nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒12‒29
98 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Loss Aversion and the Asymmetric Transmission of Monetary Policy By Gaffeo, Edoardo; Petrella, Ivan; Pfajfar, Damjan; Santoro, Emiliano
  2. Inflation, debt and the zero lower bound By Stefano Neri; Alessandro Notarpietro
  3. The Great Mortgaging: Housing Finance, Crises, and Business Cycles By Jordà, Òscar; Schularick, Moritz; Taylor, Alan M.
  4. A model of the confidence channel of fiscal policy By Guimarães, Bernardo; Machado, Caio; Ribeiro, Marcel
  5. Posición fiscal, monetaria y control de la brecha inflacionaria y del producto: Evidencia empírica para Bolivia By Valdivia, Daney
  6. Micro and macro policies in the Keynes + Schumpeter evolutionary models By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Tania Treibich
  7. Natural Expectations and Home Equity Extraction By Roberto Pancrazi; Mario Pietrunti
  8. Regímenes Monetarios y Volatilidad del Tipo de Cambio Real: El Caso Peruano, 1995–2012 By Rodolfo Cermeño; Julio Mamani-Palacios
  9. The Effects of a Money-Financed Fiscal Stimulus By Galí, Jordi
  10. Growth and Unemployment in the Presence of Trend Inflation By Mewael F. Tesfaselassie
  11. A Dynamic Quantitative Macroeconomic Model of Bank Runs By Elena Mattana; Ettore Panetti
  12. Financial indicators and density forecasts for US output and inflation By Piergiorgio Alessandri; Haroon Mumtaz
  13. Does money matter in the euro area? Evidence from a new Divisia index By Zsolt Darvas
  14. Government Spending Multipliers and the Zero Lower Bound in an Open Economy By Charles Olivier Mao Takongmo
  15. Leverage constraints and real interest rates By Isohätälä , Jukka; Kusmartsev, Feo; Milne, Alistair; Robertson, Donald
  16. Optimal monetary policy in a new Keynesian model with animal spirits and financial markets By Lengnick, Matthias; Wohltmann, Hans-Werner
  17. What Drives Business Cycle Fluctuations: Aggregate or Idiosyncratic Uncertainty Shocks? By Bijapur, Mohan
  18. Quantification and characteristics of household inflation expectations in Switzerland By Rina Rosenblatt-Wisch; Rolf Scheufele
  19. The joint services of money and credit By Barnett, William A.
  20. Fiscal policy, net exports, and the sectoral composition of output in Greece By Athanasios O. Tagkalakis
  21. Quantitative Easing and the Liquidity Channel of Monetary Policy By Lucas Herrenbrueck
  22. Uncertainty and the Great Recession By Born, Benjamin; Breuer, Sebastian; Elstner, Steffen
  23. House Prices, Local Demand, and Retail Prices By Johannes Stroebel; Joseph Vavra
  24. Growth, Distributions, and the Environment. A Stock-Flow Consistent Framework for Policy Analysis By Asjad Naqvi
  25. The impact of oil price on South African GDP growth: A Bayesian Markov Switching-VAR analysis By Mehmet Balcilar; Reneé van Eyden; Josine Uwilingiye; Rangan Gupta
  26. Adverse Selection, Risk Sharing and Business Cycles By Veracierto, Marcelo
  27. A model to estimate macroeconomic parameters for growth in EU By Albu, Lucian Liviu
  28. A New Approach to Construct Core Inflation By Sartaj Rasool Rather; S. Raja Sethu Durai; M. Ramachandran
  29. The Financial and Macroeconomic Effects of OMT Announcements By Altavilla, Carlo; Giannone, Domenico; Lenza, Michele
  30. Federal Transfer Multipliers. Quasi-Experimental Evidence from Brazil By Raphael Corbi; Elias Papaioannou; Paolo Surico
  31. Aging and Deflation from a Fiscal Perspective By Mitsuru Katagiri; Hideki Konishi; Kozo Ueda
  32. Can active labor market policy be counter-productive? By Saint-Paul, Gilles
  33. Measuring Heterogeneity in Job Finding Rates Among the Nonemployed Using Labor Force Status Histories By Kudlyak, Marianna; Lange, Fabian
  34. Kazakhstan Growth Slows as External Pressures Rise : Kazakhstan Economic Update, Fall 2014 By World Bank Group
  35. Measuring Heterogeneity in Job Finding Rates Among the Nonemployed Using Labor Force Status Histories By Kudlyak, Marianna; Lange, Fabian
  36. Human Capital Risk, Contract Enforcement, and the Macroeconomy By Krebs, Tom; Kuhn, Moritz; Wright, Mark L. J.
  37. The Phillips Curve in Ireland: 1935 - 2012 By Gerlach, Stefan; Lydon, Raemonn; Stuart, Rebecca
  38. Fiscal Policy, Debt Constraint and Expectation-Driven Volatility By Kazuo Nishimura; Thomas Seegmuller; Alain Venditti
  39. Examining the volatility of exchange rate: Does monetary policy matter? By Lim, Shu Yi; Sek, Siok Kun
  40. Analysis of aggregated inflation expectations based on the ECB SPF survey By Oinonen, Sami; Paloviita, Maritta
  41. Integrating Uncertainty and Monetary Policy-Making: A Practitioner’s Perspective By Stephen S. Poloz
  42. How did we get to where we are now? Reflections on 50 years of macroeconomic and financial econometrics By Wickens, Michael R.
  43. Assessing the effect of monetary policy on economic growth in franc zone By Douanla Tayo, Lionel
  44. What makes a currency procyclical ? an empirical investigation By Cordella, Tito; Gupta, Poonam
  45. Adjusting the budget balance for the business cycle: the EU methodology By Gilles Mourre; Caterina Astarita; Savina Princen
  46. On the Directional Accuracy of Inflation Forecasts: Evidence from South African Survey Data By Christian Pierdzioch; Monique B. Reid; Rangan Gupta
  47. Growth, Slowdowns, and Recoveries By Francesco Bianchi; Howard Kung
  48. The Effect of the Federal Reserve’s Tapering Announcements on Emerging Markets By Vikram Rai1; Lena Suchanek
  49. Kyrgyz Republic : Moderating Growth and a Challenging Outlook By World Bank Group
  50. High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk By Kindermann, Fabian; Krueger, Dirk
  51. Forecasting the South African Inflation Rate: On Asymmetric Loss and Forecast Rationality By Christian Pierdzioch; Monique B. Reid; Rangan Gupta
  52. The sensitivity of housing demand to financing conditions: evidence from a survey By Fuster, Andreas; Zafar, Basit
  53. A DSGE Model of China By Dai, Li; Minford, Patrick; Zhou, Peng
  54. Relative Effects of Labor Taxes and Unemployment Benefits on Hours Worked per Worker and Employment By Been-Lon Chen; Mei Hsu; Chih-Fang Lai
