nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒11‒28
sixty-nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Bringing Financial Stability into Monetary Policy By Eric Leeper; James Nason
  2. Inflation, deflation, and uncertainty: What drives euro area option-implied inflation expectations and are they still anchored in the sovereign debt crisis? By Scharnagl, Michael; Stapf, Jelena
  3. Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices By Naoyuki Yoshino; Farhad Taghizadeh-Hesary
  4. Degree of price rigidity in LICs and implication for monetary policy By ALIDOU, Sahawal
  5. Financial Frictions and Macroeconomic Fluctuations in Emerging Economies By Akinci, Ozge
  6. Credit, Bankruptcy, and Aggregate Fluctuations By Makoto Nakajima; José-Víctor Ríos-Rull
  7. Policy and Spillover Analysis in the World Economy: A Panel Dynamic Stochastic General Equilibrium Approach By Francis Vitek
  8. Optimal monetary policy, asset purchases, and credit market frictions By Schabert, Andreas
  9. Investment Hangover and the Great Recession By Matthew Rognlie; Andrei Shleifer; Alp Simsek
  10. Response of Stock Markets to Monetary Policy : An Asian Stock Market Perspective By Naoyuki Yoshino; Farhad Taghizadeh-Hesary; Ali Hassanzadeh; Ahmad Danu Prasetyo
  11. U.S. monetary policy and its global implications By Dudley, William
  12. Financial Regimes and Uncertainty Shocks By Piergiorgio Alessandri; Haroon Mumtaz
  13. The Term Structure of the Welfare Cost of Uncertainty By P. Lopez
  14. Mortgage Rates, Household Balance Sheets, and the Real Economy By Benjamin J. Keys; Tomasz Piskorski; Amit Seru; Vincent Yao
  15. Dynamic Prediction Pools: An Investigation of Financial Frictions and Forecasting Performance By Marco Del Negro; Raiden B. Hasegawa; Frank Schorfheide
  16. Monetary Policy and Debt Fragility By Antoine Camous; Russell Cooper
  17. The deposit financing gap: Another Dutch disease By Meijers H.H.M.; Muysken J.; Sleijpen O.C.H.M.
  18. Revisiting the Matching Function By Kohlbrecher, Britta; Merkl, Christian; Nordmeier, Daniela
  19. Outside the corridor: fiscal multipliers and business cycles into an agent-based model with liquidity constraints By Mauro Napoletano; Jean-Luc Gaffard; Andrea Roventini
  20. Trade Dynamics in the Market for Federal Funds By Gara Afonso; Ricardo Lagos
  21. War of the Words: How Elites' Communication Changes the Economy By Baerg, Nicole Rae
  22. Utility from Bequeathing Savings or Utility from Accumulating in the Ramsey Growth Model By Khelifi, Atef
  23. Inequality, Debt Servicing, and the Sustainability of Steady State Growth By Mark Setterfield; Yun K. Kim; Jeremy Rees
  24. A Neglected Inconsistency in Milton Friedman's AEA Presidential Address By James Forder
  25. The Triumph of the Rentier? Thomas Piketty vs. Luigi Pasinetti & John Maynard Keynes By Lance Taylor
  26. Counter-Cyclical Capital Buffers and Interest-Rate Policy as Complements – The Experience of South Africa By Roy Havemann
  27. Financing Constraints and Unemployment: Evidence from the Great Recession By Duygan-Bump, Burcu; Leykov, Alexey; Montoriol-Garriga, Judit
  28. Good Governance of Monetary Policy in Canada: Lessons from the C.D. Howe Institute’s Shadow Council By Pierre Siklos; Matthias Neuenkirch
  29. Suriname: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Authorities for Suriname By International Monetary Fund. Western Hemisphere Dept.
  30. Homeownership and Labour Market Outcomes: Micro versus Macro Performances By Beugnot, Julie; Lacroix, Guy; Charlot, Olivier
  31. A New Approach to Infer Changes in the Synchronization of Business Cycle Phases By Danilo Leiva-Leon
  32. Inflation Expectations and the Two Forms of Inattentiveness By Easaw, Joshy; Golinelli, Roberto
  33. Procyclical and Countercyclical Fiscal Multipliers: Evidence from OECD Countries By Daniel Riera-Crichton; Carlos A. Vegh; Guillermo Vuletin
  34. The Role of Card Acceptance in the Transaction Demand for Money By Kim Huynh; Philipp Schmidt-Dengler; Helmut Stix
  35. High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk By Fabian Kindermann; Dirk Krueger
  36. Finance-dominated capitalism in Germany: Deep recession and quick recovery By Detzer, Daniel; Hein, Eckhard
  37. Consumer cash usage: a cross-country comparison with payment diary survey data By Bagnall, John; Bounie, David; Huynh, Kim P.; Kosse, Anneke; Schmidt, Tobias; Schuh, Scott; Stix, Helmut
  38. Riforme economiche e crescita: una discussione cirtica By Maurizio Zenezini
  39. How Does Government Borrowing Affect Corporate Financing and Investment? By John Graham; Mark T. Leary; Michael R. Roberts
  40. Sustainability of Public Debt in the United States and Japan By William R. Cline
  41. Self-defeating austerity at the zero lower bound By Richard McManus; F. Gulcin Ozkan; Dawid Trzeciakiewicz
  42. Working Less and Bargain Hunting More:Macro Implications of Sales during Japan's Lost Decades By Nao Sudo; Kozo Ueda; Kota Watanabe; Tsutomu Watanabe
  43. Input-output linkages and the propagation of domestic productivity shocks: Assessing alternative theories with stochastic simulation By Roson, Roberto; Sartori, Martina
  44. The Importance of Updating: Evidence from a Brazilian Nowcasting Model By Bragoli, Daniela; Metelli, Luca; Modugno, Michele
  45. The low interest rate environment: Causes, effects and a way out By Matthes, Jürgen
  46. Analysing and forecasting price dynamics across euro area countries and sectors: a panel VAR approach By Dées, Stéphane; Güntner, Jochen
  47. A Theory of Targeted Search By Cheremukhin, Anton A.; Restrepo-Echavarria, Paulina; Tutino, Antonella
  48. Rule Bending in International Organizations: Explaining Instability in the Stability and Growth Pact By Baerg, Nicole Rae; Hallerberg, Mark
  49. Welfare Cost of Fluctuations: when Labor Market Search Interacts with Financial Frictions By Eleni Iliopulos; François Langot; Thepthida Sopraseuth
  50. Precautionary Saving of Chinese and U.S. Households By Horag Choi; Steven Lugauer; Nelson C. Mark
  51. The Glass Ceiling and The Paper Floor: Gender Differences among Top Earners, 1981-2012 By Fatih Guvenen; Greg Kaplan; Jae Song
  52. Safe Assets By Robert J. Barro; Andrew Mollerus
  53. Good and Bad Uncertainty: Macroeconomic and Financial Market Implications By Gill Segal; Ivan Shaliastovich; Amir Yaron
  54. Estimating (Markov-Switching) VAR Models without Gibbs Sampling: A Sequential Monte Carlo Approach By Bognanni, Mark; Herbst, Edward
  55. The Impact of Oil Price Shocks on the Stock Market Return and Volatility Relationship By Wensheng Kang; Ronald A. Ratti; Kyung Hwan Yoon
  56. A Threshold Model of the US Current Account By Roberto Duncan
  57. Overleveraging in the banking sector: Evidence from Europe By Schleer, Frauke; Semmler, Willi; Illner, Julian
  58. The Impact of Intangible Investments on the Macroeconomy By Ellen McGrattan
  59. The Direct and Indirect Effects of Small Business Administration Lending on Growth: Evidence from U.S. County-Level Data By Andrew T. Young; Matthew J. Higgins; Donald J. Lacombe; Briana Sell
  60. Welfare Effects of Policy-induced Rising Food Prices on Farm Households in Nigeria By Shittu, Adebayo M.; Obayelu, Oluwakemi A.; Salman, Kabir K.
