nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒12‒03
sixty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary Policy with Interest on Reserves By John H. Cochrane
  2. A Spectral Representation of the Phillips Curve in Australia By Mallick, Debdulal
  3. Recent Developments in Experimental Macroeconomics By Luba Petersen; Robert Amano; Oleksiy Kryvtsov
  4. Inflation Dynamics in Georgia By Kavtaradze, Lasha
  5. Income Redistribution, Consumer Credit,and Keeping up with the Riches By Mathias Klein; Christopher Krause
  6. International Transmission Channels of U.S. Quantitative Easing: Evidence from Canada By Tatjana Dahlhaus; Kristina Hess; Abeer Reza
  7. Economic surprises and inflation expectations: Has anchoring of expectations survived the crisis? By Lejsgaard Autrup, Søren; Grothe, Magdalena
  8. Real-Time Nowcasting of Nominal GDP Under Structural Breaks By William A. Barnett; Marcelle Chauvet; Danilo Leiva-Leon
  9. Reserve Requirement Policy over the Business Cycle By Pablo Federico; Carlos A. Vegh; Guillermo Vuletin
  10. Introducing a Semi-Structural Macroeconomic Model for Rwanda By Luisa Charry; Pranav Gupta; Vimal Thakoor
  11. The Price of Stability: The balance sheet policy of the Banque de France and the Gold Standard (1880-1914) By Guillaume Bazot; Michael D. Bordo; Eric Monnet
  12. The Effects of Government Spending in a Small Open Economy within a Monetary Union By Clancy, Daragh; Jacquinot, Pascal; Lozej, Matija
  13. Constrained Discretion and Central Bank Transparency By Francesco Bianchi; Leonardo Melosi
  14. Verificación empírica de una regla de política económica sobre el déficit fiscal para Colombia By Juan Camilo Galvis Ciro
  15. The Bond Market: An Inflation-Targeter's Best Friend By Andrew K. Rose
  16. Frequency Dependence in a Real-Time Monetary Policy Rule By Ashley, Richard; Tsang, Kwok Ping; Verbrugge, Randal
  17. Reallocation in the Great Recession: Cleansing or Not? By Lucia Foster; Cheryl Grim; John Haltiwanger
  18. Liquidity and Foreign Asset Management Challenges for Latin American Countries By Joshua Aizenman; Daniel Riera-Crichton
  19. Sources of Firm Life-Cycle Dynamics: Differentiating Size vs. Age Effects By Lorenz Kueng; Mu-Jeung Yang; Bryan Hong
  20. Modelling Inflation Volatility By Eric Eisenstat; Rodney W. Strachan
  21. Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions By Karim Azizi; Nicolas Canry; Jean-Bernard Chatelain; Bruno Tinel
  22. Non-Legal-Tender Paper Money: The Structure and Performance of Maryland's Bills of Credit, 1767-1775 By Jim Celia; Farley Grubb
  23. Debt Servicing, Aggregate Consumption, and Growth By Mark SetterfieldY; Yun K. Kim
  24. Do demographics prevent consumer aggregates from reflecting micro-level preferences? By Koulovatianos, Christos; Schröder, Carsten; Schmidt, Ulrich
  25. Stability and Identification with Optimal Macroprudential Policy Rules By Jean-Bernard Chatelain; Kirsten Ralf
  26. Bank Liquidity and Capital Regulation in General Equilibrium By Covas, Francisco; Driscoll, John C.
  27. Household heterogeneity in the euro area since the onset of the great recession By Ampudia, Miguel; Pavlickova, Akmaral; Slacalek, Jiri; Vogel, Edgar
  28. Are Non-Euro Area EU Countries Importing Low Inflation from the Euro Area? By Plamen Iossifov; Jiri Podpiera
  29. The international dimension of confidence shocks By Dées, Stéphane; Güntner, Jochen
  30. The Price of Experience By Hyeok Jeong; Yong Kim; Iourii Manovskii
  31. Unemployment and Innovation By Joseph E. Stiglitz
  32. Identifying excessive credit growth and leverage By Alessi, Lucia; Detken, Carsten
  33. An Analysis of the Macroeconomic Conditions Required for SME Lending: The Case of Turkey By Hatice Jenkins; Monir Hussain
  34. The effect of credit conditions on the Dutch housing market By Marc Francke; Alex van de Minne; Johan Verbruggen
  35. ECB monetary policy surprises: identification through cojumps in interest rates By Winkelmann, Lars; Bibinger, Markus; Linzert, Tobias
  36. Macroeconomic Volatility and Trade in OLG Economies By Antoine Le Riche
  37. Measuring inflation under rationing: A virtual price approach By Christophe Starzec; François Gardes
  38. Is Unemployment Structural or Cyclical? Main Features of Job Matching in the EU after the Crisis By Arpaia, Alfonso; Kiss, Aron; Turrini, Alessandro
  39. Is Bitcoin business income or speculative bubble? Unconditional vs. conditional frequency domain analysis By Bouoiyour, Jamal; Selmi, Refk; Tiwari, Aviral
  40. Is Japan’s Population Aging Deflationary? By Derek Anderson; Dennis P. J. Botman; Ben Hunt
  41. Conventional and Insidious Macroeconomic Balance-Sheet Crises By Bas B. Bakker; Leslie Lipschitz
  42. Der Einfluss des (negativen) Einlagesatzes der EZB auf die Kreditvergabe im Euroraum By Bucher, Monika; Neyer, Ulrike
  43. How Much is A Lot? Historical Evidence on the Size of Fiscal Adjustments By Julio Escolano; Laura Jaramillo; Carlos Mulas-Granados; G. Terrier
  44. Reestimación del grado de transmisión de la tasa de cambio del peso sobre la inflación de los bienes importados By Hernán Rincón; Norberto Rodríguez
  45. Elasticity of substitution and the slowdown of Italian productivity By Daniela Federici; Enrico Saltari
  46. Reexamining the Cyclical Behavior of the Relative Price of Investment By Paul Beaudry; Alban Moura; Franck Portier
  47. Energy and Capital in a New-Keynesian Framework By Verónica Acurio Vasconez; Gaël Giraud; Florent Mc Isaac; Ngoc Sang Pham
  48. Dynamic Analysis of Exchange Rate Regimes : Policy Implications for Emerging Countries in Asia By Naoyuki Yoshino; Sahoko Kaji; Tamon Asonuma
  49. Exchange-rate adjustment and macroeconomic interdependence between stagnant and fully employed countries By Yoshiyasu Ono
  50. U.S. Size Distribution and the Macroeconomy, 1986-2009 By Lance Taylor; Armon Rezai; Rishabh Kumar; Laura de Carvalho; Nelson Barbosa
  51. Annuitized Wealth and Post-Retirement Saving By John Laitner; Daniel Silverman; Dmitriy Stolyarov
  52. The Great Recession, Decline and Rebound in Household Wealth for the Near Retirement Population By Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
  53. Over the Horizon : A New Levant By World Bank Group
  54. Credit spreads and the links between the financial and real sectors in a small open economy: the case of the Czech Republic By Konečný, Tomáš; Babecká Kucharčuková, Oxana
  55. In Praise of Frank Ramsey's Contribution to the Theory of Taxation By Joseph E. Stiglitz
  56. Macro-Prudential Policies to Mitigate Financial System Vulnerabilities By Stijn Claessens; Swati R. Ghosh; Roxana Mihet
  57. Probabilidad Clásica de Sobreajuste con Criterios de Información: Estimaciones con Series Macroeconómicas Chilenas By Carlos Medel
  58. Distributional Effects of Means Testing Social Security: An Exploratory Analysis By Alan Gustman; Thomas Steinmeier; Nahid Tabatabai
  59. Building sustainability through greater happiness By Stefano Bartolini
  60. The influence of different production functions on modeling resource extraction and economic growth By Voosholz, Frauke
  61. Seesaws and Social Security Benefits Indexing By Matthew Weinzierl
  62. Federal Reserve Policy and Bretton Woods By Michael D. Bordo; Owen F. Humpage

  1. By: John H. Cochrane
    Abstract: I analyze monetary policy with interest on reserves and a large balance sheet. I show that conventional theories do not determine inflation in this regime, so I base the analysis on the fiscal theory of the price level. I find that monetary policy can peg the nominal rate, and determine expected inflation. With sticky prices, monetary policy can also affect real interest rates and output, though higher interest rates raise output and then inflation. The conventional sign requires a coordinated fiscal-monetary policy contraction. I show how conventional new-Keynesian models also imply strong monetary-fiscal policy coordination to obtain the usual signs. I address theoretical controversies. A concluding section places our current regime in a broader historical context, and opines on how optimal fiscal and monetary policy will evolve in the new regime.
