits multiple equilibria for nominal aggregate demand shocks of intermediate size. By abandoning Ball and Romer’s (1990) assumption that demand shocks are common knowledge among price setters, we derive a unique symmetric threshold equilibrium where agents adjust prices whenever the demand shock falls outside the thresholds. The comparative statics of this threshold may differ from the one that gives rise to maximal nominal rigidity examined by Ball and Romer (1990). In contrast to their analysis, we find that a decrease in real rigidities can be associated with an increase in nominal rigidities due to the endogenous adjustment of agents’ beliefs regarding the aggregate price level.
    Keywords: menu costs, global games
    JEL: E31 C70 D82
    Date: 2014–10
  56. By: Vasilios Plakandaras (Department of Economics, Democritus University of Thrace); Periklis Gogas (Department of Economics, Democritus University of Thrace); Rangan Gupta (Department of Economics, University of Pretoria); Theophilos Papadimitriou (Department of Economics, Democritus University of Thrace)
    Abstract: In this paper we evaluate inflation persistence in the U.S. using long range monthly and annual data. The importance of inflation persistence is crucial to policy authorities and market participants, since the level of inflation persistence provides an indication on the susceptibility of the economy to exogenous shocks. Departing from classic econometric approaches found in the relevant literature, we evaluate persistence through the nonparametric Hurst exponent within both a global and a rolling window framework. Moreover, we expand our analysis to detect the potential existence of chaos in the data generating process, in order to enhance the robustness of conclusions. Overall, we find that inflation persistence is high from 1775 to 2013 for the annual dataset and from February 1876 to May 2014 in monthly frequency, respectively. Especially from the monthly dataset, the rolling window approach allows us to derive that inflation persistence has reached to historically high levels in the post Bretton Woods period and remained there ever since.
    Keywords: Inflation, Persistence, Hurst exponent, Detrended Fluctuation Analysis, Lyapunov exponent
    JEL: E31 E60 C14
    Date: 2014–10
  57. By: Mark Huggett (Department of Economics, Georgetown University); Alejandro Badel (Research Division, Federal Reserve Bank of St. Louis)
    Abstract: We assess the consequences of substantially increasing the marginal tax rate on U.S. top earners using a human capital model. The top of the model Laffer curve occurs at a 53 percent top tax rate. Tax revenues and the tax rate at the top of the Laffer curve are smaller compared to an otherwise similar model that ignores the possibility of skill change in response to a tax reform. We also show that if one applies the methods used by Diamond and Saez (2011) to provide quantitative guidance for setting the tax rate on top earners to model data then the resulting tax rate exceeds the tax rate at the top of the model Laffer curve.
    Keywords: Human Capital, Marginal Tax Rates, Inequality, Laffer Curve
    JEL: D91 E21 H2 J24
    Date: 2014–07–23
  58. By: Daniel Detzer (Berlin School of Economics and Law, Institute for International Political Economy); Eckhard Hein (Berlin School of Economics and Law, Institute for International Political Economy)
    Abstract: Germany’s recent export successes and the fast recovery from the 2007 -2009 crisis made it Europe’s “economic superstar” in public opinion. This paper interprets the German performance against the background of financialisation. After an examination of the pre-crisis demand and growth regime, the focus is on how financialisation has contributed to the German ‘export-led mercantilist’ regime. The paper focuses subsequently on the determinants of the German current account balance, to then interpret the development of Germany during the financial and economic crisis and the causes for the quick recovery in light of the previous analysis.
    Keywords: current account imbalances, financialisation, financial and economic crisis, Germany, trade balance
    JEL: E25 E61 E63 E64 E65 F40 F43
    Date: 2014–08–01
  59. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2014–08–22
  60. By: Matthew Rognlie; Andrei Shleifer; Alp Simsek
    Abstract: We present a model of investment hangover motivated by the Great Recession. In our�model, overbuilding of residential capital requires a reallocation of productive resources to�nonresidential sectors, which is facilitated by a reduction in the real interest rate. If the�fall in the interest rate is limited by the zero lower bound and nominal rigidities, then the�economy enters a liquidity trap with limited reallocation and low output. The drop in output�reduces nonresidential investment through a mechanism similar to the acceleration principle�of investment. The burst in nonresidential investment is followed by an even greater boom�due to low interest rates during the liquidity trap. The boom in nonresidential investment�induces a partial and asymmetric recovery in which the residential sector is left behind,�consistent with the broad trends of the Great Recession.
    Date: 2014–09
  61. By: Albrizio, Silvia; Lamp, Stefan
    Abstract: This paper investigates the relationship between fiscal consolidation, business plans and firm investment. Based on a detailed narrative of tax changes in Germany covering 40 years of fiscal adjustments, we define and exploit the exogenous variation of tax bills to quantify the effect of tax changes on firm future investment plans as well as on realized investment. We find that firms in the manufacturing sector revise downwards their planned investment by about 4% subsequently to a tax increase equal to 1% of the value added in the total manufacturing industry. On the contrary realized investment growth drops by around 8% at impact. Furthermore we find that income and consumption taxes are most harmful to investment and that firms base their investment plans considering laws currently under discussion, anticipating future tax changes. Not taking into account this anticipation effect would lead to strongly biased estimates.