  61. EIRE Mod- A DSGE Model for Ireland By Clancy, Daragh; Merola, Rossana
  62. Are rules and boundaries sufficient to limit harmful central bank discretion? Lessons from Europe By Orphanides, Athanasios
  63. Environmental Dynamic, Business Strategy, and Financial Performance: An Empirical Study of Indonesian Property and Real Estate Industry By Wahyudi, Imam
  64. Heterogeneous Forecasters and Nonlinear Expectation Formation in the U.S. Stock Market By Pierdzioch, Christian; Reitz, Stefan; Ruelke, Jan-Christoph
  65. Social Insurance, Information Revelation, and Lack of Commitment By Mikhail Golosov; Luigi Iovino
  66. Essays on Temporary Work Agencies and the Economic Analysis of Law By Westéus, Morgan
  67. Better Harnessing Talent and Knowledge to Boost Sustainable Medium-term Growth in Spain By David Haugh; Ben Westmore
  68. Leaders and Followers: Perspectives on the Nordic Model and the Economics of Innovation By Joseph E. Stiglitz
  69. Does the Technological Content of Government Demand Matter for Private R&D? Evidence from US States By Viktor Slavtchev; S. Wiederhold

  1. By: Eric Leeper (Indiana University); James Nason (North Carolina State University)
    Keywords: Financial frictions, incomplete markets, crises, new Keynesian, natural rate, monetary transmission mechanism
    JEL: E3 E4 E5 E6 G2 N12
    Date: 2014–11
  2. By: Scharnagl, Michael; Stapf, Jelena
    Abstract: We tackle two questions in this paper: In the sovereign debt crisis, what moves the euro area inflation outlook and has the firm anchoring of medium to long-term inflation expectations been touched? Deriving densities from a new data set on options on the euro area harmonized index of consumer prices provides us with the full distribution of inflation expectations. The daily data set allows us to analyze effects of monetary policy announcements and macro news in a time varying event study framework despite the short sample period from 2009 to 2013. Due to renewed fears of deflation we compare option-implied and statistical density functions to gain insight into deflation risk. Inflation expectations show a decreasing mean but growing uncertainty especially since the intensification of the sovereign debt crisis in mid-2011. Around the same time the influence of monetary policy announcements on inflation expectations diminished. Tail events such as deflation although still contained became more probable. The impact of macroeconomic news to explain inflation probabilities overall decreased and shifted towards countries more affected by the crisis. Concerning the anchoring of inflation expectations the paper provides a twofold result: The mean and low sensitivity to actual news speak for anchored inflation expectations whereas the growing uncertainty reveals market participants concerns about possible extreme inflation or deflation outcomes in the future.
    Keywords: Inflation expectations,Deflation,Options,Monetary policy,Financial crisis
    JEL: C58 E31 E44 G13
    Date: 2014
  3. By: Naoyuki Yoshino (Asian Development Bank Institute (ADBI)); Farhad Taghizadeh-Hesary
    Abstract: Japan has reached the limits of conventional macroeconomic policy. In order to overcome deflation and achieve sustainable economic growth, the Bank of Japan (BOJ) recently set an inflation target of 2% and implemented an aggressive monetary policy so this target could be achieved as soon as possible. Although prices started to rise after the BOJ implemented monetary easing, this may have been for other reasons, such as higher oil prices. Oil became expensive as a result of the depreciated Japanese yen and this was one of the main causes of the rise in inflation. This paper shows that quantitative easing may not have stimulated the Japanese economy either. Aggregate demand, which includes private investment, did not increase significantly in Japan with lower interest rates. Private investment displays this unconventional behavior because of uncertainty about the future and because Japan’s population is aging. We believe that the remedy for Japan’s economic policy is not to be found in monetary policy. The government needs to implement serious structural changes and growth strategies.
    Keywords: Easing of Monetary Policy, the Japanese economy, energy price, Bank of Japan, aging population
    JEL: E47 E52 Q41 Q43
    Date: 2014–11
  4. By: ALIDOU, Sahawal
    Abstract: Using semi-aggregate data on price and a methodology based on dummy indicator, we assess price rigidity in Ghana and discuss its implications for monetary policy. Price features in Ghana are compared to that of South Africa which is a similar country both in terms of economic structure and monetary policy framework. Our results suggest higher price rigidity in South Africa than in Ghana. Therefore, the same monetary policy is likely to have ceteris paribus, more real effects in South Africa and more nominal effects in Ghana.
    Keywords: Price rigidity, monetary policy, frequency of price changes
    JEL: E31 E52
    Date: 2014–06
  5. By: Akinci, Ozge (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Estimated dynamic models of business cycles in emerging markets deliver counterfactual predictions for the country risk premium. In particular, the country interest rate predicted by these models is acyclical or procyclical, whereas it is countercyclical in the data. This paper proposes and estimates a small open economy model of the emerging-market business cycle in which a time-varying country risk premium emerges endogenously. In the proposed model, a firm's borrowing rate adjusts countercyclically as the default threshold of the firm depends on the state of the macroeconomy. I econometrically estimate the proposed model and find that it can account for the volatility and the countercyclicality of country risk premium as well as for other key emerging market business cycle moments. Time varying uncertainty in firm specific productivity contributes to delivering a countercyclical default rate and explains 70 percent of the variances in the trade balance and in the country risk premium. Finally, I find the predicted contribution of nonstationary productivity shocks in explaining output variations falls between the extremely high and extremely low values reported in the literature.
    Keywords: Financial frictions; country risk premium; international business cycles; Bayesian estimation
    JEL: E32 E44 F44 G15
    Date: 2014–10–24
  6. By: Makoto Nakajima; José-Víctor Ríos-Rull
    Abstract: We ask two questions related to how access to credit affects the nature of business cycles. First, does the standard theory of unsecured credit account for the high volatility and procyclicality of credit and the high volatility and countercyclicality of bankruptcy filings found in U.S. data? Yes, it does, but only if we explicitly model recessions as displaying countercyclical earnings risk (i.e., rather than having all households fare slightly worse than normal during recessions, we ensure that more households than normal fare very poorly). Second, does access to credit smooth aggregate consumption or aggregate hours worked, and if so, does it matter with respect to the nature of business cycles? No, it does not; in fact, consumption is 20 percent more volatile when credit is available. The interest rate premia increase in recessions because of higher bankruptcy risk discouraging households from using credit. This finding contradicts the intuition that access to credit helps households to smooth their consumption.
    JEL: D91 E21 E32 E44 K35
    Date: 2014–10
  7. By: Francis Vitek
    Abstract: This paper develops a structural macroeconometric model of the world economy, disaggregated into forty national economies. This panel dynamic stochastic general equilibrium model features a range of nominal and real rigidities, extensive macrofinancial linkages, and diverse spillover transmission channels. A variety of monetary policy analysis, fiscal policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated. These include quantifying the monetary and fiscal transmission mechanisms, accounting for business cycle fluctuations, and generating relatively accurate forecasts of inflation and output growth.
    Keywords: Spillovers;Monetary policy;Monetary transmission mechanism;Fiscal policy;Business cycles;Economic forecasting;General equilibrium models;Panel analysis;Monetary policy analysis; Fiscal policy analysis; Spillover analysis; Forecasting; World economy; Panel dynamic stochastic general equilibrium model; Bayesian econometrics
    Date: 2014–10–30
  8. By: Schabert, Andreas
    Abstract: This paper examines how credit market frictions affect optimal monetary policy and if there is a role for central bank asset purchases. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as borrowing is constrained by available collateral. We show that the central bank cannot implement the first best allocation and that optimal monetary policy mainly aims at stabilizing prices when only a single instrument is available. The central bank can however mitigate the credit market distortion in a welfare-enhancing way by purchasing loans at a favorable price, which relies on rationing the supply of money. JEL Classification: E4, E5, E32
    Keywords: borrowing constraints, central bank asset purchases, money rationing, nominal rigidities, optimal monetary policy
    Date: 2014–10
  9. 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.
    JEL: E22 E32 E4
    Date: 2014–10
  10. By: Naoyuki Yoshino (Asian Development Bank Institute (ADBI)); Farhad Taghizadeh-Hesary; Ali Hassanzadeh; Ahmad Danu Prasetyo
    Abstract: We estimate the response of Asian stock market prices to exogenous monetary policy shocks using a vector error correction model. In our paper, monetary policy transmits to stock market price through three routes : money by itself, exchange rate, and inflation. Our result points to the fact that stock prices increase persistently in response to an exogenous easing monetary policy. Variance deposition results show that, after 10 periods, the forecast error variance of beyond 53% of the Tehran Stock Exchange Price Index (TEPIX) can be explained by exogenous shocks to the US dollar–Iranian rial exchange rate, while this ratio for exogenous shocks to Iranian real gross domestic product was only 17%. We argue that such evidence can be accounted for by an endogenous response of the stock prices to the monetary policy shocks.
    Keywords: Asian stock market, monetary policy shocks, Variance Decomposition
    JEL: E44 G10 G12
    Date: 2014–09
  11. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Central Bank of the United Arab Emirates, Abu Dhabi, United Arab Emirates.
    Keywords: dual mandate; emerging market economies (EMEs); Treasury Inflation-Protected Securities (TIPS); (PCE) deflator
    JEL: E52 F43
    Date: 2014–11–13
  12. By: Piergiorgio Alessandri (Banca d'Italia); Haroon Mumtaz (Queen Mary University of London)
    Abstract: Financial markets are central to the transmission of uncertainty shocks. This paper documents a new aspect of the interaction between the two by showing that uncertainty shocks have radically different macroeconomic implications depending on the state financial markets are in when they occur. Using monthly US data, we estimate a nonlinear VAR where economic uncertainty is proxied by the (unobserved) volatility of the structural shocks, and a regime change occurs whenever credit conditions cross a critical threshold. An exogenous increase in uncertainty has recessionary effects in both good and bad credit regimes, but its impact on output is estimated to be five times larger when the economy is experiencing financial distress. Accounting for this nonlinearity, uncertainty accounts for about 1% of the peak fall in industrial production observed in the 2007-2009 recession.