    JEL: E5 E52 E58 E61 E62
    Date: 2014–10
  2. By: Mallick, Debdulal
    Abstract: We document evolving patterns in the inflation-unemployment relationship in Australia in the frequency domain under different monetary policy regimes and labor market regulations. The RBA adopted monetary targeting in 1976 and inflation targeting in 1993. There were important changes in the labor relations during mid-1980s-mid-1990s. We document an upward sloping medium-run Phillips curve in the pre-1977 period, a downward sloping long-run Phillips curve during 1977-1993, and a flattened Phillips curve from 1993 onwards. Inflation lags unemployment during the first period but leads during the second period. The Phillips curve at business-cycle frequencies is downward sloping in all periods. Similar patterns are also observed in several industrialized countries that adopted inflation targeting.
    Keywords: Phillips curve, Long-run, Business-cycle, Frequency, Spectral method
    JEL: C49 E24 E31 E32
    Date: 2014–11
  3. By: Luba Petersen (Simon Fraser University); Robert Amano (Bank of Canada); Oleksiy Kryvtsov (Bank of Canada)
    Abstract: This article describes experimental economics, in general, and new developments in experimental macroeconomics, in particular. The approach has a clear niche in providing evidence on economic phenomena that cannot be observed directly or that are difficult to measure. Experimental work conducted by Bank of Canada economists has shed light on a number of issues important to monetary policy, such as the relative efficacy between price-level and inflation targeting, and the nature of inflation expectations formation.
    Keywords: Inflation and prices, Monetary policy framework
    JEL: C C9 E E3 E31 E5 E52
    Date: 2014–09
  4. By: Kavtaradze, Lasha
    Abstract: This paper examines inflation dynamics in Georgia using a hybrid New Keynesian Phillips Curve (NKPC) nested within a time-varying parameter (TVP) framework, which incorporates both forward-looking and backward-looking components. Estimation of a TVP model with stochastic volatility shows low inflation persistence over the entire time span (1996-2012), while revealing increasing volatility of inflation shocks since the “Rose Revolution” in 2003. Moreover, parameter estimates point to the forward-looking component of the model gaining importance following the National Bank of Georgia (NBG) adoption of inflation targeting in 2009. However, since 2011 the inertia of the expected future inflation takes a declining process while the backward-looking (lagged) component gradually climbs upward, thus, challenging the NBG in revising its target benchmark of 6%.
    Keywords: Inflation dynamics, Georgian economy, hybrid NKPC models, time-varying parameters, MCMC sampling method, Kalman filter.
    JEL: E31 E32 E52 E58
    Date: 2014–07–12
  5. By: Mathias Klein; Christopher Krause
    Abstract: In this study, the relation between consumer credit and real economic activity during the Great Moderation is studied in a dynamic stochastic general equilibrium model. Our model economy is populated by two diff erent household types. Investors, who hold the economy’s capital stock, own the fi rms and supply credit, and workers, who supply labor and demand credit to fi nance consumption. Furthermore, workers seek to minimize the diff erence between investors’ and their own consumption level. Qualitatively, an income redistribution from labor to capital leads to consumer credit dynamics that are in line with the data. As a validation exercise, we simulate a threeshock version of the model and fi nd that our theoretical set-up is able to reproduce important business cycle correlations.
    Keywords: Income redistribution; consumer credit; relative consumption motive; business cycles
    JEL: E21 E32 E44
    Date: 2014–10
  6. By: Tatjana Dahlhaus; Kristina Hess; Abeer Reza
    Abstract: The U.S. Federal Reserve responded to the great recession by reducing policy rates to the effective lower bound. In order to provide further monetary stimulus, they subsequently conducted large-scale asset purchases, quadrupling their balance sheet in the process. We assess the international spillover effects of this quantitative easing program on the Canadian economy in a factor-augmented vector autoregression (FAVAR) framework, by considering a counterfactual scenario in which the Federal Reserve’s long-term asset holdings do not rise in response to the recession. We find that U.S. quantitative easing boosted Canadian output, mainly through the financial channel.
    Keywords: International topics, Monetary policy framework, Transmission of monetary policy
    JEL: C C3 C32 E E5 E52 E58 F F4 F42 F44
    Date: 2014
  7. By: Lejsgaard Autrup, Søren; Grothe, Magdalena
    Abstract: This paper analyses price formation in medium- to longer-term maturity segments of euro area and US inflation-linked and nominal bond markets around the releases of important economic indicators. We compare the pre-crisis and crisis periods, controlling for liquidity effects observed in financial markets. The results allow us to draw conclusions about the anchoring of inflation expectations in the two currency areas before and during the crisis. We find a somewhat stronger anchoring of inflation expectations in the euro area than in the United States. During the crisis, the degree of anchoring of inflation expectations did not change in the euro area, but it decreased to some extent in the United States. JEL Classification: E44, G12, G01
    Keywords: break-even inflation rates, inflation expectations, inflation markets, macroeconomic announcements, nominal and real bond yields
    Date: 2014–04
  8. By: William A. Barnett; Marcelle Chauvet; Danilo Leiva-Leon
    Abstract: This paper provides a framework for the early assessment of current U.S. nominal GDP growth, which has been considered a potential new monetary policy target. The nowcasts are computed using the exact amount of information that policy-makers have available at the time predictions are made. However, real-time information arrives at different frequencies and asynchronously, which poses challenges of mixed frequencies, missing data and ragged edges. This paper proposes a multivariate state-space model that not only takes into account asynchronous information inflow, but also allows for potential parameter instability. We use small-scale confirmatory factor analysis in which the candidate variables are selected based on their ability to forecast nominal GDP. The model is fully estimated in one step using a non-linear Kalman filter, which is applied to obtain optimal inferences simultaneously on both the dynamic factor and parameters. In contrast to principal component analysis, the proposed factor model captures the co-movement rather than the variance underlying the variables. We compare the predictive ability of the model with other univariate and multivariate specifications. The results indicate that the proposed model containing information on real economic activity, inflation, interest rates and Divisia monetary aggregates produces the most accurate real-time nowcasts of nominal GDP growth.
    Keywords: Business fluctuations and cycles, Econometric and statistical methods, Inflation and prices
    JEL: C32 E27 E31 E32
    Date: 2014
  9. By: Pablo Federico; Carlos A. Vegh; Guillermo Vuletin
    Abstract: Based on a novel quarterly dataset for 52 countries for the period 1970-2011, we analyze the use and cyclical properties of reserve requirements (RR) as a macroeconomic stabilization tool and whether RR policy substitutes or complements monetary policy. We find that (i) around two thirds of developing countries have used RR policy as a macroeconomic stabilization tool compared to just one third of industrial countries (and no industrial country since 2004); (ii) most developing countries that rely on RR use them countercyclically; and (iii) in many developing countries, monetary policy is procyclical and hence RR policy has substituted monetary policy as a countercyclical tool. We interpret the latter finding as reflecting the need of many emerging markets to raise interest rates in bad times to defend the currency and not raise or lower the interest rate in good times to prevent further currency appreciation. Under these circumstances, RR policy provides a second instrument that substitutes for monetary policy. Evidence from expanded Taylor rules (i.e., Taylor rules that include a nominal exchange rate target) supports these mechanisms.
    JEL: E52 F41
    Date: 2014–10
  10. By: Luisa Charry; Pranav Gupta; Vimal Thakoor
    Abstract: We develop a simple semistructural model for the Rwandan economy to better understand the monetary policy transmission mechanism. A key feature of the model is the introduction of a modified uncovered interest parity condition to capture key structural features of Rwanda’s economy and policy framework, such as the limited degree of capital mobility. A filtration of the observed data through the model allows us to illustrate the contribution of various factors to inflation dynamics and its deviations from the inflation target. Our results, consistent with evidence for other countries in the region, suggest that food and oil prices as well as the exchange rate have accounted for the bulk of inflation dynamics in Rwanda.