    Keywords: Firm investment, Fiscal shocks, Narrative identification, Business confidence
    JEL: E22 E62 H32
    Date: 2014
  62. By: Nicholas Kilimani (Department of Economics, University of Pretoria)
    Abstract: The double dividend hypothesis contends that environmental taxes have the potential to yield multiple benefits for the economy. However, empirical evidence of the potential impacts of environmental taxation in developing countries is still limited. This paper seeks to contribute to the literature by exploring the impact of a water tax in a developing country context, with Uganda as a case study. Policy makers in Uganda are exploring ways of raising revenue by taxing environmental goods such as water. Whereas their primary focus is to raise revenue, we demonstrate how taxes on environmental goods can yield other benefits beyond addressing a country’s fiscal needs. This study employs a computable general equilibrium model to shed light on the impact of a water tax policy when a tax is accompanied by a recycling scheme of the same magnitude. We seek to establish whether taxation and recycling can induce more growth, employment and industry output. The results show that a mechanism which leaves a neutral fiscal balance yields dividends for the economy. In other words, whatever the degree of regressivity resulting from the environmental tax, it is possible to design a recycling scheme that renders the tax policy to be beneficial to the economy.
    Keywords: Environmental Taxation; Revenue recycling; Double dividend; Economic growth
    JEL: C68 H23 E62 Q52
    Date: 2014–10
  63. By: Paul Luk (Oxford University and Hong Kong Institute for Monetary Research); David Vines (Oxford University and Centre for Applied Macroeconomic Analysis and Australian National University and Centre for Economic Policy Research)
    Abstract: We present a microfounded two-country model of global imbalances and debt deleveraging. A sustained rise in saving in one country can lead to a worldwide fall in interest rates and an accumulation of debt in the other country. When a subsequent deleveraging shock occurs, interest rates are forced down further. In the presence of a zero bound to interest rates, the deleveraging country may face a combination of a large fall in output, deflation, a rise in real interest rates and real exchange rate appreciation. Such exchange rate appreciation will intensify the loss in output, magnify the deflation and further tighten the deleveraging constraint.
    Keywords: Global Imbalances, Debt Deleveraging, Liquidity Trap, Real Exchange Rate Number: 202014
    JEL: E5 F3
    Date: 2014–08
  64. By: Craig, Ben R. (Federal Reserve Bank of Cleveland); Dinger, Valeriya (University of Osnabrueck and Leeds University Business School)
    Abstract: The paper presents the first empirical study of the relation between bank loan volume volatility and bank retail and wholesale liabilities. We argue that since the volume of retail deposits is inflexible, banks facing volatile loan demand tend to fund loans with larger shares of wholesale rather than retail liabilities. We empirically confirm this argument using a unique dataset constructed from the weekly financial reports of 104 large U.S. commercial banks. The high frequency of the data allows us to employ dynamic identification schemes which mitigate reverse causality and selection concerns. Our results imply that the introduction of regulatory limits on wholesale liabilities will increase the exposure of banks to loan demand shocks. Such a regulation will also inhibit the ability of the banking sector to service more volatile loans. This may smooth the lending cycles, but it will also slow recoveries of lending volume after a substantial recession.
    Keywords: wholesale funding; retail deposits; loan volume volatility
    JEL: E44 G21
    Date: 2014–10–02
  65. By: Thomas Meissner; Davud Rostam-Afschar; ;
    Abstract: This paper tests whether the Ricardian Equivalence proposition holds in a life cycle consumption laboratory experiment. This proposition is a fundamental assumption underlying numerous studies on intertemporal choice and has important implications for tax policy. Using nonparametric and panel data methods, we nd that the Ricardian Equivalence proposition does not hold in general. Our results suggest that taxation has a signicant and strong impact on consumption choice. Over the life cycle, a tax relief increases consumption on average by about 22% of the tax rebate. A tax increase causes consumption to decrease by about 30% of the tax increase. These results are robust with respect to variations in the diculty to smooth consumption. In our experiment, we nd the behavior of about 62% of our subjects to be inconsistent with the Ricardian proposition. Our results show dynamic eects; taxation in uences consumption beyond the current period.
    Keywords: Ricardian Equivalence, Taxation, Life Cycle, Consumption, Laboratory Experiment
    JEL: H55 H21 E30 E32 E60
    Date: 2014–10
  66. By: Lina Gálvez-Muñoz 1; Paula Rodríguez-Modroño; Tindara Addabbo
    Abstract: Contrary to consolidated economic theory principles, in Europe (but also in other world regions), austerity policy has been implemented instead of stimulus measures which have proven to be successful in crisis associated with credit crunch and insufficient demand. These policies cannot be only considered as an "austericide" due to ideological blindness. They also need to be considered as a strategy for imposing an economic and social reform which proved too difficult to be implemented in the years previous to the great recession. The ongoing fiscal contraction policies include the typical adjustment measures which are now driving the European economy towards a new type of insertion within the international economy. And as a consequence, they imply deep changes on the gender division of work deepening gender inequality. This article analyses the different effects of European Union austerity policy on women and men’s participation in the labour markets in two Southern European countries beaten by the Debt crisis: Spain and Italy. During the first part of this economics crisis, unemployment grew higher for men than for women, but in the second phase with the all sectors hit by the recession and the implementation of harsh austerity policies affecting public-sector jobs, women are also losing their jobs at the same rate than men. We have estimated labour supply models for individuals aged 25 to 54 living in couples with or without children by gender by using the EU-SILC 2011 micro data for Spain and Italy. The analysis carried out shows a strong countercyclical added-worker effect for women in response to transitory shocks in partner’s earnings, in contrast with a procyclical discouraged-worker effect for men. However though the added-worker effect prevails for women in Spain, in Italy still the discouraged worker effect dominates. The results show also a positive effect of the provision of childcare services on women’s labour supply. A cut in social and care services due to austerity promotion may turn the tendency to a decline in women’s participation and employment rates in the labour force with the subsequent loss of total well-being, due to gender differences in education performance, and especially of women’s well-being.