    Keywords: Uncertainty, Stochastic volatility, Financial markets, Threshold VAR
    JEL: C32 E32 E44 G0
    Date: 2014–10
  13. By: P. Lopez
    Abstract: The marginal cost of aggregate fluctuations has a term structure that is a simple transformation of the term structures of equity and interest rates. I extract evidence from index option markets to infer a downward-sloping, volatile and procyclical term structure of welfare costs. On average, the gains from greater macroeconomic stability are large, especially in the short run. I estimate that at the margin the elimination of one-year ahead consumption risk is worth around 12 percentage points of additional growth; this number compares to a marginal cost of lifetime uncertainty of 2-3 percentage points. Over time, the term structure of welfare costs varies substantially, predictably and with a volatility that decreases with maturity. These empirical properties of the term structure of welfare costs cannot be easily captured by today's leading dynamic equilibrium models and therefore represent a puzzling piece of evidence with potentially important welfare implications.
    Keywords: Welfare cost of business cycles, Macroeconomic priorities, Dividend strips, Return forecastability.
    JEL: E32 E44 E61 G12
    Date: 2014
  14. By: Benjamin J. Keys; Tomasz Piskorski; Amit Seru; Vincent Yao
    Abstract: This paper investigates the impact of lower mortgage rates on household balance sheets and other economic outcomes during the housing crisis. We use proprietary loan-level panel data matched to consumer credit records using borrowers' Social Security numbers, which allows for accurate measurement of the effects. Our main focus is on borrowers with agency loans, which constitute the vast majority of U.S. mortgage borrowers. Relying on variation in the timing of resets of adjustable rate mortgages, we find that a sizable decline in mortgage payments ($150 per month on average) induces a significant drop in mortgage defaults, an increase in new financing of durable consumption (auto purchases) of more than 10% in relative terms, and an overall improvement in household credit standing. New financing of durable consumption by borrowers with lower housing wealth responds more to mortgage payment reduction relative to wealthier households. Credit-constrained households initially use more than 70% of the extra liquidity generated by mortgage rate reductions to repay credit card debt-- a deleveraging response that can significantly restrict the ability of monetary policy to stimulate these households' consumption. These findings also qualitatively hold in a sample of less-prevalent borrowers with private non-agency loans. We then use regional variation in mortgage contract types to explore the impact of lower mortgage rates on broader economic outcomes. Regions more exposed to mortgage rate declines saw a relatively faster recovery in house prices, increased durable (auto) consumption, and increased employment growth, with responses concentrated in the non-tradable sector. Our findings have implications for the pass-through of monetary policy to the real economy through mortgage contracts and household balance sheets.
    JEL: D12 E20 E21 E51 E65 G21
    Date: 2014–10
  15. By: Marco Del Negro; Raiden B. Hasegawa; Frank Schorfheide
    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 DSGE models with and without financial frictions for output growth and inflation from 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 does not 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 pools to perform a counterfactual exercise (responding to the gap in labor market conditions) in the immediate aftermath of the Lehman crisis.
    JEL: C53 E31 E32 E37
    Date: 2014–10
  16. By: Antoine Camous; Russell Cooper
    Abstract: The valuation of government debt is subject to strategic uncertainty, stemming from investors' sentiments. Pessimistic lenders, fearing default, bid down the price of debt. This leaves a government with a higher debt burden, increasing the likelihood of default and thus confirming the pessimism of lenders. This paper studies the interaction of monetary policy and debt fragility. It asks: do monetary interventions mitigate debt fragility? The answer depends in part on the nature of monetary policy, particularly the ability to commit to future state contingent actions. With commitment to a state contingent policy, the monetary authority can indeed overcome strategic uncertainty. Under discretion, debt fragility remains.
    JEL: E42 E58 E63 F33
    Date: 2014–10
  17. By: Meijers H.H.M.; Muysken J.; Sleijpen O.C.H.M. (UNU-MERIT)
    Abstract: In the last two decades the Netherlands have experienced an increase in real-estate prices, accompanied by an increase in mortgages and a marked decline in household savings. As a consequence banks are faced with a large retail funding gap outstanding mortgage debt is insufficiently matched by retail deposits, whereas other funding possibilities of banks have increasingly been constrained - also due to their large foreign exposures. In this paper we argue that traditional macroeconomic models cannot analyse this phenomenon appropriately since they lack a proper model of the financial sector and underestimate the potential for interactions between the monetary and the real sphere. We present a stock-flow consistent approach developed by Godley and Lavoie as a valuable alternative to traditional and new Keynesian macroeconomic models and we use this approach to analyse the deposit financing gap for the Netherlands.
    Keywords: Current Heterodox Approaches: General; Financial Markets and the Macroeconomy; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General; Banks; Depository Institutions; Micro Finance Institutions; Mortgages;
    JEL: E44 B50 E60 G21
    Date: 2014
  18. By: Kohlbrecher, Britta (University of Erlangen-Nuremberg); Merkl, Christian (University of Erlangen-Nuremberg); Nordmeier, Daniela (Deutsche Bundesbank)
    Abstract: This paper shows analytically and numerically that there are two ways of generating an observationally equivalent comovement between matches, unemployment, and vacancies in dynamic labor market models: either by assuming a standard Cobb-Douglas contact function or by combining a degenerate contact function with idiosyncratic productivity shocks for new jobs. Despite this observational equivalence, we provide several reasons for why it is important to understand what happens inside the black box of job creation. We calibrate a combined model with both mechanisms to administrative German wage and labor market flow data. In contrast to the model without idiosyncratic shocks, the combined model is able to replicate the observed negative time trend in estimated matching functions. In addition, the full nonlinear combined model generates highly asymmetric business cycle responses to large aggregate shocks.
    Keywords: matching function, idiosyncratic productivity, job creation, vacancies, time trend, asymmetries
    JEL: E24 E32 J63 J64
    Date: 2014–09
  19. By: Mauro Napoletano (OFCE); Jean-Luc Gaffard (OFCE); Andrea Roventini (Department of economics)
    Abstract: We build an agent-based model to study how fiscal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system. In that, fiscal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study fiscal multipliers in response to dfferent microeconomic shocks hitting the economy. We show that defficit-spending fiscal policy dampens the effect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the fiscal multi- plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the effects of two different balanced budget rules. In the first type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that fiscal multipliers are very low with both balanced-budget rules. Finally, we show that fiscal multipliers are higher into more leveraged economies.
    Keywords: Keynesian economics, Fiscal Multipliers, Corridor E
    JEL: E21 E63 C63
    Date: 2014–09
  20. By: Gara Afonso; Ricardo Lagos
    Abstract: We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks.
    JEL: E4 E43 E5 E52 E58 G21 G28
    Date: 2014–08
  21. By: Baerg, Nicole Rae
    Abstract: How does variation in the clarity of elites’ communication change the economy? Previous re- search shows that elites’ communication changes the economy, but not all messages are crafted equally. Models of strategic communication suggests that clearer and precise information can improve the economy more than ambiguous messages. In order to test this claim, I develop a new dataset of political elites’ inflation statements and measure each statements’ information precision. I then test whether or not economic performance depends on how precisely political elites communicate. I find evidence that an increase in information precision, through its attenuating effects on inflation expectations, lowers inflation. Furthermore, I find that this is true when examining a number of developing countries over a relatively volatile time period.
    Keywords: central bank communication, clarity, inflation, inflation expectations
    JEL: E31 E52 E58
    Date: 2014–04
  22. By: Khelifi, Atef
    Abstract: Despite ‘joy of giving models’ have been extensively examined in the literature, the Ramsey growth model has never been explored under the assumption of a direct preference for bequeathing savings that are reinvested. This assumption implies a Utility function depending on both consumption and savings, which may also be motivated as one that captures a direct preference for thriftiness or wealth accumulation arguably involved. The resulting growth model generalizes those accounting for the capitalist spirit as Zou (1994), and shows that the restrictive standard one is perhaps not the actual optimized version of the Solow model. (JEL O41, E21, D91)
    Keywords: Bequest;Capitalist Spirit;Ramsey Growth model;Savings;Joy-of-giving;Optimal control theory
    JEL: D0 D91 E0 E00 E21 O41
    Date: 2014–11–15
  23. By: Mark Setterfield; Yun K. Kim; Jeremy Rees
    Abstract: We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance. A standard Kaleckian growth model is modidied to incorporate working households who borrow to finance consumption that is determined, in part, by the desire to emulate the consumption patterns of more affluent households. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of income inequality. When compared to previous contributions to the literature, our results show that the way in which debtor households service their debt has both quantitative and qualitative effects on the economy's macrodynamics.
    Keywords: Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth
    JEL: E12 E44 O41
    Date: 2014–11
  24. By: James Forder
    Abstract: Friedman (1968) - his famous Presidential Address to the American Economic Association - contains an elementary error right at the heart of what is usually supposed to be the paper's crucial argument.  That is the argument to the effect that during an inflation, changing expectations shift in Phillips curve.  It is suggested that the fact of this mistake, and of its having gone all-but unnoticed are points of historical interest.  Further reflections, drawing on the arguments of Forder (2014) Macroeconomics and the Phillips curve myth, are suggested.