  55. Financial frictions in the Euro Area and the United States: a Bayesian assessment By Stefania Villa
  56. Jumps in Bond Yields at Known Times By Kim, Don H.; Wright, Jonathan H.
  57. A Review of Policy Options for Monitoring Household Saving By Bouyon, Sylvain
  58. Genuine Savings and Sustainability By Nick Hanley; Louis Dupuy; Eoin McLaughlin
  59. Interactions between eurozone and US booms and busts: A Bayesian panel Markov-switching VAR model By Monica Billio; Roberto Casarin; Francesco Ravazzolo; Herman K. van Dijk
  60. Is there any causality between inflation and FDI in an ‘inflation targeting’ regime? Evidence from South Africa By Valli, Mohammed; Masih, Mansur
  61. The Bank of England Credit Conditions Survey By Bell, Venetia; Pugh, Alice
  62. Forecasting with Bayesian Global Vector Autoregressions By Florian Huber; Jesus Crespo-Cuaresma; Martin Feldkircher
  63. Unemployment hysteresis in Central Asia By Furuoka, Fumitaka
  64. Georgia : Winds of Optimism By World Bank Group
  65. Monetary Policy in Times of Financial Stress. By Kontonikas, Alexandros; Nolan, Charles; Zekaite, Zivile
  66. Is unemployment structural or cyclical? Main features of job matching in the EU after the crisis By Alfonso Arpaia; Aron Kiss; Alessandro Turrini
  67. The Impact of U.S. Monetary Policy Normalization on Capital Flows to Emerging-Market Economies By Tatjana Dahlhaus; Garima Vasishtha
  68. A threshold model of the US current account By Duncan, Roberto
  69. Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity By Snir, Avichai; Levy, Daniel; Gotler, Alex; Chen, Haipeng (Allan)
  70. Balance of payments or monetary sovereignty? In search of the EMU’s original sin – a reply to Lavoie By Sergio Cesaratto
  71. Wealth Shocks, Unemployment Shocks and Consumption in the Wake of the Great Recession By Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio
  72. Moderando Inflaciones Moderadas By Fernando Morra
  73. Thomas Piketty’s Capital in the 21st Century By Estrada, Fernando
  75. Decreasing Return of Intra-industry R&D and Economic Growth By Liu, Haiyang
  76. Money is more than memory By Bigoni, Maria; Camera, Gabriele; Casari, Marco
  77. Replica Core Equivalence Theorem: An Extension of Debreu-Scarf Limit Theorem to Double Infinity Monetary Economies By Ken Urai; Hiromi Murakami
  78. The Social Cost of Near-Rational Investment By Hassan, Tarek; Mertens, Thomas M.
  79. The Role of Card Acceptance in the Transaction Demand for Money By Huynh, Kim P.; Schmidt-Dengler, Philipp; Stix, Helmut
  80. The impact of diverging economic structure on current account imbalances in the euro area By Ehmer, Philipp
  81. The Swiss “Job Miracle” By Michael Siegenthaler; Michael Graff; Massimo Mannino
  82. How good are out of sample forecasting Tests on DSGE models? By Minford, Patrick; Xu, Yongdeng; Zhou, Peng
  83. Public Debt & Sovereign Ratings - Do Industrialized Countries Enjoy a Privilege? By Bernd Bartels; Constantin Weiser
  84. Sraffa’s price equations in light of Garegnani and Pasinetti - The ‘core’ of surplus theories and the ‘natural’ relations of an economic system By Bellino, Enrico
  85. Sorting out commodity and macroeconomic risk in expected stock returns By Boons, M.F.
  86. A Distant Mirror of Debt, Default, and Relief By Reinhart, Carmen M.; Trebesch, Christoph
  87. Constrained Efficiency with Search and Information Frictions By S. Mohammad R. Davoodalhosseini
  88. Shifting to a Green Economy: Lock-in, Path Dependence, and Policy Options By Kemp-Benedict, Eric
  90. The Transmission of Liquidity Shocks: Evidence from Credit Rating Downgrades By Karam, Philippe; Merrouche, Ouarda; Souissi, Moez; Turk, Rima
  91. The Economic Impact of Digital Structural Reforms By Dimitri Lorenzani; Janos Varga
  92. "Endogenous Gridpoints in Multiple Dimensions: Interpolation on Non-Linear Grids" By Matthew N. White
  93. Uncertain Risk and Return in Bond Markets, I By Chan R. Mang
  94. Unbalanced Regional Impact of the crisis in Spain. An explorative analysis through structural changes, sectorial specialization and productivity By Juan R. Cuadrado-Roura; Andres Maroto-Sanchez
  95. Doom-loops: The Role of Rating Agencies in the Euro Financial Crisis By Heather D. Gibson; Stephen G. Hall; George S. Tavlas
  96. Securitization and Asset Prices By Yunus Aksoy; Henrique S. Basso
  97. Testimony on improving financial institution supervision: examining and addressing regulatory capture By Dudley, William
  98. Recessions, recoveries and regional resilience: Evidence on Italy By Di Caro, Paolo

  1. By: Gaffeo, Edoardo; Petrella, Ivan; Pfajfar, Damjan; Santoro, Emiliano
    Abstract: There is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity, while price responses display no sizeable asymmetry. To rationalize these facts we develop a dynamic general equilibrium model where households’ utility depends on consumption deviations from a reference level below which loss aversion is displayed. State-dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption generate competing effects on output and inflation. Contractions face the Central Bank with higher responsiveness of output to interest rate changes, as well as a flatter aggregate supply schedule.
    Keywords: asymmetry; business cycle; monetary policy; prospect theory
    JEL: D03 D11 E32 E42 E52
    Date: 2014–08
  2. By: Stefano Neri (Banca d'Italia); Alessandro Notarpietro (Banca d'Italia)
    Abstract: This paper analyses the macroeconomic effects of a protracted period of low and falling inflation rates when monetary policy is constrained by the zero lower bound (ZLB) on nominal interest rates and the private sector is indebted in nominal terms (debt-deflation channel). In this scenario, even cost-push shocks that in normal circumstances would reduce inflation and stimulate output are found to have contractionary effects on economic activity, especially when the interplay of ZLB and debt deflation is considered.
    Keywords: zero lower bound, monetary policy, disinflation, debt-deflation channel.
    JEL: E21 E31 E37 E52
    Date: 2014–10
  3. By: Jordà, Òscar; Schularick, Moritz; Taylor, Alan M.
    Abstract: This paper unveils a new resource for macroeconomic research: a long-run dataset covering disaggregated bank credit for 17 advanced economies since 1870. The new data show that the share of mortgages on banks’ balance sheets doubled in the course of the 20th century, driven by a sharp rise of mortgage lending to households. Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries. Housing finance has come to play a central role in the modern macroeconomy.
    Keywords: business cycles; financial crises; leverage; local projections; mortgage lending; recessions
    JEL: C14 C38 C52 E32 E37 E44 E51 G01 G21 N10 N20
    Date: 2014–09
  4. By: Guimarães, Bernardo; Machado, Caio; Ribeiro, Marcel
    Abstract: This paper presents a simple macroeconomic model where government spending affects aggregate demand directly and indirectly, through an expectational channel. Prices are fully flexible and the model is static, so intertemporal issues play no role. There are three important elements in the model: (i) fixed adjustment costs for investment; (ii) noisy idiosyncratic information about the economy; and (iii) imperfect substitution among private goods and goods provided by the government. An increase in government spending raises the demand for private goods and raises firms' expectations about what others will be producing and demanding. The optimal level of government expenditure is larger when the desired level of investment is small, which we interpret as times of low economic activity
    Keywords: aggregate demand; confidence; expectations; fiscal multiplier; fiscal policy
    JEL: E32 E62
    Date: 2014–08
  5. By: Valdivia, Daney
    Abstract: Understand the contribution to control inflation and output gap from fiscal and monetary stance are important to apply policy. This paper shows the effect of these two instruments to control deviations of these two fundamentals: inflation and output gap. The main objective is reached by computing the fiscal impulse, the monetary condition index and commovements analysis over the inflation and output gap. Depending on the nature of the shock, e.g. 2006 – 2007, the two instruments lead to the deviations of these two fundamentals and have counter cyclical effects to close gaps. Entender la contribución de la posición fiscal y monetaria en el control de la brecha inflacionaria y del producto es trascendental en la aplicación de políticas económicas. El presente paper muestra el efecto de la posición fiscal y monetaria en el control de desequilibrios de dos variables relevantes de política: brecha inflacionaria y de producto. Este objetivo es alcanzado por medio del cálculo del impulso fiscal, índice de condiciones monetarias y análisis de comovimientos sobre las dos variables de política. Los resultados señalan que de acuerdo a la naturaleza del shock, por ejemplo en el periodo 2006 – 2007, ambos instrumentos actuaron de manera anticipada a los desvíos de las variables y tuvieron un efecto contracíclico para corregir los desvíos.