    Keywords: Monetary transmission mechanism;Rwanda;Inflation targeting;Monetary policy;Economic models;Monetary Policy, Monetary Transmission Mechanisms, Low Income Countries
    Date: 2014–08–22
  11. By: Guillaume Bazot; Michael D. Bordo; Eric Monnet
    Abstract: Under the classical gold standard (1880-1914), the Bank of France maintained a stable discount rate while the Bank of England changed its rate very frequently. Why did the policies of these central banks, the two pillars of the gold standard, differ so much? How did the Bank of France manage to keep a stable rate and continuously violate the "rules of the game"? This paper tackles these questions and shows that the domestic asset portfolio of the Bank of France played a crucial role in smoothing international shocks and in maintaining the stability of the discount rate. This policy provides a striking example of a central bank that uses its balance sheet to block the interest rate channel and protect the domestic economy from international constraints (Mundell's trilemma).
    JEL: E42 E43 E50 E58 N13 N23
    Date: 2014–10
  12. By: Clancy, Daragh (Central Bank of Ireland); Jacquinot, Pascal (European Central Bank); Lozej, Matija (Bank of Slovenia)
    Abstract: Small open economies within a monetary union have a limited range of stabilisation tools, as area-wide nominal interest and exchange rates do not respond to country-specific shocks. Such limitations imply that imbalances can be difficult to resolve. We assess the role that government spending can play in mitigating this issue using a global DSGE model, with an extensive fiscal sector allowing for a rich set of transmission channels. We find that complementarities between government and private consumption can substantially increase spending multipliers. Government investment, by raising productive public capital, improves external competitiveness and counteracts external imbalances. An ex-ante budget-neutral switch of government expenditure towards investment has beneficial effects in the medium run, while short-run effects depend on the degree of co-movement between private and government consumption. Finally, spillovers from a fiscal stimulus in one region of a monetary union depend on trade linkages and can be sizeable.
    Keywords: Fiscal policy, Public capital, Imbalances, Trade.
    JEL: E22 E62 H54
    Date: 2014–09
  13. By: Francesco Bianchi; Leonardo Melosi
    Abstract: We develop and estimate a general equilibrium model in which monetary policy can deviate from active inflation stabilization and agents face uncertainty about the nature of these deviations. When observing a deviation, agents conduct Bayesian learning to infer its likely duration. Under constrained discretion, only short deviations occur: Agents are confident about a prompt return to the active regime, macroeconomic uncertainty is low, welfare is high. However, if a deviation persists, agents' beliefs start drifting, uncertainty accelerates, and welfare declines. If the duration of the deviations is announced, uncertainty follows a reverse path. When estimated to match past U.S. experience, our model suggests that transparency lowers uncertainty and increases welfare.
    JEL: C11 D83 E52
    Date: 2014–10
  14. By: Juan Camilo Galvis Ciro
    Abstract: Este documento busca derivar una regla de política fiscal y verificarla empíricamente para la economía colombiana. La regla fiscal utiliza el déficit fiscal primario como instrumento en función de la brecha del producto y los desvíos de la tasa inflación. La estimación econométrica es hecha para el período 2000-1 hasta 2012-12 y se encuentra evidencia a favor de la regla propuesta. No obstante, encontramos que las variables utilizadas explican sólo la tercera parte de las variaciones del déficit fiscal. En el período analizado el déficit fiscal primario objetivo fue de 3.3% como porcentaje del producto.
    Keywords: Reglas; Política fiscal; Brecha del producto; Inflación.
    JEL: E31 E32 E62
    Date: 2014–07–09
  15. By: Andrew K. Rose
    Abstract: This paper explores the relationship between inflation and the existence of a publicly-traded, long-maturity, nominal, domestic-currency bond market. Bond holders suffer from inflation and could be a potent anti-inflationary force; I ask whether their presence is apparent empirically. I use a panel data approach, examining the difference in inflation before and after the introduction of a bond market. My primary focus is on countries with inflation targeting regimes, though I also examine countries with hard fixed exchange rates and other monetary regimes. Inflation-targeting countries with a bond market experience inflation approximately three to four percentage points lower than those without a bond market. This effect is economically and statistically significant; it is also insensitive to a variety of estimation strategies, including using political and fiscal instrumental variables. The existence of a bond market has little effect on inflation in other monetary regimes, as do indexed or foreign-denominated bonds.
    JEL: E52 E58
    Date: 2014–09
  16. By: Ashley, Richard (Virginia Tech); Tsang, Kwok Ping (Virginia Tech); Verbrugge, Randal (Federal Reserve Bank of Cleveland)
    Abstract: We estimate a monetary policy rule for the US allowing for possible frequency dependence—i.e., allowing the central bank to respond differently to more persistent innovations than to more transitory innovations, in both the unemployment rate and the inflation rate. Our estimation method uses real-time data in these rates—as did the FOMC—and requires no a priori assumptions on the pattern of frequency dependence or on the nature of the processes generating either the data or the natural rate of unemployment. Unlike other approaches, our estimation method allows for possible feedback in the relationship. Our results convincingly reject linearity in the monetary policy rule, in the sense that we find strong evidence for frequency dependence in the key coefficients of the central bank's policy rule: i.e., the central bank's federal funds rate response to a fluctuation in either the unemployment or the inflation rate depended strongly on the persistence of this fluctuation in the recently observed (real-time) data. These results also provide useful insights into how the central bank's monetary policy rule has varied between the Martin-Burns-Miller and the Volcker-Greenspan time periods.
    Keywords: Taylor rule; frequency dependence; spectral regression; real-time data
    JEL: C22 C32 E52
    Date: 2014–11–19
  17. By: Lucia Foster; Cheryl Grim; John Haltiwanger
    Abstract: The high pace of reallocation across producers is pervasive in the U.S. economy. Evidence shows this high pace of reallocation is closely linked to productivity. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are "cleansing" is an open question. We find downturns prior to the Great Recession are periods of accelerated reallocation even more productivity enhancing than reallocation in normal times. In the Great Recession, we find the intensity of reallocation fell rather than rose and the reallocation that did occur was less productivity enhancing than in prior recessions.
    JEL: E24 E32 J63 O4
    Date: 2014–08
  18. By: Joshua Aizenman; Daniel Riera-Crichton
    Abstract: We analyze the degree to which the growing importance of sovereign wealth funds [SWFs] and the diffusion of inflation targeting and augmented Taylor rules have impacted the post crisis adjustment of Latin American Countries (LATAM) to the challenges associated with terms of trade and financial shocks. We confirm that active international reserves management reduces the effects of transitory Commodity Terms of Trade (CTOT) shocks to the real exchange rate [REER] and the real GDP in LATAM economies. These buffer effects work more against the risks of real appreciation than against depreciations, under relatively high levels of external debt and in economies that are less open to trade. Fixed exchange regimes act as a substitute policy to reserve accumulation. In contrast to reserves, SWFs buffers the REER from CTOT shocks with fixed exchange rate regimes and in relatively closed economies. The buffer effect of reserve accumulation appears to be strongest during the 1980-2007 period. While the stock of reserves fails to smooth the transmission of CTOT shocks to REER during the Global Financial Crisis (2008-2009), SWFs stepped up as substitutes to traditional reserve assets. The international reserve buffering role resumes during the post-great recession period (2010-2013), but not at the levels observed prior to the crisis. We observe a "substitution" between reserves and SWFs, where SWFs take over the buffering role of the REER and the real GDP during the Great Recession and the post-Great Recession period. Inflation targeting (IT) policy matters: IT countries give up the use of reserves to buffer against CTOT shocks, relegating this role to the SWFs. In LATAM countries that follow augmented Taylor rules, their monetary authorities place large weights on output gaps; while inflation gains importance for IT countries. Countries switch from REER stabilization targets to inflation targets when committing to a formal IT rule. SWFs may provide IT countries with an alternative form of liquidity management against foreign shocks when traditional reserves are committed to other macroeconomic goals. This is true for both REER and output growth stabilization.
    JEL: F15 F31 F32 F36 O13
    Date: 2014–10
  19. By: Lorenz Kueng; Mu-Jeung Yang; Bryan Hong
    Abstract: What determines firm growth over the life-cycle? Exploiting unique firm panel data on internal organization, balance sheets and innovation, representative of the entire Canadian economy, we study recent theories that examine life-cycle patterns for firm growth. These theories include organizational capital accumulation and management practices, financial frictions, learning about demand, and recent endogenous growth models with incumbent innovation. We emphasize the importance of differentiating between pure age effects of these theories and effects on size conditional on age. Our stylized facts highlight both empirical successes and shortcomings of current theory. First, models of organizational capital and innovation are broadly consistent with firm size correlations conditional on age but have difficulties matching the life-cycle dynamics of firm organization and innovation. Second, among theories we analyze, organizational capital and management practices are the most important determinants to explain intensive margin firm growth over the life-cycle. Third, although less important to explain intensive margin firm growth, financial frictions are an important determinant of firm exit, conditional on firm age.