    Keywords: Phillips, Friedman, Expectations
    JEL: B22 E31
    Date: 2014–09–17
  25. By: Lance Taylor (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Thomas Piketty attributes increasing wealth inequality to the characteristics of a neoclassical aggregate production function, which is known not to exist. A more plausible narrative is that wage repression can lead to secular stagnation by enriching the rentier. Lower economic activity decreases labor’s bargaining power so that the share of profits in output (pi) tends to rise. Activity (or the output/capital ratio u) is stimulated by increased investment due to a higher pi. Wealth distribution is measured à la Luigi Pasinetti by the ratio Z of capital owned by a capitalist rentier class to the total. Suppose that Z goes up. Rentiers have a high saving rate implying that in a demand driven Keynesian economy u goes down. With the reduction in u the profit share increases, pushing up the growth rate of Z. Depending on economic structure (in particular, differences in saving rates between the classes), this positive feedback may or may not destabilize the system. If stability reigns, there will be a persistent steady state level of Z. If not, there may be euthanasia or triumph of the rentier. In the long run Z is reduced and increased by a downward shift in pi, i.e. less wage repression improves economic performance overall.
    Keywords: demand-driven growth, functional income distribution, steady state wealth distribution, Pasinetti, Piketty
    JEL: E12 E21 E25 B22
    Date: 2014–06
  26. By: Roy Havemann
    Abstract: Counter-cyclical capital buffers are increasingly popular new "macroprudential" tools. However, there is limited empirical evidence on both the intended and unintended consequences of using these buffers. During the pre-crisis period (2002--2007), South Africa increased capital adequacy ratios to curb rapid credit extension, and so provides a useful test case. Using a new data set from that period, this paper extends a standard large-scale macroeconomic model to include capital adequacy ratios as a policy lever. It is found that a 1 percentage point shock to the capital adequacy ratio has similar effects to an interest-rate shock of between 0.3 and 0.4 percentage points. These results are in line with those in other jurisdictions. The econometric results are only indicative -- if actively used as a tool, counter-cyclical capital buffers may have their own complexities, including asymmetric impacts and endogeneity problems. Monetary policy issues, such as signalling, time inconsistency, expectation and communication challenges also apply, reducing the usefulness of proactive macroprudential policy. Nevertheless, macroprudential policies have an important complementary role to play
    Keywords: macroprudential, counter-cyclical capital buffer, macro modelling.
    JEL: E58 G18 C53
    Date: 2014
  27. By: Duygan-Bump, Burcu (Board of Governors of the Federal Reserve System (U.S.)); Leykov, Alexey (Federal Reserve Bank of Boston); Montoriol-Garriga, Judit (Universitat Autonoma de Barcelona)
    Abstract: Exploiting the differential financing needs across industrial sectors, this paper shows that financing constraints of small businesses in the United States are one of the drivers explaining the unemployment dynamics during the Great Recession. We show that workers in small firms are more likely to become unemployed during the 2007-09 financial crisis if they work in industries with high external financing needs. We find very similar results for the 1990-91 recession, but not for the 2001 recession, where only the former was associated with a reduction in loan supply. These findings further support the credit constraints hypothesis.
    Keywords: Great Recession; firm size; financial dependence; unemployment
    JEL: E24 E44 G20
    Date: 2014–10–22
  28. By: Pierre Siklos; Matthias Neuenkirch
    Abstract: The Bank of Canada should consider publicly disclosing the discussions and dissenting opinions of members of its interest-rate-setting committee, according to a new C.D. Howe Institute report. In “Good Governance of Monetary Policy in Canada: Lessons from the C.D. Howe Institute’s Shadow Council,” authors Pierre Siklos and Matthias Neuenkirch argue that the existing governance structure of the Bank is out of step with international practices that have spread quickly over the past decade.
    Keywords: Monetary Policy
    JEL: E52 E58
    Date: 2014–10
  29. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: KEY ISSUES Context: The fiscal and external positions further deteriorated in 2013, reflecting declining commodity export prices and substantial fiscal relaxation, and international reserves declined to 3½ months of imports. However, strong fiscal tightening is being undertaken in 2014, and higher bank reserve requirements in late 2013 are also helping to curb demand pressures. More consolidation will be needed over the medium term to entrench fiscal sustainability and safeguard external stability. In line with FSAP recommendations, efforts to strengthen the monetary policy framework and financial sector resilience are ongoing. Structural competitiveness is being reinforced. Focus of the consultation: The consultation focused on measures to strengthen fiscal sustainability and external stability, as well as policies to enhance financial sector resilience, structural competitiveness and inclusive growth. Policy recommendations: • Both revenue and expenditure measures will be needed to support fiscal consolidation efforts. Successful consolidation will also require establishing an appropriate fiscal framework and a clear fiscal anchor consistent with sustainability. • Further credit tightening will be needed if fiscal adjustment proves insufficient to secure macro stability. Also, FSAP recommendations to strengthen bank capital and the financial sector regulatory framework should be rigorously implemented to enhance financial sector stability. • Improving the business environment and labor market flexibility would enhance structural competitiveness and inclusive growth. Past surveillance: During the 2013 Article IV consultation, Executive Directors noted that Suriname’s heavy reliance on commodity exports has exposed fiscal and external vulnerabilities, and they stressed the need to build up buffers, promote fiscal sustainability, strengthen the financial sector, and enhance competitiveness. However, the fiscal position deteriorated further in 2013, and progress in strengthening monetary and financial sector policies and public financial management slowed. There are however signs of renewed policy momentum in 2014.
    Keywords: Article IV consultation reports;Fiscal consolidation;Fiscal policy;Monetary policy;Banking sector;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Suriname;
    Date: 2014–10–31
  30. By: Beugnot, Julie (Université de Franche Comté); Lacroix, Guy (Université Laval); Charlot, Olivier (University of Cergy-Pontoise)
    Abstract: In this paper we investigate Oswald's hypothesis according to which higher homeownership rates increase aggregate unemployment rates. To this end, we develop a matching model à la Pissarides (2000) in which homeowners are assumed to be less mobile than tenants. Based on numerical simulations, we analyze both macroeconomic and microeconomic labour market outcomes following an (exogenous) increase in homeownership rates. We show that (1) Oswald's hypothesis does not always hold as it depends crucially on the importance of mobility costs; (2) while higher homeownership may harm macroeconomic labour market performances, individual performances always improve following an increase in homeownership rates.
    Keywords: stochastic job matching, Oswald's hypothesis, homeownership, unemployment, mobility
    JEL: J41 J61 J64 E24
    Date: 2014–10
  31. By: Danilo Leiva-Leon
    Abstract: This paper proposes a Markov-switching framework to endogenously identify the following: (1) regimes where economies synchronously enter recessionary and expansionary phases; and (2) regimes where economies are unsynchronized, essentially following independent business cycles. The reliability of the framework to track changes in synchronization is corroborated with Monte Carlo experiments. An application to the case of U.S. states reports substantial changes over time in the cyclical affiliation patterns of states. Moreover, a network analysis discloses a change in the propagation pattern of aggregate contractionary shocks across states, suggesting that regional economies in the United States have become more interdependent since the early 1990s.
    Keywords: Business fluctuations and cycles, Econometric and statistical methods, Regional economic developments
    JEL: E32 C32 C45
    Date: 2014
  32. By: Easaw, Joshy (Cardiff Business School); Golinelli, Roberto
    Abstract: The purpose of the present paper is to investigate the structure and dynamics of professionals' forecast of inflation. Recent papers have focused on their forecast errors and how they may be affected by informational rigidities, or inattentiveness. In this paper we extend the existing literature by considering a second form of inattentiveness. While showing that both types of inattentiveness are closely related, we focus on the inattentiveness that forecasters face when undertaking multi-period forecast and, thereby, the expected momentum of inflation. Using number survey-based data for the US and UK, we establish a new structure for the professional's forecast error with direct implications for the persistence of real effects
    Keywords: Expectations; Information Rigidity; Survey Forecasts
    JEL: E3 E4 E5
    Date: 2014–10
  33. By: Daniel Riera-Crichton; Carlos A. Vegh; Guillermo Vuletin
    Abstract: Using non-linear methods, we argue that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. In the case of OECD countries, the problem originates in the fact that, contrary to one's priors, it is not always the case that government spending is going up in recessions (i.e., acting countercyclically). In almost as many cases, government spending is actually going down (i.e., acting procyclically). Since the economy does not respond symmetrically to government spending increases or decreases, the "true" long-run multiplier for bad times (and government spending going up) turns out to be 2.3 compared to 1.3 if we just distinguish between recession and expansion. In extreme recessions, the long-run multiplier reaches 3.1.