    Keywords: fiscal impulse, monetary condition index, inflation and output gap
    JEL: E31 E58 E62
    Date: 2014–08–22
  6. By: Giovanni Dosi (Laboratory of Economics and Management); Mauro Napoletano (OFCE); Andrea Roventini (Department of economics); Tania Treibich (Maastricht University)
    Abstract: This paper presents the family of the Keynes+Schumpeter (K+S, cf. Dosi et al, 2010, 2013, 2014) evolutionary agent-based models, which study the effects of a rich ensemble of innovation, industrial dynamics and macroeconomic policies on the long-term growth and short-run fluctuations of the economy. The K+S models embed the Schumpeterian growth paradigm into a complex system of imperfect coordination among heterogeneous interacting firms and banks, where Keynesian (demand-related) and Minskian (credit cycle) elements feed back into the meso and macro dynamics. The model is able to endogenously generate long-run growth together with business cycles and major crises. Moreover, it reproduces a long list of macroeconomic and microeconomic stylized facts. Here, we discuss a series of experiments on the role of policies affecting i) innovation, ii) industry dynamics, iii) demand and iv) income distribution. Our results suggest the presence of strong complementarities between Schumpeterian (technological) and Keynesian (demand-related) policies in ensuring that the economic system follows a path of sustained stable growth and employment
    Keywords: agent-based model; Fiscal policy; Economic crises; Austerity policies; Disequilibrium dynamics
    JEL: C63 E32 E52 G21 O4 E6
    Date: 2014–11
  7. By: Roberto Pancrazi (University of Warwick); Mario Pietrunti (Bank of Italy)
    Abstract: In this paper we show that long-run expectations about future housing prices of both households and, especially, financial intermediaries had a large impact on households' indebtedness during the recent boom in U.S. housing prices. We introduce the theory of natural expectations in a collateralized credit market model populated by households and banks and find: (1) that mild variations in long-run forecasts of housing prices result in large differences in the amount of home equity extracted during the boom; and (2) that the equilibrium level of debt and the interest rate are particularly sensitive to financial intermediaries' naturalness.
    Keywords: natural expectations, home equity extraction, consumption/saving decision, housing price
    JEL: E21 E32 E44 D84
    Date: 2014–10
  8. By: Rodolfo Cermeño (Division of Economics, CIDE); Julio Mamani-Palacios
    Abstract: This paper evaluates empirically the volatility of real exchange rate in Peru under two regimes of monetary policy: the Monetary Targeting Regime, MTR, (1995:11–2001:12) and the Inflation Targeting Regime, ITR, (2002:01–2012:12). We estimate a small-scale macroeconomic model along the lines of the Dynamic Stochastic General Equilibrium (DSGE) models, under a New-Keynesian approach. We find strong evidence that volatility of real exchange rate differs substantially across regimes which is consistent with the theoretical results of Gali y Monacelli (2005) and also with the empirical results of Lastrapes (1989). Specifically, we find that the transition from the MTR to ITR has been accompanied by a substantial reduction of real Exchange rate volatility.
    Keywords: volatility, real Exchange rate, monetary policy in Peru, monetary regimes, DSGE models
    JEL: E52 E58
    Date: 2013–10
  9. By: Galí, Jordi
    Abstract: I analyze the effects of an increase in government purchases financed entirely through seignorage, in both a classical and a New Keynesian framework, and compare them with those resulting from a more conventional debt-financed stimulus. My findings point to the importance of nominal rigidities in shaping those effects. Under a realistic calibration of such rigidities, a money-financed fiscal stimulus is shown to have very strong effects on economic activity, with relatively mild inflationary consequences. If the steady state is sufficiently inefficient, an increase in government purchases may increase welfare even if such spending is wasteful.
    Keywords: fiscal multiplier; government spending; seignorage
    JEL: E32 E52 E62
    Date: 2014–09
  10. By: Mewael F. Tesfaselassie
    Abstract: The standard search model of unemployment predicts, under plausible assumptions about household preferences, that disembodied technological progress leads to higher unemployment. This prediction is at odds with the experience of industrialized countries in the 1970s. This paper shows that augmenting the model with nominal price rigidity goes towards reconciling the model's prediction. In the presence of nominal price rigidity faster growth is shown to lead to lower unemployment if the rate of inflation is relatively high, as was the case in the 1970s. In general, the effect of growth on unemployment is shown to be non-monotonic. There is a threshold level of inflation below (above) which faster growth leads to higher (lower) unemployment
    Keywords: growth, trend inflation, unemployment
    JEL: E24 E31
    Date: 2014–11
  11. By: Elena Mattana; Ettore Panetti
    Abstract: We study the macroeconomic effects of bank runs in a neoclassical growth model with a fully microfounded banking system. In every period, the banks provide insurance against idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In the quantitative exercise, we find that the banks, for low values of the probability of the sunspot, choose a contract that is not run-proof, and satisfy an “equal service constraint” if the run is realized. In equilibrium, a shock to the probability of a bank run leads to a drop in GDP of between 0.001 and 5.6 percentage points.
    JEL: E21 E44 G01 G20
    Date: 2014
  12. By: Piergiorgio Alessandri (Bank of Italy); Haroon Mumtaz (Queen Mary University of London)
    Abstract: When do financial markets help in predicting economic activity? With incomplete markets, the link between financial and real economy is state-dependent and financial indicators may turn out to be useful particularly in forecasting "tail" macroeconomic events. We examine this conjecture by studying Bayesian predictive distributions for output growth and inflation in the US between 1983 and 2012, comparing linear and nonlinear VAR models. We find that financial indicators significantly improve the accuracy of the distributions. Regime-switching models perform better than linear models thanks to their ability to capture changes in the transmission mechanism of financial shocks between good and bad times. Such models could have sent a credible advance warning ahead of the Great Recession. Furthermore, the discrepancies between models are themselves predictable, which allows the forecaster to formulate reasonable real-time guesses on which model is likely to be more accurate in the next future.
    Keywords: financial frictions, predictive densities, Great Recession, Threshold VAR
    JEL: C53 E32 E44 G01
    Date: 2014–10
  13. By: Zsolt Darvas (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and and Bruegel and Corvinus University of Budapest)
    Abstract: Standard simple-sum monetary aggregates, like M3, sum up monetary assets that are imperfect substitutes and provide different transaction and investment services. Divisia monetary aggregates, originated from Barnett (1980), are derived from economic aggregation and index number theory and aim to aggregate the money components by considering their transaction service. No Divisia monetary aggregates are published for the euro area, in contrast to the United Kingdom and United States. We derive and make available a dataset on euro-area Divisia money aggregates for January 2001 – September 2014 using monthly data. We plan to update the dataset in the future. Using structural vector-autoregressions (SVAR), we find that Divisia aggregates have a significant impact on output about 1.5 years after a shock and tend also to have an impact on prices and interest rates. The latter result suggests that the European Central Bank reacted to developments in monetary aggregates. Divisia aggregates reacted negatively to unexpected increases in the interest rates. None of these results are significant when we use simple-sum measures of money. Our findings for the euro area complement the evidence from US data that Divisia monetary aggregates are useful in assessing the impacts of monetary policy and that they work better in SVAR models than simple-sum measures of money.