    Keywords: gender, labour supply, austerity policy, Great Recession
    JEL: J22 J16 H53 E62
    Date: 2013–10
  67. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to Business and Community Leaders, Las Vegas, Nevada, October 9, 2014
    Date: 2014–10–09
  68. By: Fabian Kindermann (Institute for Macroeconomics and Econometrics, University of Bonn); Dirk Krueger (Department of Economics, University of Pennsylvania)
    Abstract: n this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.
    Keywords: Progressive Taxation, Top 1%, Social Insurance, Income Inequality
    JEL: E62 H21 H24
    Date: 2024–10–10
  69. By: Nicolas Barbaroux (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I (UCBL))
    Abstract: In the aftermath of the sovereign debt criss, open-market interventions prevailed within the central bank's policy answers known under the label unconventional monetary policy measures. During interwar period, France was an isolated case, among the leading countries, by everlastingly rejecting open-market operations in its monetary policy toolset. The present study analyzes the French monetary policy history by explaining why Bank of France had been so old-fashioned in monetary policymaking for too long time. Moreover, the article provides an explanation of the latter point by raising five major arguments of explanation : (1) the irrelevancy of the French interwar monetary reforms which enabled the Bank of France to conduct open-market operations per se; (2) the French conservatism throughout the insiders' view from the Bank of France leaders (not only governors and deputy governors, but also the General Council's members at the head of the French central bank); (3) the legacy of a metallist vision, embodied by Charles Rist, within the French economists of that time (4) the negative public opinion regarding open-market operations which were seen as being an inflationist public debt financing instrument and lastly (5) the unfair competition that occurred between the discounting operations and the open-market operations in the Bank of France's balance sheet.
    Keywords: Open-market; Monetary policy; Central banking
    Date: 2014
  70. By: Christine Lewis; Nigel Pain; Jan Strasky; Fusako Menkyna
    Abstract: The downturn in fixed investment among advanced economies from the onset of the global crisis was unusually severe, widespread and long-lasting relative to comparable episodes in the past. As a result, investment gaps are large in many countries, not only in relation to past norms but also relative to projected future steady-state levels, with a gap of 2 percentage points of GDP or more in several countries. A significant proportion of this investment shortfall is attributable to soft demand conditions (the accelerator effect) but financial factors and heightened uncertainty have also played a role. In addition to continued support to demand from macroeconomic policies, the recovery in investment could be boosted by tackling longer-term policy issues that bear on investment decisions indirectly, by reducing financial fragmentation in the euro area and by undertaking growth-friendly structural reforms. Écarts relatifs à l'investissement après la crise Le ralentissement conjoncturel de l'investissement fixe dans les économies avancées depuis le début de la crise économique mondiale a été exceptionnellement défavorable, répandu et persistant par rapport à des épisodes comparables ayant eu lieu dans le passé. En fait, les écarts relatifs à l'investissement sont considérables dans de nombreux pays, non seulement par rapport aux normes du passé, mais aussi par rapport aux niveaux futurs prévus de l'état d'équilibre, avec un écart de 2 points de pourcentage du PIB ou plus dans plusieurs pays. Une part importante de cet écart de placement est attribuable à des conditions de faible demande (effet d’accélérateur) mais des facteurs financiers et une incertitude accrue ont également joué un rôle. En plus d’un soutien continu de la demande par des politiques macro-économiques, la reprise de l'investissement pourrait être stimulée en luttant contre les problèmes de politique de long terme pesant indirectement sur les décisions d’investissement, en réduisant la fragmentation du système financier dans la zone euro et en mettant en oeuvre des réformes structurelles favorables à la croissance économique.
    Keywords: uncertainty, economic outlook, balance sheet, cost of capital, investment, investissement, coût du capital, bilans, perspectives économiques, incertitude
    JEL: D24 E22 G31 O16
    Date: 2014–10–14
  71. By: World Bank Group
    Keywords: Environmental Economics and Policies Banks and Banking Reform Economic Theory and Research Private Sector Development - E-Business Transport Economics Policy and Planning Finance and Financial Sector Development Transport Macroeconomics and Economic Growth Environment
    Date: 2014–06
  72. By: Jesús Fernández-Villaverde; Pablo Guerrón-Quintana; Juan F. Rubio-Ramírez
    Abstract: This paper develops a particle filtering algorithm to estimate dynamic equilibrium models with stochastic volatility using a likelihood-based approach. The algorithm, which exploits the structure and profusion of shocks in stochastic volatility models, is versatile and computationally tractable even in large-scale models. As an application, we use our algorithm and Bayesian methods to estimate a business cycle model of the U.S. economy with both stochastic volatility and parameter drifting in monetary policy. Our application shows the importance of stochastic volatility in accounting for the dynamics of the data.