    JEL: D2 D22 D23 D24 D9 D92 E20 E24 E32 F23 G3 G32 M1 M5 O3 O4 O47 O51
    Date: 2014–10
  20. By: Eric Eisenstat; Rodney W. Strachan
    Abstract: This paper discusses estimation of US inflation volatility using time varying parameter models, in particular whether it should be modelled as a stationary or random walk stochastic process. Specifying inflation volatility as an unbounded process, as implied by the random walk, conflicts with priors beliefs, yet a stationary process cannot capture the low frequency behaviour commonly observed in estimates of volatility. We therefore propose an alternative model with a change-point process in the volatility that allows for switches between stationary models to capture changes in the level and dynamics over the past forty years. To accommodate the stationarity restriction, we develop a new representation that is equivalent to our model but is computationally more efficient. All models produce effectively identical estimates of volatility, but the change-point model provides more information on the level and persistence of volatility and the probabilities of changes. For example, we find a few well defined switches in the volatility process and, interestingly, these switches line up well with economic slowdowns or changes of the Federal Reserve Chair. Moreover, a decomposition of inflation shocks into permanent and transitory components shows that a spike in volatility in the late 2000s was entirely on the transitory side and a characterized by a rise above its long run mean level during a period of higher persistence.
    Keywords: Inflation volatility, monetary policy, time varying parameter model, Bayesian estimation, change-point model.
    JEL: C11 C22 E31
    Date: 2014–11
  21. By: Karim Azizi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Nicolas Canry (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Jean-Bernard Chatelain (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); Bruno Tinel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rates has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and of the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, on the unbalanced panel of 21 countries from 1961 to 2010 available in OECD database, those two conditions were simultaneously validated only for 29% of the cases under examination. Second, those two conditions were more frequent in the 1980s and the 1990s when monetary policies were more restrictive. Third, in tune with the Keynesian view, when the real interest rate is higher than the GDP growth, it corresponds to 75% of the cases of the increases of the debt/GDP ratio but to only 43% of the cases of the decreases of the debt/GDP ratio (fiscal consolidations).
    Keywords: Government solvency; austerity; fiscal consolidation; No-Ponzi game condition; transversality condition; Keynesian countercyclical budgetary policy; monetary policy; economic growth
    Date: 2013–04
  22. By: Jim Celia; Farley Grubb
    Abstract: Maryland's non-legal-tender paper money emissions between 1765 and 1775 are reconstructed to determine the quantities outstanding and their redemption dates, providing a substantial correction to the literature. Over 80 percent of this paper money's current market value was expected real asset present value and under 20 percent was liquidity premium. It was primarily a real barter asset and not a fiat currency. The liquidity premium was positively related to the amount of paper money per capita in circulation. This paper money traded below face value only due to time-discounting and not depreciation. Past scholars have simply confused time-discounting with depreciation.
    JEL: E31 E42 E51 N11 N21 N41
    Date: 2014–09
  23. By: Mark SetterfieldY; Yun K. Kim
    Abstract: We develop a neo-Kaleckian growth model that emphasizes the importance of consumption behavior. In our model, workers first make consumption decisions based on their gross income, and then treat debt servicing commitments as a substitute for saving. Workers' borrowing is induced by their desire to keep up with the consumption standard set by rentiers' consumption, reflecting an aspect of the relative income hypothesis. As a result of this consumption and debt servicing behavior, consumer debt accumulation and income distribution have effects on aggregate demand, profitability, and economic growth that differ from those found in existing models. We also investigate the financial sustainability of the Golden Age and Neoliberal growth regimes within our framework. It is shown that distributional changes between the Golden Age and the Neoliberal regimes, together with corresponding changes in consumption emulation behavior via expenditure cascades, suffice to make the Neoliberal growth regime unsustainabble.
    Keywords: Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth
    JEL: E12 E44 O41
    Date: 2014–11
  24. By: Koulovatianos, Christos; Schröder, Carsten; Schmidt, Ulrich
    Abstract: Most simulated micro-founded macro models use solely consumer-demand aggregates in order to estimate deep economy-wide preference parameters, which are useful for policy evaluation. The underlying demand-aggregation properties that this approach requires, should be easy to empirically disprove: since household-consumption choices differ for households with more members, aggregation can be rejected if appropriate data violate an affine equation regarding how much individuals benefit from within-household sharing of goods. We develop a survey method that tests the validity of this equation, without utility-estimation restrictions via models. Surprisingly, in six countries, this equation is not rejected, lending support to using consumer-demand aggregates.
    Keywords: Linear Aggregation,Dynamic Representative Consumer,Household-Size Economies,Equivalent Incomes,Survey Method
    JEL: C42 E21 D12 E01 D11 D91 D31 I32
    Date: 2014
  25. By: Jean-Bernard Chatelain (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, UP1 - Université Paris 1, Panthéon-Sorbonne - Université Paris I - Panthéon-Sorbonne - PRES HESAM); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: This paper investigates the identification, the determinacy and the stability of ad hoc, "quasi-optimal" and optimal policy rules augmented with financial stability indicators (such as asset prices deviations from their fundamental values) and minimizing the volatility of the policy interest rates, when the central bank precommits to financial stability. Firstly, ad hoc and quasi-optimal rules parameters of financial stability indicators cannot be identified. For those rules, non zero policy rule parameters of financial stability indicators are observationally equivalent to rule parameters set to zero in another rule, so that they are unable to inform monetary policy. Secondly, under controllability conditions, optimal policy rules parameters of financial stability indicators can all be identified, along with a bounded solution stabilizing an unstable economy as in Woodford (2003), with determinacy of the initial conditions of non- predetermined variables.
    Keywords: Identification; Financial Stability; Optimal Policy under Commitment; Augmented Taylor rule; Monetary Policy.
    Date: 2014–04–12
  26. By: Covas, Francisco (Board of Governors of the Federal Reserve System (U.S.)); Driscoll, John C. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We develop a nonlinear dynamic general equilibrium model with a banking sector and use it to study the macroeconomic impact of introducing a minimum liquidity standard for banks on top of existing capital adequacy requirements. The model generates a distribution of bank sizes arising from differences in banks' ability to generate revenue from loans and from occasionally binding capital and liquidity constraints. Under our baseline calibration, imposing a liquidity requirement would lead to a steady-state decrease of about 3 percent in the amount of loans made, an increase in banks' holdings of securities of at least 6 percent, a fall in the interest rate on securities of a few basis points, and a decline in output of about 0.3 percent. Our results are sensitive to the supply of safe assets: the larger the supply of such securities, the smaller the macroeconomic impact of introducing a minimum liquidity standard for banks, all else being equal. Finally, we show that relaxing the liquidity requirement under a situation of financial stress dampens the response of output to aggregate shocks.
    Keywords: Bank regulation; liquidity requirements; capital requirements; incomplete markets; idiosyncratic risk; macroprudential policy
    JEL: D52 E13 G21 G28
    Date: 2014–09–12
  27. By: Ampudia, Miguel; Pavlickova, Akmaral; Slacalek, Jiri; Vogel, Edgar
    Abstract: We extend household-level data from the Household Finance and Consumption Survey using aggregate series and micro-simulations to investigate heterogeneity in the euro area. We quantify shocks to wealth, income and financial pressure faced by various categories of households since the onset of the Great Recession. The shocks differ substantially both across countries and across economic and socio-demographic characteristics. We find that the rising unemployment rate disproportionately affected the income-poor, while the declining wealth the income-rich. Although borrowers benefited from the substantial decrease in interest rates, debt service-income and debt-income ratios for poor households went up as they faced falling incomes. Household deleveraging was primarily driven by the restrained mortgage borrowing by the young. In several countries and at the euro-area level the unprecedented declines in asset prices substantially contributed to the sluggish consumption growth driven by both rich and poor households: while the former were hit by large shocks to wealth, the latter also significantly cut their spending because of their high MPCs. JEL Classification: D12, D31, E21
    Keywords: deleveraging, financial pressure, great recession, household finance and consumption survey, household heterogeneity, income, wealth, wealth effect
    Date: 2014–08
  28. By: Plamen Iossifov; Jiri Podpiera
    Abstract: The synchronized disinflation across Europe since end-2011 raises the question of whether non-euro area EU countries are affected by the undershooting of the euro area inflation target. To shed light on this issue, we estimate an open-economy, New Keynsian Phillips curve, in which we control for imported inflation. Regression results suggest that falling food and energy prices have been the main disinflationary driver. But low core inflation in the euro area has also had a clear and significant impact. Countries with more rigid exchange-rate regimes and higher share of foreign value added in domestic demand have been more affected. The scope for monetary response to low inflation in non-euro area EU countries depends on concerns about financial stability and unanchoring of inflationary expectations, as well as on exchange rate regime and capital flows dynamics.