    JEL: E62 F41
    Date: 2014–09
  34. By: Kim Huynh; Philipp Schmidt-Dengler; Helmut Stix
    Abstract: The use of payment cards, either debit or credit, is becoming more and more widespread in developed economies. Nevertheless, the use of cash remains significant. We hypothesize that the lack of card acceptance at the point of sale is a key reason why cash continues to play an important role. We formulate a simple inventory model that predicts that the level of cash demand falls with an increase in card acceptance. We use detailed payment diary data from Austrian and Canadian consumers to test this model while accounting for the endogeneity of acceptance. Our results confirm that card acceptance exerts a substantial impact on the demand for cash. The estimate of the consumption elasticity (0.23 and 0.11 for Austria and Canada, respectively) is smaller than that predicted by the classic Baumol-Tobin inventory model (0.5). We conduct counterfactual experiments and quantify the effect of increased card acceptance on the demand for cash. Acceptance reduces the level of cash demand as well as its consumption elasticity.
    Keywords: Bank notes, E-Money, Econometric and statistical methods, Financial services
    JEL: C C3 C35 C8 C83 E E4 E41
    Date: 2014
  35. By: Fabian Kindermann; Dirk Krueger
    Abstract: In 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.
    JEL: E62 H21 H24
    Date: 2014–10
  36. By: Detzer, Daniel; Hein, Eckhard
    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
  37. By: Bagnall, John; Bounie, David; Huynh, Kim P.; Kosse, Anneke; Schmidt, Tobias; Schuh, Scott; Stix, Helmut
    Abstract: We measure consumers’ use of cash by harmonizing payment diary surveys from seven countries. The seven diary surveys were conducted in 2009 (Canada), 2010 (Australia), 2011 (Austria, France, Germany and the Netherlands), and 2012 (the United States). Our paper finds cross-country differences – for example, the level of cash usage differs across countries. Cash has not disappeared as a payment instrument, especially for low-value transactions. We also find that the use of cash is strongly correlated with transaction size, demographics, and point-of-sale characteristics such as merchant card acceptance and venue. JEL Classification: E41, D12, E58
    Keywords: harmonization, money demand, payment systems
    Date: 2014–06
  38. By: Maurizio Zenezini
    Abstract: Negli ultimi vent’anni i paesi europei hanno introdotto numerose riforme economiche orientate a rendere le istituzioni economiche più “favorevoli ai mercati”, nella convinzione che l’ambiente regolativo costituisca un fondamentale fattore di crescita economica. La prima parte di questo saggio discute criticamente questa nozione di riforma economica e ne esamina i correlati empirici. La seconda sezione considera gli effetti sulla crescita e l’occupazione dei più recenti interventi di riforma in Italia e conclude che essi sono virtualmente nulli nel breve periodo e modesti, nel migliore dei casi, nel lungo periodo.
    Keywords: Labour Market Reforms, Product Market Reforms, Growth, Employment
    JEL: E24 E27 J5 J8 L5 O43 P5
    Date: 2014–04
  39. By: John Graham; Mark T. Leary; Michael R. Roberts
    Abstract: Using a novel dataset of accounting and market information that spans most publicly traded nonfinancial firms over the last century, we show that U.S. federal government debt issuance significantly affects corporate financial policies and balance sheets through its impact on investors' portfolio allocations and the relative pricing of different assets. Government debt is strongly negatively correlated with corporate debt and investment, but strongly positively correlated with corporate liquidity. These relations are more pronounced in larger, less risky firms whose debt is a closer substitute for Treasuries. Indeed, we find a strong negative relation between the BAA-AAA yield spread and government debt, highlighting the greater sensitivity of more highly rated credit to variation in the supply of Treasuries. The channel through which this effect operates is investors' portfolio decisions: domestic intermediaries actively substitute between lending to the federal government and the nonfinancial corporate sector. The relations between government debt and corporate policies, as well as the substitution between government and corporate debt by intermediaries, are stronger after 1970 when foreign demand increased competition for Treasury securities. In concert, our results suggest that large, financially healthy corporations act as liquidity providers by supplying relatively safe securities to investors when alternatives are in short supply, and that this financial strategy influences firms' capital structures and investment policies.
    JEL: E22 E44 G20 G31 G32
    Date: 2014–10
  40. By: William R. Cline (Peterson Institute for International Economics)
    Abstract: This paper applies the probabilistic debt sustainability model developed for the euro area in Cline (2012, 2014) to sovereign debt in the United States and Japan. The results indicate that to avoid further increases in the expected ratio of public debt to GDP over the next decade, average annual primary deficits will need to be reduced by about 0.75 percent of GDP in the United States and by about 3 percent of GDP in Japan from the likely baselines as of mid-2014.
    Keywords: Public Debt, United States, Japan, Debt Sustainability, Deficits
    JEL: E62 H63 H68
    Date: 2014–10
  41. By: Richard McManus; F. Gulcin Ozkan; Dawid Trzeciakiewicz
    Abstract: Fiscal consolidation programmes have been adopted almost uni-versally in the developed world since 2011 in an effort to reverse the substantially worsened fiscal outlook in the aftermath of the global financial crisis. Prolonged stagnation combined with increasing debt levels over this period led many to question whether fiscal austerity can be self-defeating. This paper attempts to answer this question by presenting a comprehensive examination of fiscal policy when the nom-inal interest rates are at the zero lower bound (ZLB). In doing so, we propose an alternative measure of fiscal policy effectiveness in the form of bond multipliers that are based on the evolution of debt to GDP ratios. We show that, in contrast to the normal times, when interest rates are at their ZLB paths of government debt arising from different fiscal instruments could be very different, leading to self-defeating austerity in certain combinations of fiscal adjustment programs. Our findings, therefore suggest that self-defeating austerity, while a likely outcome with some instruments, can be avoided by judicious choice of the composition of fiscal action.
    Keywords: fiscal austerity, zero lower bound, composition of fiscal adjustment
    JEL: E65 H2 H3
    Date: 2014–10
  42. By: Nao Sudo (Bank of Japan); Kozo Ueda (Waseda University); Kota Watanabe (Meiji University); Tsutomu Watanabe (The University of Tokyo)
    Abstract: Standard New Keynesian models have often neglected temporary sales. In this paper, we ask whether this treatment is appropriate. In the empirical part of the paper, we provide evidence using Japanese scanner data covering the last two decades that the frequency of sales was closely related with macroeconomic developments. Specically, we find that the frequency of sales and hours worked move in opposite directions in response to technology shocks, producing a negative correlation between the two. We then construct a dynamic stochastic general equilibrium model that takes households' decisions regarding their allocation of time for work, leisure, and bargain hunting into account. Using this model, we show that the rise in the frequency of sales, which is observed in the data, can be accounted for by the decline in hours worked during Japan's lost decades. We also nd that the real eect of monetary policy shocks weakens by around 40% due to the presence of temporary sales, but monetary policy still matters.
    Date: 2014–09
  43. By: Roson, Roberto; Sartori, Martina
    Abstract: Relatively small sectoral productivity shocks could lead to sizable macroeconomic variability. Whereas most contributions in the literature analyze the issue of aggregate sensitivity using simple general equilibrium models, a novel approach is proposed in this paper, based on stochastic simulations with a global CGE model. We estimate the statistical distribution of the real GDP in 109 countries, assuming that the productivities of the industrial value added composites are identically and independently distributed random variables. We subsequently undertake a series of regressions in which the standard error of the GDP is expressed as a function of variables measuring the “granularity” of the economy, the distribution of input-output trade flows, and the degree of foreign trade openness. We find that the variability of the GDP, induced by sectoral shocks, is basically determined by the degree of industrial concentration as counted by the Herfindhal index of industrial value added. The degree of centrality in inter-industrial connectivity, measured by the standard deviation of second order degrees, is mildly significant, but it is also correlated with the industrial concentration index. After controlling for the correlation effect, we find that connectivity turns out to be statistically significant, although less so than granularity.
    Keywords: Aggregate volatility; input-output linkages; intersectoral network; sectoral shocks, granularity; stochastic simulation; computable general equilibrium models
    JEL: C15 D58 E32 O57
    Date: 2014–11
  44. By: Bragoli, Daniela (Universita Cattolica); Metelli, Luca (London School of Economics); Modugno, Michele (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: How often should we update predictions for economic activity? Gross domestic product is a quarterly variable disseminated usually a couple of months after the end of the quarter, but many other macroeconomic indicators are released with a higher frequency, and financial markets react very strongly to them. However, most of the professional forecasters, including the IMF, the OECD, and most central banks, tend to update their forecasts of economic activity only two to four times a year. The main exception is the Central Bank of Brazil which is responsible for collecting and publishing a daily survey on GDP and other variables. The aim of this article is to evaluate the forecasting performance of the Central Bank of Brazil Survey and to compare it with the mechanical forecasts based on state-of-the-art nowcasting techniques. Results indicate that institutional forecasts perform as well as model-based forecasts. The latter finding suggests that, on the one hand, judgmental forecasters do not have computational limitations and are able to incorporate very quickly new information in a way that is as efficient as a machine. On the other hand, it confirms what has been found in other studies, namely that a linear time invariant model does a good job and hence that eventual nonlinearities, time variations and soft information (such as weather conditions or government decisions) that could be incorporated by judgment, do not provide new important information.