    Date: 2014–10
  73. By: Nikolay, Iskrev
    Abstract: In a recent article Canova et al. (2014) study the optimal choice of variables to use in the estimation of a simplified version of the Smets and Wouters (2007) model. In this comment I examine their conclusions by applying a different methodology to the same model. The results call into question most of Canova et al. (2014) findings.
    Keywords: DSGE models, Observables, Identification, Information matrix, Cramer-Rao lower bound
    JEL: C32 C51 C52 E32
    Date: 2014–10
  74. By: Potter, Simon M. (Federal Reserve Bank of New York)
    Abstract: Remarks before the Japan Center for Economic Research, Tokyo, Japan.
    Keywords: Large-scale asset purchases (LSAPs); System Open Market Account (SOMA); Term Deposit Facility (TDF); interest on excess reserves (IOER)
    JEL: E52
    Date: 2014–10–25
  75. By: Jo Michell (University of the West of England.)
    Abstract: The distribution of income between capital and labour has, until very recently, been ignored by the majority of the economics profession. At the same time, the rate of wage growth has systematically lagged the growth of productivity, leading to a fall in the share of wages in total income. This paper considers the links between shifts in the functional distribution of income, rising personal income inequality and the mechanisms which led to the financial crisis of 2007-2008. The paper argues that the most widespread explanation for increasing inequality - increasing demand for skilled labour due to technological change - is not convincing, and that political factors have played an important role. Mechanisms by which inceasing inequality feed through into financial instability are considered. These include debt as an insurance mechanism against greater income volatility; debt as an adjunct to emulative consumption behaviour; debt as a political tool to defuse the growing gap between wages and productivity; and debt as a way to overcome the stagnationary macroeconomic effects of rising inequality.
    Keywords: Aggregate Factor Income Distribution, Financial Crises
    JEL: E25 G01
  76. By: Eric Wong (Hong Kong Monetary Authority); Andrew Tsang (Hong Kong Monetary Authority); Steven Kong (Hong Kong Monetary Authority)
    Abstract: Using a regulatory dataset of foreign bank branches in Hong Kong, this study finds evidence of the international transmission of funding shocks from home countries of global banks through their internal capital markets during the 2007-08 financial crisis. Global banks are found to buffer parent-bank liquidity shocks by repatriating cross-border internal funding, leading to reductions in loan supply by branches in Hong Kong. Branches with a higher loan-to-asset ratio are estimated to cut loan supply sharper than their counterparts. More liquid assets held by parent banks and central bank liquidity are found to reduce the extent of shock transmission significantly
    Keywords: Global Banks, Internal Capital Market, Liquidity Management, Shock Transmission Number: 212014
    JEL: E44 F36 G32
    Date: 2014–08
  77. By: Abe, Naohito; Moriguchi, Chiaki; Inakura, Noriko
    Abstract: The Great East Japan Earthquake in March 2011 not only caused severe damage to the northeastern region, but also affected millions of households beyond the disaster-stricken area. Most notably, the disaster temporarily created large excess demand for many essential goods, resulting in widespread commodity shortages. Did consumers engage in hoarding after the disaster? Did the commodity shortages create any discrepancy between those consumers who were able to stockpile goods and those who could not? In this paper, by using the Great East Japan Earthquake as a natural experiment and taking advantage of unique high-frequency scanner data, we investigate the short-run effects of a major disaster on commodity prices and household purchasing behaviors. We find that commodity prices increased surprisingly little after the disaster, which implies that the excess demand was resolved, not through prices, but through quantity adjustments. Our empirical analysis shows that, while average household expenditure on storable food rose dramatically in response to the disaster, households that had higher opportunity costs of shopping were less likely to stockpile food. Our results indicate substantial heterogeneity in household purchasing behavior in response to a major disaster, which may have important distributional consequences.
    Keywords: natural disaster, hoarding, scanner data
    JEL: D12 E21 E31 Q54
  78. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Health, Nutrition and Population - Population Policies Economic Theory and Research Social Protections and Labor - Labor Policies Social Protections and Labor - Labor Markets Macroeconomics and Economic Growth
    Date: 2014–06
  79. By: Dimitrios Papastamos (Eurobank EFG Property Services S.A); George Matysiak (Master Management Group and Krakow University of Economics); Simon Stevenson (School of Real Estate & Planning, Henley Business School, University of Reading)
    Abstract: We compare and contrast the accuracy and uncertainty in forecasts of rents with those for a variety of macroeconomic series. The results show that in general forecasters tend to be marginally more accurate in the case of macro-economic series than with rents. In common across all of the series, forecasts tend to be smoothed with forecasters under-estimating performance during economic booms, and vice-versa in recessions We find that property forecasts are affected by economic uncertainty, as measured by disagreement across the macro-forecasters. Increased uncertainty leads to increased dispersion in the rental forecasts and a reduction in forecast accuracy.
    Date: 2014–05
  80. By: N R Bhanumurthy
    Abstract: The paper discusses the progress of Indian economy and its policies since the broad-based structural reforms initiated in 1991 with a special focus on the recent downturn following the global financial crisis. The paper is structured into two parts: first part discusses the major economic and social achievements of India since 1991, it identifies the causes of the recent downturn, and the policy responses to revive the economy. In the second part, the paper outlines the major challenges India is facing and the policies and reforms that need to be implement to achieve sustainable development.