    Keywords: Disinflation;Europe;Euro Area;Inflation targeting;Open economies;Econometric models;Inflation, Central and Eastern Europe, Sweden, United Kingdom, Denmark
    Date: 2014–10–22
  29. By: Dées, Stéphane; Güntner, Jochen
    Abstract: Building on Beaudry, Nam and Wang (2011) { hereafter BNW {, we use survey data on consumer sentiment in order to identify the causal effects of confidence shocks on real economic activity in a selection of advanced economies. Starting from a set of closed-economy VAR models, we show that these shocks have a significant and persistent impact on domestic consumption and real GDP. In line with BNW, we find that confidence shocks explain a large share of the variance in real economic activity. At the same time, the shocks we identify are significantly correlated across countries. In order to account for common global components in international confidence cycles, we extend the analysis to a FAVAR model. This approach proves effective in removing the correlation in country-specific confidence shocks and in isolating mutually orthogonal idiosyncratic components. As a result, the (domestic and cross-border) impacts of country-specific confidence shocks are smaller and their contribution to business cycle fluctuations is reduced, confirming the global dimension of confidence shocks. Overall, our evidence shows that confidence shocks play some role in business cycle fluctuations. At the same time, we show that confidence shocks have a strong global component, supporting their role in international business cycles. JEL Classification: C32, E17, E32, F41
    Keywords: (VAR), consumer confidence, consumption, factor-augmented VAR (FAVAR), international linkages, vector autoregression
    Date: 2014–04
  30. By: Hyeok Jeong; Yong Kim; Iourii Manovskii
    Abstract: We identify a key role of factor supply, driven by demographic changes, in shaping several empirical regularities that are a focus of active research in macro and labor economics. In particular, demographic changes alone can account for the large movements of the return to experience over the last four decades, for the differential dynamics of the age premium across education groups emphasized by Katz and Murphy (1992), for the differential dynamics of the college premium across age groups emphasized by Card and Lemieux (2001), and for the changes in cross-sectional and cohort-based life-cycle profiles emphasized by Kambourov and Manovskii (2005).
    JEL: E24 E25 J24 J31
    Date: 2014–09
  31. By: Joseph E. Stiglitz
    Abstract: This paper analyzes equilibrium, dynamics, and optimal decisions on the factor bias of innovation in a model of induced innovation. In a model with full employment, we show that (a) if the elasticity of substitution is always less than or greater than unity, there is a unique steady state equilibrium; (b) if the elasticity of substitution is less than unity, the steady state is stable, but convergence is oscillatory; (c) if the elasticity of substitution is greater than unity, the steady state is a saddle point; and (d) if the elasticity of substitution is less than unity for both high and low effective capital labor ratios but greater than unity for intermediate values, then there can be multiple steady states. In a model where efficiency wages lead to equilibrium unemployment, we show that if the elasticity of substitution is less than unity, there will be a bias towards excessive labor augmenting innovation, resulting in too high unemployment, with convergence to the unique steady state being oscillatory, rather than monotonic. Similarly, if the elasticity of substitution between skilled and unskilled labor is less than unity, and there is efficiency wage unemployment for unskilled labor only, there is will be excessively skill-biased innovation. This paper provides an alternative resolution to the Harrod-Domar conundrum of the disparity between the natural and warranted rate of growth to that of Solow, with strong policy implications, for instance, concerning the effects of income distribution and monetary policy both in the short run and the long.
    JEL: E24 O30 O31 O33
    Date: 2014–11
  32. By: Alessi, Lucia; Detken, Carsten
    Abstract: This paper aims at providing policymakers with a set of early warning indicators helpful in guiding decisions on when to activate macroprudential tools targeting excessive credit growth and leverage. To robustly select the key indicators we apply the “Random Forest” method, which bootstraps and aggregates a multitude of decision trees. On these identified key indicators we grow a binary classification tree which derives the associated optimal early warning thresholds. By using credit to GDP gaps, credit to GDP ratios and credit growth rates, as well as real estate variables in addition to a set of other conditioning variables, the model is designed to not only predict banking crises, but also to give an indication on which macro-prudential policy instrument would be best suited to address specific vulnerabilities. JEL Classification: C40, G01, E44, E61, G21
    Keywords: banking crises, decision trees, early warning systems, macroprudential policy, random forest
    Date: 2014–08
  33. By: Hatice Jenkins (Department of Banking and Finance, Eastern Mediterranean University, North Cyprus); Monir Hussain (Department of Banking and Finance, Eastern Mediterranean University, North Cyprus)
    Abstract: Providing SMEs with access to external finance has been a major concern for many governments and international organizations for three decades. In recent years the experiences of emerging market countries suggest that a paradigm shift is taking place in SME finance. Particularly in fast-growing emerging market countries, banks are increasingly targeting SMEs as a new line of banking business. This research analyzes how the macroeconomic factors have contributed to the increased commercial bank lending to SMEs in Turkey, a fast-growing emerging market country. Based on an econometric analysis it is found that a high GDP growth rate and increasing competition in the Turkish banking sector have contributed to the growing banking sector credit to SMEs. The findings also reveal that curbing the high inflation rate and reducing government domestic borrowings have significantly helped to encourage bank lending to the SME segment. This research contributes to the literature by providing empirical evidence to much-discussed theoretical arguments on the characteristics of an enabling macroeconomic environment for SME finance.
    Keywords: SME lending, macroeconomics, banking sector, emerging markets, access to credit
    JEL: G21 G28 O12
    Date: 2014–06
  34. By: Marc Francke; Alex van de Minne; Johan Verbruggen
    Abstract: It is widely perceived that the supply of mortgages, especially since the extensive liberalization of the mortgage market of the 1980s, has had implications for the housing market in the Netherlands. In this paper we introduce a new method to estimate a credit condition index (CCI). The CCI represents changes in the supply of credit over time, apart from changes in interest rates and income. It has been estimated by an unobserved component in an error-correction model in which the average amount of new provided mortgages per period is explained by the borrowing capacity and additional control variables. The model has been estimated on data representing first time buyers (FTB). For FTB we can assume that the housing and non-housing wealth is essentially zero. The CCI has subsequently been used as an explanatory variable in an error-correction model for house prices representing not only FTB, but all households. The models have been estimated on quarterly data from 1995 to 2012. The estimated CCI has a high correlation with the Bank Lending Survey, a quarterly survey in which banks are asked whether there is a tightening or relaxation of (mortgage) lending standards compared to the preceding period. The CCI has explanatory power in the error-correction model for house prices. In real terms house prices declined about 25% from 2009 to 2012. The estimation results show that nearly half of this decline can be attributed to a decline in the CCI.
    Keywords: lending standards; financial liberation; housing prices
    JEL: C32 E44 E51 G21
  35. By: Winkelmann, Lars; Bibinger, Markus; Linzert, Tobias
    Abstract: This paper proposes a new econometric approach to disentangle two distinct response patterns of the yield curve to monetary policy announcements. Based on cojumps in intraday tick-data of a short and long term interest rate, we develop a day-wise test that detects the occurrence of a significant policy surprise and identifies the market perceived source of the surprise. The new test is applied to 133 policy announcements of the European Central Bank (ECB) in the period from 2001-2012. Our main findings indicate a good predictability of ECB policy decisions and remarkably stable perceptions about the ECB’s policy preferences. JEL Classification: E58, C14, C58
    Keywords: central bank communication, non-synchronous and noisy high frequency tick-data, spectral cojump estimator, yield curve
    Date: 2014–05
  36. By: Antoine Le Riche (Aix-Marseille University (Aix-Marseille School of Economics), GREQAM, CNRS & EHESS)
    Abstract: This chapter analyzes the effect of international trade on the local stability properties of economies in a Heckscher-Ohlin free-trade equilibrium. We formulate a two-factor (capital and labor), two-good (consumption and investment), two-country overlapping generations model where countries only differ with respect to their discount rate. We consider a CES non increasing returns to scale technology in the consumption good sector and a Leontief constant returns to scale technology in the investment good sector. In the autarky equilibrium and the free-trade equilibrium, we show the existence of endogenous cycles with dynamic efficiency when the consumption good is capital intensive, the value of the elasticity of intertemporal substitution in consumption is intermediate and the degree of returns to scale is sufficiently high. Finally using a numerical simulation, we show that period-two cycles can occur in the free-trade equilibrium although one country is characterized by saddle-point stability in the autarky equilibrium.