    Keywords: Nowcasting; Updating; Dynamic Factor Model
    JEL: C33 C53 E37
    Date: 2014–11–04
  45. By: Matthes, Jürgen
    Abstract: The very expansive and unconventional monetary policy of the ECB reduced the tensions of the Euro debt crisis at the price of persistently very low interest rates. While the ECB was right to act at the peak of the crisis, the risks of the low-interest rate environment become increasingly obvious. Private savings suffer from very low yields, which is particularly detrimental for long-term retirement savings. Moreover, financial stability risks could arise, as ultra-low interest rates can cause a search for yield among investors. Banks and life insurance companies are exposed to reduced interest profits respectively lower yields. While life insurance companies can cope with a shorter period of low interest rates, a longer period, however, poses challenges, as contracts with guaranteed interest rates have to be served. Therefore, it is a positive sign that the economic conditions for an interest rate turnaround have improved significantly since 2012 and are expected to improve further. Economic activity is clearly on an upward trend which is expected to continue despite current uncertainties. Significant structural reforms have been implemented in most stressed Euro countries which will most likely increase growth potentials soon (as already appears to be the case in Spain). Due to a stronger economy fears of deflation should only be a temporary phenomenon. Stress indicators and fundamentals in the banking sector have also improved on the back of (late but eventually decisive) policy measures and will continue to do so in the course of the ECB's pending stress test. Public and private indebtedness should be manageable in an environment where a sustainable moderate economic growth and more normal inflation are present. These are the conditions which characterize the baseline scenario assumed here. (...)
    Keywords: Europische Zentralbank,Geldpolitik,Inflation
    Date: 2014
  46. By: Dées, Stéphane; Güntner, Jochen
    Abstract: This paper uses a panel VAR (PVAR) approach to estimating, analysing, and forecasting price dynamics in four different sectors – industry, services, construction, and agriculture – across the four largest euro area economies – Germany, France, Italy and Spain – and the euro area as a whole. By modelling prices together with real activity, employment and wages, we can disentangle the role of unit labour costs and profit margins as the factors affecting price pressures on the supply side. In out-of-sample forecast exercises, the PVAR model fares comparatively well against common alternatives, although short-horizon forecast errors tend to be large when we consider only the period of the recent financial crisis. The second part of the paper focuses on Spain, for which prediction errors during the crisis are particularly large. Given that its economy faced dramatic sectoral changes due to the burst of a housing bubble, we use the PVAR model for studying the transmission of shocks originating from the Spanish construction sector to other sectors. In a multi-country extension of the model, we also allow for spillovers to the other euro area countries in our sample. JEL Classification: C33, C53, E31, E37
    Keywords: cost pressures, forecasting, impulse response analysis, panel VAR models
    Date: 2014–08
  47. By: Cheremukhin, Anton A. (Federal Reserve Bank of Dallas); Restrepo-Echavarria, Paulina (Federal Reserve Bank of St. Louis); Tutino, Antonella (Federal Reserve Bank of Dallas)
    Abstract: We present a theory of targeted search, where people with a finite information processing capacity search for a match. Our theory explicitly accounts for both the quantity and the quality of matches. It delivers a unique equilibrium that resides in between the random matching and the directed search outcomes. The equilibrium that emerges from this middle ground is inefficient relative to the constrained Pareto allocation. Our theory encompasses the outcomes of the random matching and the directed search literature as limiting cases.
    Keywords: Matching; assignment; search; efficiency; information
    JEL: C78 D83 E24 J64
    Date: 2013–08–23
  48. By: Baerg, Nicole Rae; Hallerberg, Mark
    Abstract: In this paper, we consider how European institutions contributed to the euro crisis. In principle, the Stability and Growth Pact was intended to minimize externalities by preventing macro-economic "bad behavior" in the form of large budget deficits. In practice, it has had a difficult history, with several Member States running "excessive deficits" and the Pact clearly failing to prevent the crisis. An important part of the story, and one that is often ignored, is that Member States not only broke the rules but repeatedly bent them by augmenting and amending the European Commission's assessments. We operationalize what it means to bend rules under the Pact, and we consider explanations for why some Member States repeatedly bent the rules in the run-up to the crisis while others did not. Using a new dataset of Commission assessments of member state economic programmes and Council of Minister revisions of those assessments for the period 1998-2012, we find that big states and states with euroskeptic populations regularly undermined the "watchdog" function of the Commission. The evidence leads us to conclude that unlike some domains where rule flexibility leads to better, and deeper cooperation, such flexibility eroded cooperation in the run-up to the euro crisis.
    Keywords: Eurocrisis, Political Economy, Stability and Growth Pact, Fiscal Governance
    JEL: E6 E62 H5 H6 H87
    Date: 2014–10–31
  49. By: Eleni Iliopulos (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications); François Langot (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, GAINS-TEPP - Université du Maine, Banque de france - Banque de France, IZA - Institute for the Study of Labor); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications, THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)
    Abstract: We provide a quantitative assessment of welfare costs of fluctuations in a search model with financial frictions. The matching process in the labor market leads positive shocks to reduce unemployment less than negative shocks increase it. We show that the magnitude of this non-linearity is magnified frictions. This asymmetric effect of the business cycle leads to sizable welfare costs. The model also accounts for the responsiveness of the job finding rate to the business cycle as financial frictions endogenously generate counter-cyclical opportunity costs of opening a vacancy and wage sluggishness.
    Keywords: Welfare; business cycle; financial friction; labor market search
    Date: 2014–06
  50. By: Horag Choi; Steven Lugauer; Nelson C. Mark
    Abstract: We employ a model of precautionary saving to study why household saving rates are so high in China and so low in the US. The use of recursive preferences gives a convenient decomposition of saving into precautionary and non precautionary components. This decomposition indicates that over 80 percent of China's saving rate and nearly all of the US saving arises from the precautionary motive. The difference in the income growth rate between China and the US is vastly more important for explaining saving rate differences than differences in income risk. We estimate the preference parameters and find that Chinese and US households are more similar in their attitude toward risk than in their intertemporal substitutability of consumption.
    JEL: E21 F4
    Date: 2014–09
  51. By: Fatih Guvenen; Greg Kaplan; Jae Song
    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.
    JEL: E24 E25 J31
    Date: 2014–10
  52. By: Robert J. Barro; Andrew Mollerus
    Abstract: A safe asset's real value is insulated from shocks, including declines in GDP from rare macroeconomic disasters. However, in a Lucas-tree world, the aggregate risk is given by the process for GDP and cannot be altered by the creation of safe assets. Therefore, in the equilibrium of a representative-agent version of this economy, the quantity of safe assets will effectively be nil. With heterogeneity in coefficients of relative risk aversion, safe assets may take the form of private bond issues from low-risk-aversion to high-risk-aversion agents. The model assumes Epstein-Zin/Weil preferences and log utility (intertemporal elasticity of substitution equal to one) and achieves stationarity by having agents die off and be replaced. We derive the steady-state quantity of safe assets and the shares of each agent in equity ownership and overall assets. In a baseline case, the risk-free rate is 1.0% per year, the unlevered equity premium is 4.2%, and the quantity of safe assets ranges up to 10% of economy-wide assets (comprising the capitalized value of the full GDP). A disaster shock leads to an extended period in which the share of wealth held by the low-risk-averse agent and the risk-free rate are low but rising and the ratio of safe to total assets is high but falling. In the baseline model, Ricardian Equivalence holds in that added government bonds have no effect on the risk-free rate and the net quantity of safe assets. The implied crowding-out coefficient for private bonds with respect to public bonds is around -0.5, a value found in some existing empirical studies.
    JEL: G1 E0 E2
    Date: 2014–10
  53. By: Gill Segal; Ivan Shaliastovich; Amir Yaron (University of Pennsylvania)
    Abstract: Does macroeconomic uncertainty increase or decrease aggregate growth and asset prices? To address this question, we decompose aggregate uncertainty into 'good' and 'bad' volatility components, associated with positive and negative innovations to macroeconomic growth. We document that in line with our theoretical framework, these two uncertainties have opposite impact on aggregate growth and asset prices. Good uncertainty predicts an increase in future economic activity, such as consumption, output, and investment, and is positively related to valuation ratios, while bad uncertainty forecasts a decline in economic growth and depresses asset prices. Further, the market price of risk and equity beta of good uncertainty are positive, while negative for bad uncertainty. Hence, both uncertainty risks contribute positively to risk premia, and help explain the cross-section of expected returns beyond cash flow risk.
    Date: 2014
  54. By: Bognanni, Mark (Federal Reserve Bank of Cleveland); Herbst, Edward (Federal Reserve Board of Governors)
    Abstract: Vector autoregressions with Markov-switching parameters (MS-VARs) offer dramatically better data fit than their constant-parameter predecessors. However, computational complications, as well as negative results about the importance of switching in parameters other than shock variances, have caused MS-VARs to see only sparse usage. For our first contribution, we document the effectiveness of Sequential Monte Carlo (SMC) algorithms at estimating MSVAR posteriors. Relative to multi-step, model-specific MCMC routines, SMC has the advantages of being simpler to implement, readily parallelizable, and unconstrained by reliance on convenient relationships between prior and likelihood. For our second contribution, we exploit SMC’s flexibility to demonstrate that the use of priors with superior data fit alters inference about the presence of time variation in macroeconomic dynamics. Using the same data as Sims, Waggoner, and Zha (2008, we provide evidence of recurrent episodes characterized by a flat Phillips Curve.