    Keywords: Economic reforms, Global Financial Crisis, Sustainable Development, Emerging Economies, India
    JEL: E60 E65 O53
    Date: 2014–10
  81. By: Platon Monokroussos
    Abstract: The present paper studies the evolution of the Greek public debt ratio under different assumptions regarding the size and the degree of persistence of fiscal multiplies, the implementation profile of the applied fiscal adjustment and the response of financial markets to fiscal consolidation. The main results of our simulation exercise can be summarized as follows: a) taking into account Greece’s present debt ratio, a fiscal adjustment can lead to a contemporaneous increase in the ratio if the fiscal multiplier is higher than ca 0.5; b) despite the unprecedented improvement in the underlying fiscal position since 2010, the concomitant increase in the public debt ratio can be mainly attributed to its high initial level, a very wide initial structural deficit as well as the ensuing economic recession; c) notwithstanding its negative initial effects on domestic economic activity, the enormous fiscal effort undertaken over the last 5 years leaves the country’s debt ratio in a more sustainable path relative to a range of alternative scenarios assuming no adjustment or a more gradual implementation profile of fiscal consolidation relative to that implemented thus far.
    Keywords: Self-defeating consolidations, fiscal multiplier, public debt, Greece, European Commission.
    Date: 2014–10
  82. By: Robert Whyte; Carlos Griffin
    Keywords: Macroeconomics and Economic Growth - Investment and Investment Climate Banks and Banking Reform Private Sector Development - Emerging Markets Finance and Financial Sector Development - Non Bank Financial Institutions Finance and Financial Sector Development - Debt Markets
    Date: 2014–04
  83. By: Hilde C. Bjørnland; Leif Anders Thorsrud
    Abstract: Traditional studies of the Dutch disease do not account for productivity spillovers between the booming resource sector and other domestic sectors. We put forward a simple theory model that allows for such spillovers. We then identify and quantify these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows for resource movements and spending effects through a large panel of variables at the sectoral level, while also identifying disturbances to the commodity price, global demand and non-resource activity. Using Australia and Norway as representative cases studies, we find that a booming resource sector has substantial productivity spillovers on non-resource sectors, effects that have not been captured in previous analysis. That withstanding, there is also evidence of two-speed economies, with non-traded industries growing at a faster pace than traded. Furthermore, com- modity prices also stimulate the economy, but primarily if an increase is caused by higher global demand. Commodity price growth unrelated to global activity is less favourable, and for Australia, there is evidence of a Dutch disease effect with crowding out of the tradable sectors. As such, our results show the importance of distinguishing between windfall gains due to volume and price changes when analysing the Dutch disease hypothesis.
    Keywords: Resource boom, commodity prices, Dutch disease, learning by doing, two-speed economy, Bayesian Dynamic Factor Model (BDFM)
    JEL: C32 E32 F41 Q33
    Date: 2014–09
  84. By: Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper uses an approach recently suggested by Gabaix (Eonometrica 2011) to investigate for the first time the role of idiosyncratic shocks to the largest firms in the dynamics of imports by firms from manufacturing industries. For Germany we find evidence that imports are power-law distributed and that the distribution of imports in the industries can be characterised as fat-tailed. Results show that idiosyncratic shocks to very large firms are important for the import dynamics in 2010/2011 but not in 2009/2010.
    Keywords: EImports, power law, granular residual, Germany
    JEL: F14 E32 L60
    Date: 2014–10
  85. By: Craig, Ben R. (Federal Reserve Bank of Cleveland); Fecht, Falko (Frankfurt School of Finance and Management); Tumer-Alkan, Gunseli (VU University Amsterdam)
    Abstract: In this paper, we focus on the interconnectedness of banks and the price they pay for liquidity. We assess how the concentration of credit relationships and the position of a bank in the network topology of the system influence the bank’s ability to meet its liquidity demand. We use quarterly data of bilateral interbank credit exposures between all German banks from 2000 to 2008 to measure interbank relationships and the network characteristics. We match these data with the bids placed by the individual banks in the European Central Bank’s (ECB) weekly repo auctions. The bids measure each bank’s willingness to pay for liquidity since they had variable rate tenders with a “pay-your-bid” price. Controlling for bank characteristics and the daily fulfillment of reserve requirements, we find that banks with a more diversified borrowing structure in the interbank market bid significantly less aggressively and pay a lower price for liquidity in the ECB’s main refinancing operations. These findings suggest that incentives to diversify bank liquidity risk dominate the benefits of private information. When the network position of the bank is taken into account, we find that central lenders in the money market bid more aggressively in the auctions.
    Keywords: Interbank markets; liquidity; relationship lending; networks
    JEL: D44 D85 E58 G21 L14
    Date: 2014–10–17
  86. By: Ton van den Bremer; Frederick van der Ploeg; Samuel Wills
    Abstract: Oil exporters typically do not consider below-ground assets when allocating their sovereign wealth fund portfolios, and ignore above-ground assets when extracting oil. We present a unified framework for considering both. Subsoil oil should alter a fund’s portfolio through additional leverage and hedging. First-best spending should be a share of total wealth, and any unhedged volatility must be managed by precautionary savings. If oil prices are pro-cyclical, oil should be extracted faster than the Hotelling rule to generate a risk premium on oil wealth. We then discuss how the management of Norway’s fund can practically be improved with our analysis.