    Keywords: Two-sector OLG model, two-country, local indeterminacy, Endogenous fluctuations, dynamic efficiency
    JEL: C62 E32 F11 F43 O41
    Date: 2014–11
  37. By: Christophe Starzec (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); François Gardes (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)
    Abstract: The presence of rationing or more generally of the situations of constrained demand can make the traditional methods of measuring inflation questionable and give an erroneous image of the reality. In this paper, we use the virtual price approach (Neary, Roberts, 1980) to estimate the real inflation level in a centrally planned economy (CPE) with administrated prices. In the first part of the paper, we discuss various methods used in CPE's to evaluate the real level of inflation by the market disequilibrium indicators or proxies which take into account rationing and incomplete information. In the second part of the paper, we apply the virtual price approach to compute the real inflationist gap between demand and supply under rationing in Poland's centrally planned economy with administrated prices in 1965-1980 period. We estimate for this period the model of consumer behaviour under rationing and recover the virtual prices reflecting the real cost of purchasing rationed goods following Neary, Roberts' (1980) and Barten's (1994) methodology. The results show a very large difference between official and virtual price of food considered as the most rationed good (up to 500%). The natural experiment of shift from the centrally planned economy to the market economy (or from rationing to market equilibrium) observed in Poland during the "shock therapy" (1990) confirms the scale of estimated by the model gap between the official (administrated) and market prices.
    Keywords: Consumer demand;, rationing; inflation; virtual prices
    Date: 2014–01
  38. By: Arpaia, Alfonso (European Commission); Kiss, Aron (European Commission, Directorate Economic and Financial Affairs); Turrini, Alessandro (European Commission)
    Abstract: The paper sheds light on developments in labour market matching in the EU after the crisis. First, it analyses the main features of the Beveridge curve and frictional unemployment in EU countries, with a view to isolate temporary changes in the vacancy-unemployment relationship from structural shifts affecting the efficiency of labour market matching. Second, it explores the main drivers of job matching efficiency, notably with a view to gauge whether mismatches became more serious across skills, economic sectors, or geographical locations and to explore the role of the policy setting. It emerges that labour market matching deteriorated after the crisis, but with a great deal of heterogeneity across EU countries. Divergence across countries increased. Matching deteriorated most in countries most affected by current account reversals and the debt crisis. The lengthening of unemployment spells appears to be a significant driver of matching efficiency especially after the crisis, while skill and sectoral mismatches also played a role. Active labour market policies are associated with a higher matching efficiency and some support is found to the hypothesis that more generous unemployment benefits reduce matching efficiency.
    Keywords: cyclical unemployment, structural unemployment, mismatch
    JEL: J23 J24 E32
    Date: 2014–09
  39. By: Bouoiyour, Jamal; Selmi, Refk; Tiwari, Aviral
    Abstract: The present study addresses one of the most problematic phenomena: Bitcoin price. We explore the Granger causality for two relationships (Bitcoin price and transactions; Bitcoin price and investors’ attractiveness) from a frequency domain perspective using Breitung and Candelon’s (2006) approach. Intuitively, this research gauges empirically the causal links between these variables unconditionally on the one hand and conditionally to the Chinese stock market and the processing power of Bitcoin network on the other hand. The observed outcomes reveal some differences with respect to the frequencies involved, highlighting the complexity of assessing what Bitcoin looks like and the difficulty to gain clearer insights into this nascent crypto-currency. Beyond the nuances of short-, medium- and long-run frequencies, this paper confirms the extremely speculative nature of Bitcoin without neglecting its usefulness in economic reasons (trade transactions). The consideration of the Chinese market index and the hash rate has led to solid and unambiguous findings connecting further Bitcoin to speculation.
    Keywords: Bitcoin price; transactions; investors’ attractiveness; unconditional frequency domain; conditional frequency domain.
    JEL: C1 E4 E44
    Date: 2014–09
  40. By: Derek Anderson; Dennis P. J. Botman; Ben Hunt
    Abstract: Japan has the most rapidly aging population in the world. This affects growth and fiscal sustainability, but the potential impact on inflation has been studied less. We use the IMF’s Global Integrated Fiscal and Monetary Model (GIMF) and find substantial deflationary pressures from aging, mainly from declining growth and falling land prices. Dissaving by the elderly makes matters worse as it leads to real exchange rate appreciation from the repatriation of foreign assets. The deflationary effects from aging are magnified by the large fiscal consolidation need. Many of these factors will beset other advanced countries as well, but we find that deflation risk from aging is not inevitable as ambitious structural reforms and an aggressive monetary policy reaction can provide the offset.
    Keywords: Aging;Japan;Deflation;Inflation;Age-related spending;Health care spending;Fiscal policy;Monetary policy;Demographic transition;Population aging, deflation, Abenomics
    Date: 2014–08–04
  41. By: Bas B. Bakker; Leslie Lipschitz
    Abstract: This paper describes the anatomy of two types of balance-sheet macroeconomic crises. Conventional balance-sheet crises are triggered by external imbalances and balance sheet vulnerabilities. They typically occur after capital inflows have led to a substantial build up of foreign currency exposure. Insidious crises are triggered by internal imbalances and balance sheet vulnerabilities. They occur in high-growth economies when an initially equilibrating shift in relative prices and resources and credit in favor of the nontraded sector overshoots equilibrium. The paper argues that policymakers are now better able to forestall conventional crises, but they are much less capable of early detection and avoidance of insidious crises.
    Keywords: Fiscal imbalances;Developed countries;Emerging markets;Capital account;Balance sheets;Financial crises;crises, balance sheets, business cycles, capital flows
    Date: 2014–08–22
  42. By: Bucher, Monika; Neyer, Ulrike
    Abstract: Mit einer extremen Niedrigzinspolitik, die mit negativen Einlagesätzen einhergeht, versucht die EZB, die Kreditvergabe im Euroraum zu stimulieren. Dieser Beitrag diskutiert, welchen Einfluss Veränderungen des Einlagesatzes der EZB auf die Bankenkreditvergabe haben. Es wird argumentiert, dass eine Senkung des Einlagesatzes auf die Kreditvergabe in den Peripherieländern kontraktiv wirkt. In den Kernländern ist der Effekt nicht eindeutig. Für die Effekte in beiden Regionen ist es unerheblich, ob der Einlagesatz positiv oder negativ ist. Um mit Hilfe des Einlagesatzes einen maximalen Effekt auf die Kreditvergabe in den Peripherieländern zu erzielen, muss dieser mit dem Hauptrefinanzierungssatz gleichgesetzt werden.
    Keywords: Geldpolitik,Interbankenmarkt,Kreditvergabe,negative Zinssätze,Einlagesatz
    JEL: E52 E58 G21
    Date: 2014
  43. By: Julio Escolano; Laura Jaramillo; Carlos Mulas-Granados; G. Terrier
    Abstract: The sizeable fiscal consolidation required to stabilize the debt-to-GDP ratios in several countries in the aftermath of the global crisis raises a crucial question on its feasibility. To answer this question, we rely on historical evidence from a sample of 91 adjustment episodes of countries during 1945–2012 that needed and wanted to adjust in order to stabilize debt to GDP. We find that, in at least half the cases, countries improved their cyclically adjusted primary balances by close to 5 percent of GDP. We also observe that, while countries typically make substantial efforts to stabilize debt, once this objective is achieved, they tend to ease their primary balances and do not necessarily get back to their initial lower debt-to-GDP ratio. We find that consolidations tended to be larger when the initial deficit was high and adjustment efforts were sustained over time. Fiscal adjustments also tended to be larger when accompanied by an easing of monetary conditions and, to a lesser extent, by an improvement in credit conditions.