    Keywords: Divisia index; Financial crisis; Monetary aggregation; Monetary policy; Structural VAR
    JEL: C32 C43 C82 E51 E58
    Date: 2014–11
  14. By: Charles Olivier Mao Takongmo
    Abstract: What is the size of the government-spending multiplier in an open economy when the Zero Lower Bound (ZLB) on the nominal interest rate is binding? Using a theoretical framework, in a closed economy, Christiano, Eichenbaum, and Rebelo (2011), show that, when the nominal interest rate is binding, the government-spending multiplier can be close to four. Their theory helps us to understand the government spending multiplier in ZLB, but it is difficult to match that theory with the data. We propose a dynamic stochastic general equilibrium in open macroeconomics, with market imperfections, wage and price rigidities and endogenous smoothing monetary policy. We argue that, in a closed economy and in the presence of ZLB, there is no crowding out effect through interest rates. We also argue that in an open economy, there is another channel for the crowding out effect via the real exchange rate. For an open economy, the multiplier falls to the levels usually observed in small, closed economies for which the ZLB is not binding. <P>
    Keywords: Government-spending multiplier, zero lower bound, sticky price, sticky wages, Taylor rule,
    JEL: E52 E62 F41 F44
    Date: 2014–11–01
  15. By: Isohätälä , Jukka (Department of Physics, Loughborough University); Kusmartsev, Feo (Department of Physics, Loughborough University); Milne, Alistair (School of Business and Economics, Loughborough University); Robertson, Donald (Faculty of Economics, University of Cambridge)
    Abstract: This paper investigates the macroconomics of real interest rates when there are constraints on debt finance, used both for insurance against income shocks and transferability of resources over time. We amend a standard continuous-time deterministic model of international exchange, with patient and impatient countries, introducing country level shocks fully diversifiable at the global level. A series of shocks that push one country towards its leverage limit induces substantial pre-cautionary saving and a collapse of real interest rate relative to the deterministic benchmark. We discuss the resulting dynamics of interest rates and the broader implications for macroeconomic modelling.
    Keywords: borrowing constraints; debt management; incomplete financial markets; international macroeconomics; finance and macroeconomics; macroeconomic propagation; precautionary saving
    JEL: E44
    Date: 2014–11–06
  16. By: Lengnick, Matthias; Wohltmann, Hans-Werner
    Abstract: This paper relates to the literature on macro-finance-interaction models. We modify the boundedly rational New Keynesian model of De Grauwe (2010a) using a completely microfounded IS equation, and combine it with the agent-based financial market model of Westerhoff (2008). For this purpose we derive four interactive channels between the financial and real sector where two channels are strictly microfounded. We analyze the impact of the different channels on economic stability and derive optimal (simple) monetary policy rules. We find that coefficients of optimal simple Taylor rules do not significantly change if financial market stabilization becomes part of the central bank's objective function. Additionally, we show that rule-based, backward-looking monetary policy creates huge instabilities if expectations are boundedly rational.
    Keywords: agent-based financial markets,New Keynesian macroeconomics,microfoundation,optimal monetary policy,unconventional monetary policy
    JEL: E5 G02
    Date: 2014
  17. By: Bijapur, Mohan
    Abstract: We study jointly the roles of aggregate and idiosyncratic uncertainty shocks in driving business cycle fluctuations. By decomposing total stock return volatility of over 20,000 publicly-listed US firms from 1962 to 2012, we construct separate indices for aggregate and idiosyncratic uncertainty, and run a horse race between them in an otherwise standard macroeconomic VAR. We find that idiosyncratic uncertainty shocks account for a large fraction of fluctuations in economic activity at business cycle frequencies, whereas the impacts of aggregate uncertainty are negligible. Idiosyncratic uncertainty, and not aggregate uncertainty, shocks produce the “sharp drop and rapid rebound” response in activity characterized in Bloom (2009). Idiosyncratic uncertainty shocks to large firms have more powerful macroeconomic impacts than small firms, suggesting “Granular” origins to the role of uncertainty in the macroeconomy. We also find evidence of an economy-wide “buffering effect”, in which the effects of large and small firms’ shocks exhibit a negative covariance which dampens down the aggregate effects of idiosyncratic uncertainty shocks on economic fluctuations.
    Keywords: Idiosyncratic uncertainty shocks; aggregate uncertainty shocks; business cycles; Granular origins.
    JEL: E32
    Date: 2014–11–01
  18. By: Rina Rosenblatt-Wisch; Rolf Scheufele
    Abstract: Inflation expectations are a key variable in conducting monetary policy. However, these expectations are generally unobservable and only certain proxy variables exist, such as surveys on inflation expectations. This paper offers guidance on the appropriate quantification of household inflation expectations in the Swiss Consumer Survey, where answers are qualitative in nature. We apply and evaluate different variants of the probability approach and the regression approach; we demonstrate that models which include answers on perceived inflation and allow for time-varying response thresholds yield the best results; and we show why the originally proposed approach of Fluri and Spörndli (1987) has resulted in heavily biased inflation expectations since the mid-1990s. Furthermore, we discuss some of the key features of Swiss household inflation expectations, i.e. the fact that there has been a shift in expectation formation since 2000 (expectations are better anchored and less adaptive, and there is lower disagreement of expectations). We suggest that this may be linked to the Swiss National Bank's adjustment of its monetary policy framework around this time. In addition, we outline how expectation formation in Switzerland is in line with the sticky information model, where information disseminates slowly from professional forecasters to households.
    Keywords: Inflation expectations, quantification of qualitative surveys, credibility, expectation formation, sticky information
    JEL: C22 C82 E31 E50
    Date: 2014
  19. By: Barnett, William A.
    Abstract: While credit cards provide transaction services, as do currency and demand deposits, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities, such as credit card balances, to assets, such as money. But economic aggregation theory and index number theory are based on microeconomic theory, not accounting, and measure service flows. We derive theory needed to measure the joint services of credit cards and money. In the transmission mechanism of central bank policy, these results raise potentially fundamental questions about the traditional dichotomy between money and some forms of short term credit, such as checkable lines of credit. We do not explore those deeper issues in this paper, which focuses on measurement.
    Keywords: credit cards, money, credit, aggregation theory, index number theory, Divisia index, risk, asset pricing.
    JEL: C43 E01 E3 E40 E41 E51 E52 E58
    Date: 2014–12–01
  20. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: This paper investigates the effects of fiscal policy shocks on net export performance and the sectoral composition of output in Greece in the post 2000 period. A reduction in government spending (or a tax hike) exerts a negative response on output which reduces import demand. A cut back in government spending boosts exports through the labour cost competitiveness channel further improving net exports. Tax hikes in particular on social security contributions and other indirect taxes reduce export performance. Although real aggregate output declines following a cut in government spending, the tradable sector output responds positively, further improving net exports.
    Keywords: Fiscal policy;net exports;tradable;non-tradable
    JEL: E62 E24 O52 H30
    Date: 2014–09
  21. By: Lucas Herrenbrueck (Simon Fraser University)
    Abstract: Currently, we have only a limited understanding of how central bank purchases of illiquid assets (“quantitative easing”) affect long-term interest rates, borrowing costs, and the real economy. Since the historical record of quantitative easing is sparse, theoretical work is needed to guide both empirical research and policy work. For this purpose, I construct a parsimonious and very flexible general equilibrium model of asset liquidity. In the model, households are heterogeneous in their asset portfolios and demand for liquidity, asset trade is subject to frictions, and prices are flexible. I find that purchases of illiquid assets can reduce yields across the board and stimulate investment. However, I also find that this is not a given. A temporary program of quantitative easing can cause a “hangover” of elevated yields and depressed investment after it has ended. When assets are already scarce, further purchases can crowd out the private flow of funds and cause high real yields and deflation, resembling a liquidity trap.