    Keywords: oil, portfolio allocation, sovereign wealth fund, leverage, hedging, optimal extraction
    JEL: E21 G11 G15 O13 Q32 Q33
    Date: 2014–10
  87. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at Rensselaer Polytechnic Institute, Troy, New York.
    Keywords: personal consumption expenditures (PCE) deflator; Upstate New York
    JEL: E20 R11
    Date: 2014–10–07
  88. By: Michal Jurek (Poznan University of Economics, Poland); Pawel Marszalek (Poznan University of Economics, Poland)
    Abstract: The paper addresses numerous factors which generated and transmitted the 2007-2009 financial crisis, with the special attention paid to phenomena observed in the subprime mortgages and MBSs markets. The aim of the paper is to provide a critical survey which systematically examine the literature of those factors. The paper discusses the roots of the subprime crisis and characterizes briefly the most important milestones in the process of the crisis propagation. Then it presents analysis of the impact of the subprime and MBSs markets on the outburst of the global financial crisis provided by staff of selective international financial institutions and central banks. The special attention is paid to factors of crisis propagation after the subprime mortgage and MBSs markets collapse. Strict interdependencies among tall discussed factors are emphasized.
    Keywords: global financial crisis, subprime mortgages, structured credit products, risk exposure,
    JEL: E44 G18 G21 G24
    Date: 2014–06–01
  89. By: Gorry, Aspen (Utah State University); Devon, Gorry (Utah State University); Trachter, Nicholas (Federal Reserve Bank of Richmond)
    Abstract: Data reveal that individuals experience a high number of occupational switches. Over 40% of high school graduates transition between white and blue collar occupations more than once between the ages of 18 and 28. This paper develops a life cycle model of occupational choices based on workers learning about their type and sorting themselves to the best job match. Documenting life cycle patterns of occupational choices using data from the NLSY79 supports key predictions from the model. Initial characteristics are predictive of future patterns of occupational switching, including the timing and number of switches. In addition, the average time to the first occupational switch is longer than the time to the second switch for individuals with multiple occupational transitions.
    JEL: E24 J24 J31 J62
    Date: 2014–10–02
  90. By: Potter, Simon M. (Federal Reserve Bank of New York)
    Abstract: Remarks at the SIFMA Conference on Securities Financing Transactions, New York City.
    Keywords: overnight reverse repurchase agreement (ON RRP); System Open Market Account (SOMA); interest on excess reserve balances (IOER); large-scale asset purchases (LSAPs); aggregate cap
    JEL: E52
    Date: 2014–10–07
  91. By: Susana Santos
    Abstract: Social Accounting Matrices (SAMs) and Socio-Demographic Matrices (SDMs) are presented as tools that offer specific features for studying the activity of countries in several different areas, as well as for supporting policy decision processes. Based on methodological principles derived mainly from the works of Richard Stone, emphasis is placed on the desirability of working in a matrix format, which includes not only people (SDM), but also, at the same time, activities, products, factors of production and institutions (SAM). Approaches based on SAMs and SDMs will be presented as a way of capturing the relevant network of linkages and the corresponding multiplier effects, which can then be used for the subsequent modelling of the activity of the countries to be studied. As an example of socio-economic studies that can be undertaken using approaches based on both SAMs and SDMs, the study of the activity of household unincorporated enterprises, also described as informal, will be illustrated with an application to Portugal. In that application, three scenarios will be briefly presented, involving, on the one hand, two changes in incomes and, on the other hand, a change in expenditures. The macroeconomic effects of those changes will be summarised in the form of changes in the macroeconomic aggregates: Gross Domestic Product, Gross National Income and Disposable Income.
    Keywords: Social Accounting Matrix; Socio-Demographic Matrices; Informal Economy.
    JEL: E01 J11
    Date: 2014–09
  92. By: Guvenen, Fatih (Federal Reserve Bank of Minneapolis); Kaplan, Greg (Princeton University); Song, Jae (Social Security Administration)
    Abstract: We analyze changes in the gender structure at the top of the earnings distribution in the United States over the last 30 years using a 10% sample of individual earnings histories from the Social Security Administration. Despite making large inroads, females still constitute a small proportion of the top percentiles: the glass ceiling, albeit a thinner one, remains. We measure the contribution of changes in labor force participation, changes in the persistence of top earnings, and changes in industry and age composition to the change in the gender composition of top earners. A large proportion of the increased share of females among top earners is accounted for by the mending of, what we refer to as, the paper floor – the phenomenon whereby female top earners were much more likely than male top earners to drop out of the top percentiles. We also provide new evidence at the top of the earnings distribution for both genders: the rising share of top earnings accruing to workers in the Finance and Insurance industry, the relative transitory status of top earners, the emergence of top earnings gender gaps over the life cycle, and gender differences among lifetime top earners.