    Keywords: Fiscal adjustment;Fiscal consolidation;Debt sustainability;Fiscal stabilization;Econometric models;Deficit, debt, primary balance, size of adjustment, fiscal consolidation, fiscal sustainability
    Date: 2014–09–25
  44. By: Hernán Rincón; Norberto Rodríguez
    Abstract: Conocer el grado de transmisión de los cambios en la tasa de cambio sobre la inflación interna es un interrogante constante de las autoridades monetarias de cualquier país. En este documento se reestima el grado de transmisión de corto y mediano plazo de las variaciones de la tasa de cambio del peso colombiano sobre la inflación de los bienes importados, estimados en González et al. (2010). Se utilizan datos trimestrales de Colombia para el período 1985-2014 y un modelo VAR no lineal de transición suave logística. Los resultados muestran que los grados de transmisión en general se mantienen, a pesar de la ampliación del período de estudio, que cubre la crisis financiera internacional 2007-2009, y de ajustes a la metodología econométrica implementada. Se concluye que el grado transmisión es incompleto, endógeno y asimétrico, tanto en el corto como en el mediano plazo. Además, que un choque a la variación de la tasa de cambio se transmite a la inflación de los bienes importados en grados que varían entre 12% y 88%.
    Keywords: Transmisión de la tasa de cambio (exchange rate pass-through), endogeneidad, asimetrías, modelo VAR-LST.
    JEL: F31 E31 E52 C51
    Date: 2014–11–04
  45. By: Daniela Federici; Enrico Saltari
    Abstract: The aim of this paper is to investigate the roots of the slowdown in the Italian total factor productivity (TFP). The analysis focusses on the specific pattern of technical progress in determining the dynamics of the TFP. This analysis can not be done with Cobb—Douglas technology but requires the employment of a CES function that allows distinguishing between the direction and the bias of technical progress. We employ a CES specification embodying both labor- and capitalaugmenting technical change, with a  less than 1. We obtain three main results. 1) There seems to have been a structural break around the mid-1990s in the direction and bias of technological change; 2) The first half of the sample features a labor-augmenting technical change and a capital bias; 3) In the second part of the sample, both these characteristics seem to disappear, and the evolution of factor endowments assumes a key role. This fact may be seen as one of the potential causes of the stagnation in Italian productivity.
    Keywords: CES production function, Elasticity of substitution, Factor-augmenting technical progress and ICT technical change
    JEL: C30 E E23 O33
  46. By: Paul Beaudry; Alban Moura; Franck Portier
    Abstract: The cyclical behavior of the relative price of investment goods plays an important role in many modern macroeconomic models. In this paper we examine the behavior of several measures of the relative price of investment goods for the U.S. economy over the last fifty years. In particular, we examine whether there are robust cyclical patterns, whether results differ by sub-sample and whether the nature of the deflator matters. Our main result is that there is no robust evidence that this relative price is countercyclical in the data. In fact, for the recent (post-Volcker) period, the relative price of investment appears predominantly procyclical. When looking at more disaggregated series, most measures are procyclical, a few acyclical, and only the price of equipment is significantly countercyclical for some periods and measures. The procyclical behavior of the relative price of aggregate investment is also shown to characterize six other countries of the G7.
    JEL: E3
    Date: 2014–10
  47. By: Verónica Acurio Vasconez (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Gaël Giraud (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); Florent Mc Isaac (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Ngoc Sang Pham (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: The economic implications of oil price shocks have been extensively studied since the oil price shocks of the 1970s'. Despite this huge literature, no dynamic stochastic general equilibrium model is available that captures two well-known stylized facts: 1) the stagflationary impact of an oil price shock, together with 2) two possible reactions of real wages: either a decrease (as in the US) or an increase (as in Japan). We construct a New-Keynesian DSGE model, which takes the case of an oil-importing economy where oil cannot be stored and where fossil fuels are used in two different ways: One part of the imported energy is used as an additional input factor next to capital and labor in the intermediate production of manufactured goods, the remaining part of imported energy is consumed by households in addition to their consumption of the final good. Oil prices, capital prices and nominal government spendings are exogenous random processes. We show that, without capital accumulation, the stagflationary effect is accounted for in general, and provide conditions under which a rise (resp. a declinr) of real wages follows the oil price shock.
    Keywords: New-Keynesian model; DSGE; oil; capital accumulation; stagflation
    Date: 2012–12
  48. By: Naoyuki Yoshino (Asian Development Bank Institute (ADBI)); Sahoko Kaji; Tamon Asonuma
    Abstract: This paper discusses desirable exchange rate regimes and how countries can shift from their current regimes to these regimes over the medium term. We demonstrate the superiority of a basket-peg regime with the basket weight rule over a floating regime with the interest rate rule or the money supply rule in small open economies, during periods when volatility of exchange rates is moderate. Countries which currently have fixed exchange rates would be better moving toward either a basket-peg or a floating regime over the medium term. A shift to a basket-peg regime is preferred when exchange rate fluctuations are large.
    Keywords: Southeast Asia, East Asia, exchange rate regime, Emerging Countries, basket-peg regime, floating regime
    JEL: E42 F33 F41 F42
    Date: 2014–10
  49. By: Yoshiyasu Ono
    Abstract: This paper presents a two-country two-commodity dynamic model with free international asset trade in which one country achieves full employment and the other suffers long-run unemployment. Own and spill-over effects of changes in policy, technological and preference parameters that emerge through exchange-rate adjustment are examined. Parameter changes that worsen the stagnant countryfs current account depreciate the home currency, expand home employment and improve the foreign terms of trade, making both countries better off. The stagnant countryfs foreign aid to the fully employed country also yields the same beneficial effects.
    Date: 2014–01
  50. By: Lance Taylor; Armon Rezai; Rishabh Kumar; Laura de Carvalho; Nelson Barbosa (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: The US national income and product accounts are restated in the form of a social accounting matrix or SAM. Using data from the Congressional Budget Office and the Consumer Expenditure Survey of the Bureau of Labor Statistics, the SAM is extended to include seven household groups in the size distribution of income. Aspects of rising inequality are pointed out, and a simple demand-driven model to set up to examine redistributive policies.
    Keywords: income distribution, social accounting matrix, simulation
    JEL: E25 H5 Y1
    Date: 2013–05
  51. By: John Laitner; Daniel Silverman; Dmitriy Stolyarov
    Abstract: We introduce a tractable model of post-retirement saving behavior in which households have a precautionary motive arising from uninsured health status risks. The model distinguishes between annuitized and non-annuitized wealth, emphasizes the importance of asset composition in determining optimal household behavior, and includes an extension allowing late-in-life exchange transactions among relatives. We consider three puzzles in micro data - rising cohort average wealth of retirees, lack of demand for market annuities, and the relative scarcity of bequests - and show that our model can provide intuitive explanations for each.
    JEL: D91 E21 H55
    Date: 2014–10
  52. By: Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
    Abstract: This paper uses data from the Health and Retirement Study to examine the effects of the Great Recession on the wealth held by the near retirement age population from 2006 to 2012. For the Early Boomer cohort (ages 51 to 56 in 2004), real wealth in 2012 remained 3.6 percent below its 2006 value. This is a modest decline considering the fall in asset values during the Great Recession. Much of the decline in wealth over the 2006 to 2010 period was cushioned by wealth originating from Social Security and defined benefit pensions. For the most part, these are stable sums that ensured a major fraction of total wealth did not decline as a result of the recession. The rebound in asset values observed between 2010 and 2012 mitigated, but did not erase, the asset losses experienced in the first years of the Great Recession. Effects of the Great Recession varied with the household's initial wealth. Those who were in the highest wealth deciles typically had a larger share of their assets subject to the influence of declining markets, and were hurt most severely. Unlike those falling in lower wealth deciles, they have yet to regain all the wealth they lost during the recession. Recovering losses in assets is only part of the story. The assets held by members of the cohort nearing retirement at the onset of the recession would normally have grown over ensuing years. Members of older HRS cohorts accumulated assets rapidly in the years just before retirement. Those on the cusp of retiring at the onset of the recession would be much better off had they had enjoyed similar growth in assets as experienced by members of older cohorts. The bottom line is that the losses in assets imposed by the Great Recession were relatively modest. The recovery has helped. But much of the remaining penalty due to the Great Recession is in the failure of assets to grow beyond their initial levels.