    Keywords: Monetary theory, asset liquidity, search frictions, quantitative easing, liquidity trap
    JEL: E31 E40 E50 G12
    Date: 2014–12–06
  22. By: Born, Benjamin; Breuer, Sebastian; Elstner, Steffen
    Abstract: Has heightened uncertainty been a major contributor to the Great Recession and the slow recovery in the U.S.? To answer this question, we identify exogenous changes in six uncertainty proxies and quantify their contributions to GDP growth and the unemployment rate. Our results are threefold. First, only a minor part of the rise in uncertainty measures during the Great Recession was driven by exogenous uncertainty shocks. Second, while increased uncertainty explains less than one percentage point of the drop in GDP, macroeconomic uncertainty shocks increased the unemployment rate by up to 0.7 percentage points in 2010 and 2011. Third, economic policy uncertainty had only minor effects on real activity.
    Keywords: Uncertainty Shocks,Structural VAR
    JEL: C32 E32
    Date: 2014
  23. By: Johannes Stroebel; Joseph Vavra
    Abstract: We use detailed micro data to document a causal response of local retail prices to changes in house prices, with elasticities of 15%-20% across housing booms and busts. We provide evidence that our results are driven by changes in markups rather than by changes in local costs. We argue that this markup variation arises when increases in housing wealth reduce households' demand elasticity, and firms raise markups in response. Consistent with this wealth channel, price effects are larger in zip codes with many homeowners, and non-existent in zip codes with mostly renters. In addition, shopping data confirms that house price changes have opposite effects on the price sensitivity of homeowners and renters. Our evidence has implications for monetary, labor and urban economics, and suggests a new source of markup variation in business cycle models.
    JEL: D14 D22 E31 E32 E5 L16 L66 R3
    Date: 2014–11
  24. By: Asjad Naqvi
    Abstract: The paper presents a benchmark multi-sectoral stock-flow consistent (SFC) macro model which addresses issues of production, energy, and emissions in a demand-driven framework. The model introduces three innovations in modeling the production side of the economy. First, the firms and the energy producers are vertically integrated interlinking output and prices across the two sectors. Second, energy supply is generated from two different sources; a non-renewable input dependent high-emissions energy and a renewable zero-emissions energy. Third, the monetary economy is integrated with the environment through two channels; a non-renewable input extracted for energy production and Greenhouse Gasses (GHGs) accumulated through the production process. Five policy experiments are conducted on a calibrated economy; a reduction in consumption, capital damage function, a higher share of renewable energy, carbon taxes, technological shock to capital and energy productivity. Results show that different policy channels can yield the same macro outcomes although through very different adjustment processes especially in unemployment, prices, and income distributions.
    Keywords: Stock-flow consistent, production, energy, emissions, distributions, employment
    JEL: E12 E17 E23 E24 Q52 Q56
    Date: 2014–11
  25. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus , via Mersin 10,Turkey;Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.); Reneé van Eyden (Department of Economics, University of Pretoria); Josine Uwilingiye (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: One characteristic of many macroeconomic and financial time series is their asymmetric behaviour during different phases of a business cycle. Oil price shocks have been amongst those economic variables that have been identified in theoretical and empirical literature to predict the phases of business cycles. However, the role of oil price shocks to determine business cycle fluctuations has received less attention in emerging and developing economies. The aim of this study is to investigate the role of oil price shocks in predicting the phases of the South African business cycle associated with higher and lower growth regimes. By adopting a regime dependent analysis, we investigate the impact of oil price shocks under two phases of the business cycle, namely high and low growth regimes. As a net importer of oil, South Africa is expected to be vulnerable to oil price shocks irrespective of the phase of the business cycle. Using a Bayesian Markov switching vector autoregressive (MS-VAR) model and data for the period 1960Q2 to 2013Q3, we found the oil price to have predictive content for real output growth under the low growth regime. The results also show the low growth state to be shorter-lived compared to the higher growth state. Length: 27 pages
    Keywords: Macroeconomic fluctuations, oil price shocks, Bayesian Markov switching VAR
    JEL: C32 E32 Q43
    Date: 2014–11
  26. By: Veracierto, Marcelo (Federal Reserve Bank of Chicago)
    Abstract: I consider a real business cycle model in which agents have private information about an idiosyncratic shock to their value of leisure. I consider the mechanism design problem for this economy and describe a computational method to solve it. This is an important contribution of the paper since the method could be used to solve a wide class of models with heterogeneous agents and aggregate uncertainty. Calibrating the model to U.S. data I find a striking result: That the information frictions that plague the economy have no effects on business cycle fluctuations.
    Keywords: Adverse selection; risk sharing; business cycles; private information; incentives; optimal contracts; computational methods; heterogeneous agents
    JEL: C63 C68 D31 D82 E32
    Date: 2014–10–22
  27. By: Albu, Lucian Liviu
    Abstract: A main problem for macroeconomic studies continues to be the estimation of capital stock and some derived indicators like coefficient of capital, depreciation rate, etc. In this way we are proposing a simple and intuitively model in order to estimate such basic macroeconomic indicators but avoiding to knowing the amount of capital stock. By applying a simulation model in case of European Union data for a set of periods, we obtained some relevant result. One of them is referring to the negative impact of last global crisis on the coherence of a classic type model. Such model is adequate mostly for a period of continuous increasing in GDP as it was for EU during the period 2000-2007.
    Keywords: growth rate, investment, capital stock, coefficient of capital, depreciation
    JEL: C61 C65 E24 E27 E32
    Date: 2013–10
  28. By: Sartaj Rasool Rather (Madras School of Economics); S. Raja Sethu Durai (Department of Economics, Pondicherry University, Puducherry); M. Ramachandran (Department of Economics, Pondicherry University, Puducherry)
    Abstract: We propose a new methodology to construct core inflation which is, unlike other conventional methods, not based on ad hoc elimination/trimming of prices. The underlying inflation derived from our method is found to be a powerful leading indicator of headline inflation while other conventional measures do not seem to reflect such fundamental property of core inflation.
    Keywords: Core inflation, Skewness, Leading indicator
    JEL: C43 E31 E52
    Date: 2014–09
  29. By: Altavilla, Carlo; Giannone, Domenico; Lenza, Michele
    Abstract: This study evaluates the macroeconomic effects of Outright Monetary Transaction (OMT) announcements by the European Central Bank (ECB). Using high-frequency data, we find that OMT announcements decreased the Italian and Spanish 2-year government bond yields by about 2 percentage points, while leaving unchanged the bond yields of the same maturity in Germany and France. These results are used to calibrate a scenario in a multi-country model describing the macrofinancial linkages in France, Germany, Italy, and Spain. The scenario analysis suggests that the reduction in bond yields due to OMT announcements is associated with a significant increase in real activity, credit, and prices in Italy and Spain with relatively muted spillovers in France and Germany.
    Keywords: event study; multi-country vector autoregressive model; news; Outright Monetary Transactions
    JEL: C54 E47 E58
    Date: 2014–06
  30. By: Raphael Corbi; Elias Papaioannou; Paolo Surico
    Abstract: According to Brazilian law, federal transfers to municipal governments change discontinuously at numerous predetermined population thresholds. We employ a 'fuzzy' regression discontinuity design to identify the causal effect of federal transfers on local economic activity. The analysis points to local fiscal multipliers between 1.4 and 1.8 across a range of specifications that control for fixed municipal characteristics, national business cycle and monetary policy. In line with the predictions of a currency union model, transfers from the federal government tend to be more effective for municipalities in states less open to trade and in areas where financial constraints are likely to be tighter.