    Keywords: Top earners; Glass ceiling; Gender gap; Paper floor; Industry
    JEL: E24 G10 J31
    Date: 2014–10–22
  93. By: Kentaro Imai (Graduate School of Economics, Osaka University)
    Abstract: Using a panel dataset of firms for the period 1999-2008, we estimated the prevalence of zombies among Japanese Small- and Medium-sized enterprises (SMEs) and their borrowing and investment behaviors. We observe that 4-14% of SMEs were zombie firms during the period 1999-2008. Analysis of borrowing behavior indicates that zombie firms could not reduce their loans. Reductions in the land values of SMEs did not lead to a decrease in the borrowing of zombie firms due to ever-greening. We also observe that the profitability of investment, measured by marginal q, did not increase investment among zombie firms because evergreen loans increased investment in less productive and profitable projects.
    Keywords: zombie firms, ever-greening, SMEs, borrowing, investment
    JEL: G21 E22 E44
    Date: 2013–07
  94. By: Eva Schlenker; Kai D. Schmid
    Abstract: In this paper, we estimate the effect of changes in capital income shares on inequality of gross household income. Using EU-SILC data covering 16 EU countries from 2005 to 2011 we find that the level of capital income shares is positively associated with the concentration of gross household income. Moreover, we show that the transmission of a shift in capital income shares into the personal distribution of income depends on the concentration of capital income in an economy. At the mean of the distribution of capital income a 1 percentage point increase of the capital share is associated with a 0.8 percentage point increase of the Gini coefficient of gross household income. Our findings imply that in many industrialized countries income inequality has by no means evolved independently from the observed structural shift in factor income towards a higher capital income share over the last decades.
    Keywords: Factor Income Shares, Income Inequality, EU-SILC, Fixed Effects
    JEL: D31 D33 E6 E25
    Date: 2014–10
  95. By: Pablo Hernández de Cos (Banco de España); David López Rodríguez (Banco de España)
    Abstract: This paper describes the revenue-raising capacity and structure of the Spanish tax system, in comparison with the economies of the European Union. Spain stands out for the low weight of its tax revenues in GDP relative to the EU27 average. This lower weight of tax revenue is mainly a consequence of indirect taxes (VAT, excise duties and environmental taxes). In fact, Spain has the lowest weight of consumption taxation in the European Union. As regards labour taxation, revenue raised as a proportion of GDP is similar to the EU27 average, although the weight of social security contributions in GDP, in particular those charged to employers, is higher. Spain also raises relatively more revenue from the taxation of capital, in particular from the taxation of wealth.
    Keywords: fiscal pressure, tax structure, taxation in the EU.
    JEL: H20 E62 H23 H24 H25
    Date: 2014–10
  96. By: Garriga, Carlos (Federal Reserve Bank of St. Louis); Tang, Yang (Nanyang Technological University); Wang, Ping (Washington University)
    Abstract: This paper explores the role played by structural transformation and the resulting relocation of workers from rural to urban areas in the recent housing boom in China. This development process has fostered an ongoing increase in urban housing demand, which, combined with a relatively inelastic supply due to land and entry restrictions, has raised housing and land prices. We examine the issue using a multi-sector dynamic general-equilibrium model with endogenous rural-urban migration and endogenous housing demand and supply. Our quantitative results suggest that the development process accounts for two-thirds of housing and land price movements across all urban areas. This mechanism is amplified in an extension calibrated to the two largest cities indicating that market fundamentals remain a key driver of housing and land prices.
    Keywords: Migration; structural transformation; housing boom
    JEL: D90 E20 O41 R23 R31
    Date: 2014–10–01
  97. By: Luzzati Tommaso; Cheli Bruno; Arcuri S.
    Abstract: The aim of this paper is twofold, methodological and empirical. From the methodological point of view it aims at contributing to the debate about composite indicators. From the empirical one it assesses the relative sustainability of the Italian regions. Instead of building a single composite indicator (score) for each region, we calculate many composite indices by combining different weighting systems and rules of normalization and aggregation. In this way, we get a distribution function of the ranks (and a plausible rank range) for each country. Such an approach represents a good compromise between the need of synthesising the information provided by many variables and the need to avoid the loss of relevant information that occurs when several indicators are aggregated into a single composite index.
    Keywords: composite indicators; rankings; sustainability.
    JEL: D63 E01 Q01
    Date: 2014–09–01
  98. By: Tomas Adam; Sona Benecka; Jakub Mateju
    Abstract: This paper shows how the reaction of selected emerging CEE currencies to increased uncertainty depends on market sentiment in a core advanced economy or even on the global scale. On the example of the Czech koruna, a highly stylized model of portfolio allocation between EUR- and CZK-denominated assets suggests the presence of two regimes characterized by different reactions of the exchange rate to increased stress in the euro area. The “diversification" regime is characterized by appreciation of the koruna in reaction to an increase in the expected variance of EUR assets, while in the “flight to safety" regime, the koruna depreciates in response to increased variance. We suggest that the switch between regimes may be related to changes in risk aversion, driven by the actual level of strains in the financial system as captured by financial stress indicators. Using the Bayesian Markov-switching VAR model, the presence of these regimes is identified in the case of the Czech koruna and to a lesser extent in the case of the Polish zloty and the Hungarian forint. We find that a slight increase in euro area financial stress causes the koruna to appreciate, but as financial market tensions intensify (and investors’ risk aversion increases), the Czech currency depreciates in response to a financial stress shock.