    JEL: D31 D91 E21 H55 I3 J14 J26 J32
    Date: 2014–10
  53. By: World Bank Group
    Keywords: International Economics and Trade - Free Trade Law and Development - Trade Law Economic Theory and Research Private Sector Development - Emerging Markets Transport Economics Policy and Planning Macroeconomics and Economic Growth Transport
    Date: 2014–03
  54. By: Konečný, Tomáš; Babecká Kucharčuková, Oxana
    Abstract: Various approaches have been employed to explore the possibility of non-linear feedback between the real and financial sector. The present study focuses on the impact of real shocks on selected financial sector indicators, and the responses of the real economy to impulses emanating from the financial sector. We estimate the threshold Bayesian VAR with block restrictions and the credit spread as a threshold variable using the example of the Czech Republic. We find that while there is no evidence of asymmetric effects across positive and negative shocks, the responses of the financial sector to real shocks tend to differ in low and high credit spread regimes. Responses in the opposite direction (i.e. from the financial sector to the real economy) are procyclical and similar irrespective of regime. A positive shock to credit and a negative shock to the NPL increase industrial production over the entire time horizon. The direct impact of foreign factors on lending seems to be rather limited. JEL Classification: E51, C15, C32
    Keywords: credit, non-linearities, small open economy
    Date: 2014–09
  55. By: Joseph E. Stiglitz
    Abstract: Frank Ramsey's classic paper "A contribution to the theory of taxation" gave rise to the modern theory of optimal taxation. This paper traces the literature that grew out of Ramsey's 1927 paper and assesses which of its key insights has proven robust. Though the path breaking work of Peter Diamond and James Mirrlees showed that Ramsey's results could be generalized in some important ways, other work showed that the domain of applicability of Ramsey's original insights may be more limited: changes in assumptions about the set of feasible taxes (not allowing certain taxes, or allowing a progressive income tax or non-linear commodity taxes), and in particular about the taxation of pure rents, incorporating more explicitly distributional considerations, and/or recognizing the important ways in which our economy differs from the competitive model underlying Ramsey's analysis all change the optimal structure of commodity taxation in important ways.
    JEL: E62 H2 H21
    Date: 2014–09
  56. By: Stijn Claessens; Swati R. Ghosh; Roxana Mihet
    Abstract: Macro-prudential policies aimed at mitigating systemic financial risks have become part of the policy toolkit in many emerging markets and some advanced countries. Their effectiveness and efficacy are not well-known, however. Using panel data regressions, we analyze how changes in balance sheets of some 2,800 banks in 48 countries over 2000–2010 respond to specific macro-prudential policies. Controlling for endogeneity, we find that measures aimed at borrowers––caps on debt-to-income and loan-to-value ratios––and at financial institutions––limits on credit growth and foreign currency lending––are effective in reducing asset growth. Countercyclical buffers are little effective through the cycle, and some measures are even counterproductive during downswings, serving to aggravate declines, consistent with the ex-ante nature of macro-prudential tools.
    Keywords: Macroprudential policies and financial stability;Banking systems;Systemic risk;Risk management;Econometric models;Systemic risk, Macropudential policies, Effectiveness, Banking vulnerabilities
    Date: 2014–08–19
  57. By: Carlos Medel
    Abstract: This paper provides, via Monte Carlo simulations, estimates of the classical probability of overfitting under an autoregressive environment (AR), using the information criteria (IC) of Akaike, Schwarz and Hannan-Quinn (AIC, BIC and HQ), calibrated with Chilean data of total inflation, core inflation, Imacec, and monthly return of the nominal exchange rate Chilean peso-American dollar. This probability corresponds to the number of times when a candidate model has a strictly greater number of coefficients than the true model, divided by the total number of searches. The results indicate that the increased risk of overfitting is obtained with the AIC, followed by HQ and finally the BIC. The highest probability of overfitting is achieved with the AIC, reaching 32 and 30% with the exchange rate and Imacec, respectively, followed by 25 and 22% for total and core inflation. Considering the three IC, it is more likely to obtain an overfitted model by just one coefficient. Also, it is more likely that the overfitting does not exceed 10 coefficients. These results are important as quantifying the extent to which these variables are subject to overfitting risk when represented by AR models. The potential problems carried by overfitting includes: (i) the spurious regression, (ii) distort the estimation of impulse response function, and (iii) affect the predictive accuracy of the variable of interest. The latter problem is analyzed in detail.
    Date: 2014–08
  58. By: Alan Gustman; Thomas Steinmeier; Nahid Tabatabai
    Abstract: This paper examines the distributional implications of introducing additional means testing of Social Security benefits where proceeds are used to help balance Social Security's finances. Benefits of the top quarter of households ranked according to the relevant measure of means are reduced using a modified version of the Social Security Windfall Elimination Provision (WEP). The replacement rate in the first bracket of the benefit formula, determining the Primary Insurance Amount (PIA), would be reduced from 90 percent to 40 percent of Average Indexed Monthly Earnings (AIME). Four measures of means are considered: total wealth; an annualized measure of AIME; the wealth value of pensions; and a measure of average indexed lifetime W2 earnings. The empirical analysis is based on data from the Health and Retirement Study. These means tests would reduce total lifetime household benefits by 7 to 9 percentage points. We find that the basis for means testing Social Security makes a substantial difference as to which households have their benefits reduced, and that different means tests may have different effects on the benefits of families in similar circumstance. We also find that the measure of means used to evaluate the effects of a means test makes a considerable difference as to how one would view the effects of the means test on the distribution of benefits.
    JEL: D04 D31 D63 E21 H55 I3 J14 J18 J32
    Date: 2014–10
  59. By: Stefano Bartolini
    Abstract: The current unsustainable growth of the world economy is largely a consequence of the crisis of social capital experienced by much of the world's population. Declining social capital leads the economies to excessive growth, because people seek economic affluence as compensation for the emotional distress and loss of resources caused by scarce social and affective relationships. To slow down economic growth requires an increase in social capital that is a fundamental contributor to happiness. From a wide range of possible approaches to increasing present happiness, this article suggests policies that would shift the economy to a more sustainable path. It focuses on a more politically sustainable set of proposals for a green ‘new deal’ than some of those currently under discussion.
    Keywords: Common good; environmentalism; ecologism; economic growth; green economy; happiness; negative endogenous growth; private affluence; social capital; social stress; well-being.
    JEL: A13 D63 D90 E20 F01 I31 O10 O40
    Date: 2014–11
  60. By: Voosholz, Frauke
    Abstract: In this paper we discuss the influence of using different production functions on modeling the resource extraction rates and economic growth. The focus is set on the modeling of the production sector, which requires either non-renewable resources, renewable resources or a combination of both resources for production. There are great differences between the possible assumptions when modeling the substitution process between the different input factors. It is shown that the existence of an optimal extraction rate in conjunction with economic growth depends on the specification of the production function even if the same parameterization is used. The target is to provide an overview on the different possibilities of modeling, and to support the decision which kind of production function should be used for modeling different aspects of economic growth.
    Keywords: economic growth,natural resources,production function
    JEL: E23 O13 O41 O40 Q20 Q32
    Date: 2014
  61. By: Matthew Weinzierl
    Abstract: The price indexation of Social Security benefit payments has emerged in recent years as a flashpoint of debate in the United States. I characterize the direct effects that changes in that price index would have on retirees who differ in their initial wealth at retirement and mortality rates after retirement. I propose a simple but flexible theoretical framework that converts benefits reform first into changes to retirees' consumption paths and then into a net effect on social welfare. I calibrate that framework using recently-produced data on Social Security beneficiaries by lifetime income decile and both existing and new survey evidence on the normative priorities Americans have for Social Security. The results suggest that the value retirees place on protection against longevity risk is an important caveat to the widespread enthusiasm for a switch to a slower-growing price index such as the chained CPI-U.
    JEL: E31 H55
    Date: 2014–11
  62. By: Michael D. Bordo; Owen F. Humpage
    Abstract: During the Bretton Woods era, balance-of-payments developments, gold losses, and exchange-rate concerns had little influence on Federal Reserve monetary policy, even after 1958 when such issues became critical. The Federal Reserve could largely disregard international considerations because the U.S. Treasury instituted a number of stopgap devices—the gold pool, the general agreement to borrow, capital restraints, sterilized foreign-exchange operations—to shore up the dollar and Bretton Woods. These, however, gave Federal Reserve policymakers the latitude to focus on the domestic objectives and shifted responsibility for international developments to the Treasury. Removing the pressure of international considerations from Federal Reserve policy decisions made it easier for the Federal Reserve to pursue the inflationary policies of the late 1960s and 1970s that ultimate destroyed Bretton Woods. In the end, the Treasury’s stopgap devices, which were intended to support Bretton Woods, contributed to its demise.
    JEL: E5 N1
    Date: 2014–11

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