    JEL: E32 E62
    Date: 2014–12
  31. By: Mitsuru Katagiri (Bank of Japan); Hideki Konishi (School of Political Science and Economics, Waseda University); Kozo Ueda (School of Political Science and Economics, Waseda University)
    Abstract: Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of government debt does not become a burden on future generations. Our analysis reveals that the effects of aging depend on its causes. Aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate. Numerical simulation shows that aging over the past 40 years in Japan generated deflation of about 0.6 percentage points annually.
    Keywords: Deflation, Fiscal theory of the price level; Politico-economic equilibrium
    JEL: D72 E30 E62 E63 H60
    Date: 2014–11
  32. By: Saint-Paul, Gilles
    Abstract: We study active labor market policies (ALMP) in a matching model. ALMPs are modelled as a subsidy to job search. Workers differ in their productivity, and search takes place along an extensive margin. An additional job seeker affects the quality of unemployed workers. As a result, the Hosios conditions are no longer valid. To replicate the optimum the worker share in bargaining must exceed the Hosios level, and one must impose a tax on job search activity. The coalition in favor of ALMP is also studied.
    Keywords: active labor market policies; Hosios condition; job matching
    JEL: E24 E32 J41 J63 J64
    Date: 2014–11
  33. By: Kudlyak, Marianna (Federal Reserve Bank of Richmond); Lange, Fabian (McGill University)
    Abstract: We use a novel approach to studying the heterogeneity in the job finding rates of the nonemployed by classifying the nonemployed by labor force status (LFS) histories, instead of using only one-month LFS. Job finding rates differ substantially across LFS histories: they are 25-30% among those currently out of the labor force (OLF) with recent employment, 10% among those currently OLF who have been unemployed but not employed in the previous two months, and 2% among those who have been OLF in all three previous months. This heterogeneity cannot be deduced from the one-month LFS or from one-month responses to the CPS survey questions about desire to work or recent search activity. We conclude that LFS histories is an important predictor of the nonemployed's job finding probability, particularly for those OLF.
    JEL: E24 E32 J30 J41 J63 J64
    Date: 2014–12–04
  34. By: World Bank Group
    Keywords: Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Currencies and Exchange Rates Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth
    Date: 2014–09
  35. By: Kudlyak, Marianna (Federal Reserve Bank of Richmond); Lange, Fabian (McGill University)
    Abstract: We use a novel approach to studying the heterogeneity in the job finding rates of the nonemployed by classifying the nonemployed by labor force status (LFS) histories, instead of using only one-month LFS. Job finding rates differ substantially across LFS histories: they are 25-30% among those currently out of the labor force (OLF) with recent employment, 10% among those currently OLF who have been unemployed but not employed in the previous two months, and 2% among those who have been OLF in all three previous months. This heterogeneity cannot be deduced from the one-month LFS or from one-month responses to the CPS survey questions about desire to work or recent search activity. We conclude that LFS histories is an important predictor of the nonemployed's job finding probability, particularly for those OLF.
    Keywords: job finding rate, search process, out of the labor force (OLF), heterogeneity, unemployment
    JEL: E24 E32 J21 J22 J30 J41 J60 J63 J64
    Date: 2014–11
  36. By: Krebs, Tom (University of Mannheim); Kuhn, Moritz (Dept. of Economics, Adenauer); Wright, Mark L. J. (Federal Reserve Bank of Chicago)
    Abstract: We use data from the Survey of Consumer Finance and Survey of Income Program Participation to show that young households with children are under-insured against the risk that an adult member of the household dies. We develop a tractable macroeconomic model with human capital risk, age-dependent returns to human capital investment, and endogenous borrowing constraints due to the limited pledgeability of human capital (limited contract enforcement). We show analytically that, consistent with the life insurance data, in equilibrium young households are borrowing constrained and under-insured against human capital risk. A calibrated version of the model can quantitatively account for the life-cycle variation of life-insurance holdings, financial wealth, earnings, and consumption inequality observed in the US data. Our analysis implies that a reform that makes consumer bankruptcy more costly, like the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, leads to a substantial increase in the volume of both credit and insurance.
    Keywords: Human Capital Risk; Limited Enforcement; Life Insurance
    JEL: D52 E21 E24 J24
    Date: 2014–10–22
  37. By: Gerlach, Stefan; Lydon, Raemonn; Stuart, Rebecca
    Abstract: We study the determination of Irish inflation between 1935 and 2012 using a Phillips curve approach. We find that a simple backward-looking Phillips Curve that incorporates import prices is stable over the sample period and passes a number of diagnostic tests. We also consider the importance of UK and euro area inflation for Irish inflation. While UK inflation is significant in the period 1935 – 1979, and euro area inflation is significant in the period 1980 – 2012, we present evidence that suggests that these findings reflect common shocks.
    Keywords: Historical statistics; Import prices; Inflation; Ireland; Output gap
    JEL: E3 E4 N14
    Date: 2014–06
  38. By: Kazuo Nishimura (RIEB, Kobe University & KIER, Kyoto University); Thomas Seegmuller (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS); Alain Venditti (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC)
    Abstract: Imposing some constraints on public debt is often justified regarding sustainability and stability issues. This is especially the case when the ratio of public debt over GDP is restricted to be constant. Using a Ramsey model, we show that such a constraint can however be a fundamental source of indeterminacy, and therefore, of expectation-driven fluctuations. Indeed, through the intertemporal budget constraint of the government, income taxation negatively depends on future debt, i.e. on the expected level of production. This mechanism ensures that expectations on the future tax rate may be self-fulfilling. We show that this is promoted by a larger ratio of debt over GDP.
    Keywords: Indeterminacy, endogenous cycles, public debt, income taxation
    JEL: E32 H20 H68
    Date: 2014–06
  39. By: Lim, Shu Yi; Sek, Siok Kun
    Abstract: We conduct empirical analysis on examining the changes in exchange rate volatility under two monetary policy regimes, i.e. the pre- and post- inflation targeting (IT) regimes. In addition, we also investigate if the monetary decisions can have impacts on the volatility of exchange rate. The study is focused in four Asian countries that experienced drastic in the switch of monetary policy from the rigid exchange rate to flexible exchange rate and inflation targeting after the Asian financial crisis of 1997. The exponential generalized autoregressive conditional heteroskedasticity model is applied and our results show that exchange rate is more persistent and volatile in the pre-IT period as compared to post-IT period. The exchange rate persistency is higher in the long-run but the persistency is low in the short run. We fail to find evidence to show that the adoption of flexible exchange rate and inflation targeting lead to greater volatility in exchange rate. The monetary decisions can have impacts on the volatility of exchange rate but the impacts vary across countries.
    Keywords: exchange rate volatility; monetary policy; shock persistency
    JEL: E6 E66
    Date: 2014–07
  40. By: Oinonen, Sami (Bank of Finland Research); Paloviita, Maritta (Bank of Finland Research)
    Abstract: This paper examines aggregated inflation expectations based on the ECB Survey of Professional Forecasters (ECB SPF). We analyse possible impacts of changing panel composition on short and long term point forecasts and forecast uncertainties using approach, which is based on a set of sub-panels of fixed composition. Our results indicate that the unbalanced panel data do not cause systematic distortions to aggregated survey information. However, micro level analysis of expectations would also be useful, especially in times of wide disagreement across forecasters and high levels of inflation uncertainty.