    Keywords: Vector Autoregressions; Sequential Monte Carlo; Regime-Switching Models; Bayesian Analysis
    JEL: C11 C15 C32 C52 E3 E4 E5
    Date: 2014–11–12
  55. By: Wensheng Kang; Ronald A. Ratti; Kyung Hwan Yoon
    Abstract: This paper examines the impact of structural oil price shocks on the covariance of U.S. stock market return and stock market volatility. We construct from daily data on return and volatility the covariance of return and volatility at monthly frequency. The measures of daily volatility are realized-volatility at high frequency (normalized squared return), conditional-volatility recovered from a stochastic volatility model, and implied-volatility deduced from options prices. Positive shocks to aggregate demand and to oil-market specific demand are associated with negative effects on the covariance of return and volatility. Oil supply disruptions are associated with positive effects on the covariance of return and volatility. The spillover index between the structural oil price shocks and covariance of stock return and volatility is large and highly statistically significant.
    Keywords: Stock return and volatility, oil price shocks, stock volatility, structural VAR
    JEL: E44 G10 Q41 Q43
    Date: 2014–11
  56. By: Roberto Duncan (Ohio University)
    Abstract: What drives US current account imbalances? Is there solid evidence that the behavior of the current account is different during deficits and surpluses or that the size of the imbalance matters? Is there a threshold relationship between the US current account and its main drivers? We estimate a threshold model to answer these questions using the instrumental variable estimation proposed by Caner and Hansen (2004). Rather than concluding that the size or the sign of (previous) external imbalances matters, we find that time is the most important threshold variable. One regime exists before and another one exists after the third quarter of 1997, a period that coincides with the onset of the Asian financial crisis and the Taxpayer Relief Act of 1997. Statistically significant determinants in the second regime are the fiscal surplus, productivity, productivity volatility, oil prices, the real exchange rate, and the real interest rate. Productivity has become a more important driver since 1997.
    Keywords: Global imbalances, saving glut, revived Bretton Woods system, Taxpayer relief Act of 1997, threshold model
    JEL: E32 E65 F32 F41
    Date: 2014–11
  57. By: Schleer, Frauke; Semmler, Willi; Illner, Julian
    Abstract: Overleveraging of the banking sector has been considered as one of the main causes of the 2007-09 financial crisis and the subsequent great recession. It was also of major concern for the subsequent BIS regulatory policies resulting in Basel III and its request for higher capital requirements. It has now become highly relevant for the planned European banking union. Overleveraging of the banking sector exposes the financial sector and the macroeconomy to vulnerabilities, but also, as critics state, seems to constrain credit flows to the private sector. We present here a measure of overleveraging, defined as the difference of actual and sustainable debt, conduct an empirical study on overleveraging for 40 banks in Europe, and study the vulnerabilities and credit contractions that can arise subsequently. Before the year 2004 overleveraging has not been a serious problem as leverage was on a sustainable level. However, in the run-up to the financial crisis, actual and optimal debt ran apart and the banking sector began to suffer from overleveraging. We use a nonlinear Vector STAR model to evaluate the hypothesis that periods of increasing debt levels are accompanied by more severe credit constraints than periods of low leveraging. We demonstrate this for country groups across Europe.
    Keywords: Overleveraging,banking sector,Vector STAR,real economy,credit flows,regime switch
    JEL: C61 E32 G01
    Date: 2014
  58. By: Ellen McGrattan (University of Minnesota)
    Abstract: As yet, there is no consensus among macroeconomists concerning the main driving forces behind the large declines in economic activity during 2008-2009 and the subsequent slow recovery. This paper seeks to shed light on a measurement issue that confounds analyses of key macrodata during this period. Because firms invest heavily in intangible investments---at a rate close to that of tangible investments---a drop in measured GDP, which does not include all intangible investments, understates the actual decline in total output. As a result, it is possible to have productivity rising during a recession as observed in 2008-2009. The rise in productivity has led many economists to the natural conclusion that this recession was different than most other post-World War II recessions and, as a result, many have been in search of evidence that financial disruptions were the cause of the large declines in real activity. The main objective of the paper is to determine if this time is in fact different by analyzing U.S. data---at the aggregate and micro level---using a model that incorporates intangible investments and multiple sectors, estimating parameters with maximum likelihood techniques, and comparing model predictions to data. Because of the inherent measurement issues, success relies on comparing model predictions to observations that are not used in the estimation of parameters.
    Date: 2014
  59. By: Andrew T. Young; Matthew J. Higgins; Donald J. Lacombe; Briana Sell
    Abstract: Conventional wisdom suggests that small businesses are innovative engines of Schumpetarian growth. However, as small businesses, they are likely to face credit rationing in financial markets. If true then policies that promote lending to small businesses may yield substantial economy-wide returns. We examine the relationship between Small Business Administration (SBA) lending and local economic growth using a spatial econometric framework across a sample of 3,035 U.S. counties for the years 1980 to 2009. We find evidence that a county's SBA lending per capita is associated with direct negative effects on its income growth. We also find evidence of indirect negative effects on the growth rates of neighboring counties. Overall, a 10% increase in SBA loans per capita is associated with a cumulative decrease in income growth rates of about 2%.
    JEL: C31 E65 H25 O47 R11
    Date: 2014–10
  60. By: Shittu, Adebayo M.; Obayelu, Oluwakemi A.; Salman, Kabir K.
    Abstract: Against the background that domestic policies in Nigeria have been linked to an endemic - high, volatile and rising food prices in the country, this paper empirically examined the transmission of key monetary policy variables to domestic food prices in Nigeria. Furthermore, the study employed estimates of policy induced price changes from estimated cointegrating relations between commodity prices and policy variables, and demand elasticities from a system of household demand equations to estimate the associated compensating variation as a measure of the welfare impacts on farm households. The study found that government management of exchange rates and money supplies as well as withdrawal of subsidies from petroleum products have been the main driver of rising food prices in the country. While an average farmer was found to have benefited from the policy induced rising food prices with the mean compensated variation of -3.3% of the household budget, most of the farm households ended up being losers. The gainers were mostly owners of the relatively few large farms (-36.9%) including the commercial livestock farms (-38.9%), rice farm (-35.0%), and fish farms (-27.8%). Smallholders, which constituted about three-quarter of the farm households, lost on the average, about 8.1% of their purchasing power to the rising food prices, with female headed households also loosing 6.6% of their purchasing power.
    Keywords: Welfare Effects, Policy-induced price changes, QUAIDS Model, Farm Households, Nigeria, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, D12, E42,
    Date: 2014
  61. By: Clancy, Daragh (Central Bank of Ireland); Merola, Rossana (Economic and Social Research Institute)
    Abstract: We develop ´EIRE Mod (Elementary Irish Real Economy Model), a core DSGE model suitable for policy analysis in Ireland. The model’s underlying structure, with a distinction between the traded and non-traded sectors and an import content of exports component, is designed to replicate the highly open nature of the Irish economy. Ireland’s membership of EMU is accounted for through exogenous nominal interest and exchange rates. New Keynesian features, such as sticky prices and wages, mean the model’s dynamics can replicate the sluggish reaction of economic variables found in the empirical literature. The model is calibrated in order to match key observed ratios in the Irish data. The usefulness of the model as a policy tool is highlighted through the simulation of various structural reforms aimed at boosting efficiency and competitiveness. Our results show that overall, reforms aimed at boosting productivity and price and wage competitiveness lead to the desired increase in output. Nevertheless, particular care should be paid to the effect of domestic reforms on Ireland’s external competitiveness and employment. This work is the first step towards the development of a suite of DSGE models for Ireland. Extensions of the core ´EIRE Mod will be necessary to fully capture key aspects of the economy’s adjustment path following these reforms. Accordingly, the results presented in this initial paper should be treated with caution.
    Keywords: Ireland, corporate liquidations, rm default, survival analysis.
    JEL: E12
    Date: 2014–09
  62. By: Orphanides, Athanasios
    Abstract: Marvin Goodfriend's (2014) insightful, informative and provocative work explains concisely and convincingly why the Fed needs rules and boundaries. This paper reviews the broader institutional design problem regarding the effectiveness of the central bank in practice and confirms the need for rules and boundaries. The framework proposed for improving the Fed incorporates key elements that have already been adopted in the European Union. The case of ELA provision by the ECB and the Central Bank of Cyprus to Marfin-Laiki Bank during the crisis, however, suggests that the existence of rules and boundaries may not be enough to limit harmful discretion. During a crisis, novel interpretations of the legal authority of the central bank may be introduced to create a grey area that might be exploited to justify harmful discretionary decisions even in the presence of rules and boundaries. This raises the question how to ensure that rules and boundaries are respected in practice.