    Keywords: Asset allocation, exchange rates, financial stress, Markov-switching
    JEL: E44 F31 G12 G20
    Date: 2014–09
  99. By: Fischer, Stanley (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2014–10–11
  100. By: Stéphane Auray (Centre de Recherche en Économie et Statistique (CREST)); Nicolas Lepage-Saucier (Département des sciences économiques (UQAM))
    Abstract: Les chiffres publiés le 24 septembre 2014 par la DARES semblent encourageants car ils présentent une baisse de 0.3% du taux de chômage des demandeurs d’emploi de catégorie A. Qu’en estil exactement ? Il ne s’agit en définitive que d’un changement d’un mois à un autre et si l’on observe les changements sur un trimestre, on doute que la tendance pourrait s’inverser. Au contraire, les développements substantiels des derniers mois et ce malgré les débats techniques concernant les chiffres de l’Insee de l’enquête emploi et ceux de Pôle emploi nous conduisent en définitive à une conclusion limpide. La situation de l’emploi en France a continué de se détériorer en 2014 et est des plus inquiétantes.
    Keywords: Chômage; Unemployment; Marché du travail; Labor market; Emploi; Inflation; Inflation; croissance; growth
    Date: 2014–09
  101. By: Urvashi Narain; Michael Toman; Zhiyun Jiang
    Keywords: Environment - Climate Change Mitigation and Green House Gases Environmental Economics and Policies Economic Theory and Research Environment - Wildlife Resources Transport Economics Policy and Planning Transport Macroeconomics and Economic Growth
    Date: 2014–07
  102. By: Sylvia Kaufmann (Study Center Gerzensee)
    Abstract: Two Bayesian sampling schemes are outlined to estimate a K-state Markov switching model with time-varying transition probabilities. Data augmentation for the multinomial logit model of the transition probabilities is alternatively based on a random utility and a difference in random utility extension. We propose a definition to determine a relevant threshold level of the covariate determining the transition distribution, at which the transition distributions are balanced across states. Identification issues are addressed with random permutation sampling. In terms of efficiency, the extension to the difference in random utility specification in combination with random permutation sampling performs best. We apply the method to estimate a regime dependent two-pillar Phillips curve for the euro area, in which lagged credit growth determines the transition distribution of the states.
    Date: 2014–02
  103. By: Capuano, Stella (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Hauptmann, Andreas (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Schmerer, Hans-Jörg (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Unions are often stigmatized as being a source of inefficiency due to higher collective bargaining outcomes. This is in stark contrast with the descriptive evidence presented in this paper. Larger firms choose to export and are also more likely to adopt collective bargaining. We rationalize those stylized facts using a partial equilibrium model that allows us to evaluate firms' value functions under individual or collective bargaining. Exporting further decreases average production costs for large firms in the collective bargaining regime, allowing them to benefit from additional external economies of scale due to lower bargaining costs. Our findings suggest that the positive correlation between export status and collective bargaining can be explained through size. Including controls for firm-size destroys the estimated positive relationship between export status and collective bargaining. Using interaction terms between size and the export status, we find that larger exporters tend to do collective bargaining, whereas smaller exporters tend to refrain from collective agreements." (Author's abstract, IAB-Doku) ((en))
    Keywords: Export, Tarifverhandlungen, Lohnfindung, Gewerkschaft, Unternehmensgröße, IAB-Betriebspanel
    JEL: F16 J51 E24 J3
    Date: 2014–10–17
  104. By: Akshay Shanker; Sacha Vidler
    Abstract: Australian employers are obliged by law to make a minimum compulsory contribution as a proportion of salaries into employees’ superannuation (pension) funds. Individuals can also make voluntary contributions on top of the compulsory amount. We examine voluntary contributions amongst two groups of employees on different compulsory rates within the same fund. We ask whether individuals make voluntary superannuation contributions according to independent preferences representing how much people believe their overall savings should be. If individuals did have independent preferences, then we should expect less people to make voluntary contributions on the higher compulsory rate, and also expect reduced average voluntary contributions (across those who do and do not make voluntary contributions). We do not find evidence of either. An increase in the compulsory rate seems to be carried over totally into an increase in total contributions; either because individuals make voluntary contributions without any consideration of how much their overall savings ought to be, or because the compulsory rate influences the subjective evaluations of savings preferences (effectively anchoring bias).
    JEL: E21 D14 D91 D03
    Date: 2014–10
  105. By: G. Gozzi
    Abstract: In his paper of 1984 M. Pohjola generalized Lancaster’s model of capitalism as a differential game by considering the bargaining process between capitalists and workers in the analysis of the relationship between income distribution and capital accumulation. Our contribution aims to extend his model by introducing the possibility of saving for the workers and its consequences on the noncooperative equilibrium of the correspondin differential game.
    JEL: C73 E10 O41
    Date: 2014–10
  106. By: L. Lambertini; L. Marattin
    Abstract: We characterize the equilibrium in a homogeneous good Cournot duopoly in which firms have the choice to react to a cost-push shock by paying a lump-sum adjustment cost in order to offset the initial rise in marginal cost. Our results show that the size of the shock and the size of the adjustment cost jointly determine the nature and the number of the equilibria generated in the game. In particular, if the adjustment cost is high enough, at least one firm decides not to adjust at the pure strategy equilibrium, and such a partial adjustment by the industry can be socially efficient as well. Some implications of this partial equilibrium analysis about an industry' resilience are outlined.
    JEL: D43 E30 L13
    Date: 2014–10

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