    Keywords: survey data; expectations; changing panel composition
    JEL: C53 E31 E37
    Date: 2014–12–01
  41. By: Stephen S. Poloz
    Abstract: This paper discusses how central banking is evolving in light of recent experience, with particular emphasis on the incorporation of uncertainty into policy decision-making. The sort of post-crisis uncertainty that central banks are dealing with today is more profound than that which is typically subjected to rigorous analysis and does not lend itself easily to formal modelling. As a practical matter, the policy-maker is dependent on macro models to develop a coherent monetary policy plan, and this burden of coherence means that fundamental uncertainty must be incorporated explicitly into the policy formulation process. As suggested here, doing so transforms policy formulation from an exercise in reverse engineering to one of risk management, one consequence of which is to inject a little more realism about uncertainty into the policy narrative, while trusting markets to wrestle with the data flow and deliver two-way trading. The evolution is likely to be a long one - researchers are encouraged to keep focusing on developing a practical understanding of how the economy works, one that admits that rules around economic behaviour are not cast in stone, but are almost certainly subject to variation through time and events.
    Keywords: Economic models; Financial stability; Monetary policy framework; Uncertainty and monetary policy
    JEL: C50 E37 E5 E61
    Date: 2014
  42. By: Wickens, Michael R.
    Abstract: This lecture is about how best to evaluate economic theories in macroeconomics and finance, and the lessons that can be learned from the past use and misuse of evidence. It is argued that all macro/finance models are `false' so should not be judged solely on the realism of their assumptions. The role of theory is to explain the data, They should therefore be judged by their ability to do this. Data mining will often improve the statistical properties of a model but it does not improve economic understanding. These propositions are illustrated with examples from the last fifty years of macro and financial econometrics
    Keywords: asset price modelling; DSGE modelling; theory and evidence in economics; time series modelling
    JEL: B1 C1 E1 G1
    Date: 2014–10
  43. By: Douanla Tayo, Lionel
    Abstract: This study aims at assessing the effect of monetary policy on economic growth for the fourteen countries of the Franc zone over the period 1985-2012 using a dynamic panel model. The system estimator of the generalized method of moments has allowed us to demonstrate a significant and negative effect of domestic credit provided by banking sector on economic growth. The analysis reveals that money supply has significant positive effect on economic growth, while total reserves and inflation have a negative effect. However the negative effect of domestic credit provided by banking sector can be reversed through allocation of funds to those projects for which the social returns are the highest and through allocation of funds to productive local industries.
    Keywords: Domestic credit, real GDP, dynamic panel, GMM
    JEL: E5
    Date: 2014–11–25
  44. By: Cordella, Tito; Gupta, Poonam
    Abstract: This paper looks at the correlation between the cyclical components of gross domestic product and the exchange rate and classifies countries'currencies as procyclical if they appreciate in good times, countercyclical if they appreciate in bad times, and acyclical otherwise. With this classification, the paper shows that: (i) the countries that are commodity exporters and experience procyclical capital flows tend to have procyclical currencies; (ii) countries with procyclical currencies tend to restrict their capital accounts, perhaps as an attempt to reduce the degree of procyclicality; (iii) countries with procyclical currencies pursue procyclical monetary policy; (iv) however, in the last decade, there is a disconnect between the cyclicality of currency and monetary policy; and (v) the disconnect may reflect a decline in the fear of floating, which can be partially attributed to an improvement in countries'net foreign asset positions.
    Keywords: Currencies and Exchange Rates,Emerging Markets,Debt Markets,Economic Stabilization,Macroeconomic Management
    Date: 2014–11–01
  45. By: Gilles Mourre; Caterina Astarita; Savina Princen
    Abstract: The cyclically-adjusted budget balance (CAB) is the backbone of the EU framework of fiscal surveillance, both in its preventive and corrective arms. The concept corresponds to the budget balance prevailing if the economy was running at potential. After correcting for the one-off and temporary measures, it is called structural budget balance and used to assess the fiscal policy stance. This paper presents the EU methodology for computing the CAB. It derives the new value of the budgetary semi-elasticities following the recent revision of individual revenue and expenditure elasticities by the OECD and shows the effect of the revised elasticities on the CAB.
    JEL: E32 E61 H3 H6
    Date: 2014–11
  46. By: Christian Pierdzioch (Department of Economics, Helmut-Schmidt-University); Monique B. Reid (Department of Economics, University of Stellenbosch); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: We study the directional accuracy of South African survey data of short-term and longer-term inflation forecasts. Upon applying techniques developed for the study of relative operating characteristic (ROC) curves, we find evidence that forecasts contain information with respect to the subsequent direction of change of the inflation rate.
    Keywords: inflation rate, forecasting, directional accuracy
    JEL: C53 D82 E37
    Date: 2014
  47. By: Francesco Bianchi; Howard Kung
    Abstract: We construct and estimate a model that features endogenous growth and technology diffusion. The spillover effects from research and development provide a link between business cycle fluctuations and long-term growth. Therefore, productivity growth is related to the state of the economy. Shocks to the marginal efficiency of investment explain the bulk of the low-frequency variation in growth rates. Transitory inflationary shocks lead to persistent declines in economic growth. During the Great Recession, technology diffusion dropped sharply, while long-term growth was not significantly affected. The opposite occurred during the 2001 recession. The growth mechanism induces positive comovement between consumption and investment.
    JEL: C11 E3 O4
    Date: 2014–12
  48. By: Vikram Rai1; Lena Suchanek
    Abstract: The Federal Reserve’s quantitative easing (QE) program has been accompanied by a flow of funds into emerging-market economies (EMEs) in search of higher returns. When Federal Reserve officials first mentioned an eventual slowdown and end of purchases under the central bank’s QE program in May and June 2013, foreign investors started to withdraw some of these funds, leading to capital outflows, a drop in EME currencies and stock markets, and a rise in bond yields. Using an event-study approach, this paper estimates the impact of “Fed tapering” on EME financial markets and capital flows for 19 EMEs. Results suggest that EMEs with strong fundamentals (e.g., stronger growth and current account position, lower debt, and higher growth in business confidence and productivity), saw more favourable responses to Fed communications on tapering. Capital account openness initially played a role as well, but diminished in importance in subsequent tapering announcements.
    Keywords: International financial markets; Transmission of monetary policy; International topics
    JEL: C33 E58 F32 G14
    Date: 2014
  49. By: World Bank Group
    Keywords: Environmental Economics and Policies Finance and Financial Sector Development - Currencies and Exchange Rates Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth Environment
    Date: 2014–10
  50. By: Kindermann, Fabian; Krueger, Dirk
    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.
    Keywords: income inequality; progressive taxation; social insurance; top 1%
    JEL: E62 H21 H24
    Date: 2014–10
  51. By: Christian Pierdzioch (Helmut-Schmidt-University, Department of Economics, Holstenhofweg, Hamburg, Germany); Monique B. Reid (Stellenbosch University, Department of Economics, Private Bag X1, Matieland, South Africa, 7602.); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: Using forecasts of the inflation rate in South Africa, we study the rationality of forecasts and the shape of forecasters’ loss function. When we study micro-level data of individual forecasts, we find mixed evidence of an asymmetric loss function, suggesting that inflation forecasters are heterogeneous with respect to the shape of their loss function. We also find strong evidence that inflation forecasts are in line with forecast rationality. When we poolthe data, and study sectoral inflation forecasts of financial analysts, trade unions, and the business sector, we find evidence for asymmetry in the loss function, and against forecast rationality. Upon comparing the micro-level results with those for pooled and sectoral data, we conclude that forecast rationality should be assessed based on micro-level data, and that freer access to this data would allow more rigorous analysis and discussion of the information content of the surveys.