    Keywords: Rules,discretion,central bank mandates,ECB,Central Bank of Cyprus,ELA
    JEL: E58 E61
    Date: 2014
  63. By: Wahyudi, Imam
    Abstract: Firm’s strategic orientation involves synchronizing environmental dynamics, corporate strategy and capital structure in order to achieve firm performance targets. The co-alignment model used successfully in the hospitality industry might be used in a wider context as a framework in explaining these relationships simultaneously. Using the data of public firms in Indonesia during the period of 1996-2010, we found that co-alignment model can be implemented in property and real estate industry as well as in hospitality industry.
    Keywords: macroeconomic conditions, corporate strategy, performance, property and real estate, investment
    JEL: D92 E22 G32 O33
    Date: 2012–10–11
  64. By: Pierdzioch, Christian; Reitz, Stefan; Ruelke, Jan-Christoph
    Abstract: We use a Panel Smooth Transition Regression (STR) model to study nonlinearities in the expectation-formation process in the U.S. stock market. To this end, we use data from the Livingston survey to investigate how the importance of regressive and extrapolative expectations fluctuates over time as market conditions summarized by stock-market misalignments and recent returns change. We find that survey participants form stabilizing expectations in the long run. Short-run expectations, in contrast, are consistent with weak mean reversion of stock prices.
    Keywords: Non-linear expectation formation,Survey data,Stock market,Heterogenous agents
    JEL: G17 E47 C53
    Date: 2014
  65. By: Mikhail Golosov; Luigi Iovino
    Abstract: We study the optimal provision of insurance against unobservable idiosyncratic shocks in a setting in which a benevolent government cannot commit. A continuum of agents and the government play an infinitely repeated game. Actions of the government are constrained only by the threat of reverting to the worst perfect Bayesian equilibrium (PBE). We construct a recursive problem that characterizes the resource allocation and information revelation on the Pareto frontier of the set of PBE. We prove a version of the Revelation Principle and find an upper bound on the maximum number of messages that are needed to achieve the optimal allocation. Agents play mixed strategies over that message set to limit the amount of information transmitted to the government. The central feature of the optimal contract is that agents who enter the period with low implicitly-promised lifetime utilities reveal no information to the government and receive no insurance against current period shock, while agents with high promised utilities reveal precise information about their current shock and receive insurance as in economies with full commitment by the government.
    JEL: D82 D86 E61 H3
    Date: 2014–10
  66. By: Westéus, Morgan (Department of Economics, Umeå School of Business and Economics)
    Abstract: Paper [I] adds to the theoretical literature on the incentives of Temporary Work Agencies (TWAs). Using a principal-agent model with hidden action to model two main types of contracts between a TWA and a Client Firm (CF), the TWA is shown to potentially act against the best interest of the CF when helping to fill a vacant position. The results also suggest that the adverse effect of the incentive misalignment is larger when the worker is going to be leased instead of hired by the CF. However, this effect could potentially be offset by introducing a sufficient level of competition among the TWAs. <p> Paper [II] uses individual-level data on young adults to estimate how the probability of being employed in the Swedish temporary agency sector is affected by whether a partner or other family member has experience of temporary agency work. The results show a significant effect from all peer groups of a magnitude that correspond to the other most influential control variables. We also find that this cohort of the agency sector has a relatively high education level compared to the regular sector, and that there are predominately men working in this sector. <p> Paper [III] analyses possible effects on total employment, and the distribution between agency work and regular contracts as a consequence of the implementation of the EU Temporary and Agency Workers Directive in Sweden. The analysis is based on changes in the compensation to agency workers in a calibrated extension of a Mortensen-Pissarides search model. Even though the results suggest a negative net effect on total employment, the implementation is shown to increase (utilitarian) welfare, and an increased transition probability from the agency sector into regular employment will increase welfare even further. <p> Paper [IV] focuses on settlement probabilities for different types of representation within the Swedish Labour Court. Empirical estimates on a set of unjust dismissal cases show that private representatives are generally less likely to reach a settlement than their union counterparts. The settlement probabilities converge following court-mandated information disclosure, which suggests that information asymmetry is an important factor in explaining differences in settlement behaviour. Privately instigated negotiations are therefore in general insufficient for making cases with non-union representation reach the same settlement rate as cases with union representation.
    Keywords: Temporary work agency; family work experience; young adults; Sweden; labour law; EU directive; unemployment; unjust dismissals; negotiations; settlements; labour unions
    JEL: D81 D82 E24 J12 J21 J41 J42 J44 J48 J52 J64 J82 K31 K41
    Date: 2014–11–12
  67. By: David Haugh; Ben Westmore
    Abstract: Structural transformation towards a more knowledge-based economy will strengthen Spain’s medium-term growth prospects. To deal with long standing impediments to higher growth the government has a substantial structural reform programme touching on education, the labour market and the business environment. Areas of particular weakness to be tackled include the high number of poorly qualified long-term unemployed, skills mismatches and a high school drop-out rate, and insufficient innovation. Spain has done well in reducing the carbon emissions intensity of GDP growth but will need to do more to meet future targets and manage its scarce water resources. The resolution of acute banking and fiscal problems, and the cyclical upswing, provide a more solid platform for sustained growth. Raising trend growth will boost job creation, which is the most effective antidote to the strong rise in poverty and inequality that accompanied the sharp deterioration in the labour market during the crisis.<P>Mieux maîtriser les talents et les connaissances pour stimuler une croissance à moyen terme durable en Espagne<BR>La transformation structurelle en faveur d’une économie davantage fondée sur le savoir renforcera les perspectives de croissance à moyen terme de l’Espagne. Pour remédier aux obstacles qui entravent de longue date une croissance plus soutenue, les autorités ont mis en place un important programme de réformes structurelles, concernant l’éducation, le marché du travail et l’environnement des entreprises. Parmi les déficiences particulières que ce programme vise à surmonter figurent le grand nombre de chômeurs de longue durée peu qualifiés, les inadéquations de compétences et le taux élevé d’abandon scolaire ainsi que l’insuffisance de l’innovation. L’Espagne a obtenu de bons résultats pour ce qui est de la réduction de l’intensité en émissions de carbone de la croissance du PIB, mais elle devra faire davantage pour atteindre les objectifs futurs et gérer ses rares ressources en eau. La résolution des graves problèmes bancaires et budgétaires et le redressement conjoncturel de l’activité créent des conditions plus propices à une croissance soutenue. L’accélération de la croissance tendancielle dopera la création d’emplois, qui est le meilleur antidote à la forte progression de la pauvreté et de l’inégalité qui a accompagné la profonde dégradation du marché du travail durant la crise.
    Keywords: education, productivity, environment, innovation, Spain, R&D, employment protection, climate change, active labour market policies, training, family policy, fertility, wage bargaining, skills, long-term unemployment, youth unemployment, female labour force participation, labour participation, trend growth, green innovation, skills mismatch, water scarcity, universities, growth simulations, carbon pricing, compétences, simulations de croissance, fertilité, participation de la main-d'oeuvre féminine., tarification du carbone, rareté de l'eau, inadéquation des compétences, chômage des jeunes, politiques actives du marché du travail, croissance tendancielle, universités, innovation verte, politiques familiales, chômage de longue durée, R-D, négociation salariale, formation, protection de l'emploi, changement climatique, Espagne, innovation, éducation, environnement, productivité
    JEL: E17 E24 I23 I28 J13 J21 J52 J61 J65 O31 O38 O40 Q52 Q58
    Date: 2014–11–13
  68. By: Joseph E. Stiglitz
    Abstract: This paper is an exercise in comparative institutional analysis, asking what kinds of arrangements most facilitate innovation. After identifying pervasive market failures in innovation, it explains why those associated with the Nordic model may be particularly conducive to innovation, and demonstrates that, in general, the optimal policies of the leader should differ from that of followers, but that both leaders and followers can benefit from active government policies (like industrial policies, public investments, and systems of social protection), not only leading to more innovation, but ensuring that more innovative activity is directed in ways that lead to the enhancement of living standards. It concludes by constructing a simple model in which knowledge flows slowly across national borders but moves easily within borders. We show there is a leadership-followership equilibrium, in which some countries are leaders, others are followers. Contrary to Solow's analysis, there need not be convergence. Focusing on technological progress that is a result of learning by doing, where learning occurs within the industrial sector but spills over to other sectors, we demonstrate the optimality of policies to expand the industrial sector beyond that which prevails in competitive equilibrium.
    JEL: E61 O3 O31 O32 O33 O34 O38 O51 O52
    Date: 2014–09
  69. By: Viktor Slavtchev; S. Wiederhold
    Abstract: Governments purchase everything from airplanes to zucchini. This paper investigates the role of the technological content of government procurement in innovation. We theoretically show that a shift in the composition of public purchases toward high-tech products translates into higher economy-wide returns to innovation, leading to an increase in the aggregate level of private research and development (R&D). Collecting unique panel data on federal procurement in US states, we find that reshuffling procurement toward high-tech industries has an economically and statistically significant positive effect on private R&D, even after extensively controlling for other R&D determinants. Instrumental-variable estimations support a causal interpretation of our findings.
    Keywords: government demand, private R&D, endogenous growth, innovation policy
    JEL: E60 H57 O31 O33 O38
    Date: 2014–09

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