    Keywords: Inflation rate; Forecasting; Loss function; Rationality
    JEL: C53 D82 E37
    Date: 2014–11
  52. By: Fuster, Andreas (Federal Reserve Bank of New York); Zafar, Basit (Federal Reserve Bank of New York)
    Abstract: The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a survey in which respondents are asked for their maximum willingness to pay (WTP) for a home comparable to their current one, under different financing scenarios. We vary down payment constraints, mortgage rates, and non-housing wealth. We find that a relaxation of down payment constraints, or an exogenous increase in non-housing wealth, has large effects on WTP, especially for relatively poorer and more credit-constrained borrowers. On the other hand, changing the mortgage rate by 2 percentage points only changes WTP by about 5 percent on average. These findings have implications for theoretical models of house price determination, as well as for policy.
    Keywords: housing demand; mortgage rates; down payment requirements; user cost model; household survey
    JEL: E44 G21 R21
    Date: 2014–11–01
  53. By: Dai, Li; Minford, Patrick; Zhou, Peng
    Abstract: We use available methods for testing macro models to evaluate a model of China over the period from Deng Xiaoping's reforms up until the crisis period. Bayesian ranking methods are heavily influenced by controversial priors on the degree of price/wage rigidity. When the overall models are tested by Likelihood or Indirect Inference methods, the New Keynesian model is rejected in favour of one with a fair-sized competitive product market sector. This model behaves quite a lot more 'flexibly' than the New Keynesian.
    Keywords: Bayesian Inference; China; DSGE; Indirect Inference
    JEL: C11 C15 C18 E27
    Date: 2014–11
  54. By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan); Mei Hsu (College of Management, National Taiwan Normal University); Chih-Fang Lai (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: Labor supply in Europe was declined by about 30% relative to the US over the past 3 decades. The decline comes from hours per worker and employment. This paper studies a matching model and the effects of labor taxes and unemployment benefits. Labor taxes decrease hours and employment, with overstated adverse effects on hours if extensive margins are not considered. Unemployment benefits decrease employment and increase hours, with understated adverse effects on employment if intensive margins are not considered. In baseline, labor taxes and unemployment benefits together explain about 75% of declining labor supply in Europe relative to the US.
    Keywords: search, labor taxes, adverse labor markets, hours worked per worker and employment
    JEL: E24 E60
    Date: 2014–11
  55. By: Stefania Villa (KU Leuven; University of Foggia)
    Abstract: This paper assesses the empirical relevance of financial frictions in the Euro Area (EA) and the United States (US). It provides a comprehensive set of comparisons between two models: (i) a Smets and Wouters (2007) (SW) model with financial frictions originating in non-financial firms à la Bernanke et al. (1999) (SWBGG); and (ii) a SW model with frictions originating in financial intermediaries, à la Gertler and Karadi (2011) (SWGK). Proved that the introduction of financial frictions in either way improves the models' fit compared to a standard SW model, the empirical comparisons reveal that the SWGK model outperforms the SWBGG model both in the EA and the US. Two main factors explain this result: first, the magnitude of the financial accelerator effect; and second, the role of the investment-specific technology shock in affecting financial variables.
    Keywords: Financial frictions, DSGE models, Bayesian estimation.
    JEL: C11 E44
    Date: 2014–12
  56. By: Kim, Don H. (Board of Governors of the Federal Reserve System (U.S.)); Wright, Jonathan H. (Johns Hopkins University)
    Abstract: We construct a no-arbitrage term structure model with jumps in the entire state vector at deterministic times but of random magnitudes. Jump risk premia are allowed for. We show that the model implies a closed-form representation of yields as a time-inhomogeneous affine function of the state vector. We apply the model to the term structure of US Treasury rates, estimated at the daily frequency, allowing for jumps on days of employment report announcements. Our model can match the empirical fact that the term structure of interest rate volatility has a hump-shaped pattern on employment report days (but not on other days). The model also produces patterns in bond risk premia that are consistent with the empirical finding that much of the time-variation in excess bond returns accrues at times of important macroeconomic data releases.
    JEL: C32 E43 G12
    Date: 2014–11–17
  57. By: Bouyon, Sylvain
    Abstract: A proper understanding and monitoring of household saving are necessary to conduct appropriate macroeconomic policies aiming at a balanced economic recovery in the EU-15. The process of monitoring household saving is twofold: on the one hand, it concerns the liquidity level of the household savings portfolio (liquidity approach); and on the other hand, it places emphasis on the saving rates of households (saving rates approach). Within the liquidity approach, in theory, each of the household motives (target saving, precautionary saving and pension saving) is related to specific saving products. However, inadequate financial education and low confidence in banking systems can distort the relationship of saving motives to saving products and lead to a sub-optimal savings portfolio, with poor yields and excess liquidity (especially with regards to pension saving). Nevertheless, overall, yield spreads do have an impact on the corresponding relative savings market shares, confirming the effectiveness of monetary policy transmission mechanisms into the liquidity levels of household savings portfolios. Regarding the saving rates approach, data show differentiated dynamics across EU-15 countries, partly owing to specific local habits and developments in financial markets. The persistent saving ratio differentials across countries, which also mirror differentiated propensities to accumulate target saving, could be partially reduced by the design of regulations whose primary goal is to improve the overall attractiveness of mortgage and consumer credits. In addition, since 2007, consistently significant beta-convergence observed in the results of the panel data regressions indicates that the need for balance sheet repair was stronger for countries with low saving ratios in the years preceding the financial crisis. The absence of correlation between saving ratios and different types of saving yields suggests the poor transmission of monetary policies in the trade-off between private consumption and saving. Conversely, the results confirm the prominent role played by the precautionary motive during the financial crisis of 2008-09, which is reflected in the strong impact of unemployment rates and housing prices.
    Date: 2014–10
  58. By: Nick Hanley (School of Geography and Sustainable Development, University of St. Andrews); Louis Dupuy (Université de Bordeaux); Eoin McLaughlin (School of Geography and Sustainable Development, University of St. Andrews)
    Abstract: Genuine Savings has emerged as the leading economic indicator of sustainable economic development at the country level. It derives from the literatures on weak sustainability, wealth accounting and national income accounting. The paper is structured as follows: section 1 introduces the basic measure and the idea of weak sustainability. Section two provides an overview of the intellectual history of Genuine Savings (GS). This is followed by an outline of the basic theoretical structure underlying GS as well as extensions to this model. Section 4 provides an overview of empirical estimates of GS and section 5 looks at tests of the predictive power of GS. Section 6 concludes by assessing whether GS is in fact a sustainable and useful concept.
    Keywords: Sustainable development, Genuine Savings, ComprehensiveWealth, future wellbeing.
    JEL: E21 E22 Q00 Q01 Q20 Q30 Q50
    Date: 2014–11
  59. By: Monica Billio; Roberto Casarin; Francesco Ravazzolo; Herman K. van Dijk
    Abstract: Interactions between eurozone and United States booms and busts and among major eurozone economies are analyzed by introducing a panel Markov-switching VAR model. The model is well suitable for a multi-country cyclical analysis and accommodates changes in low and high data frequencies and endogenous time-varying transition matrices of the country-specific Markov chains. The transition matrix of each Markov chain depends on its own past history and on the history of other chains, thus allowing for modelling the interactions between cycles. An endogenous common eurozone cycle is derived by aggregating country-specific cycles. The model is estimated using a simulation based Bayesian approach in which an efficient multi-move algorithm is defined to draw time-varying Markov-switching chains. Using real and financial data on industrial production growth and credit spread for all countries, our main empirical results are as follows. Recession, slow recovery and expansion are empirically identified as three regimes with slow recovery becoming persistent in the eurozone in recent years differing from the US. US and eurozone cycles are not fully synchronized over the 1991-2013 period, with evidence of more recessions in the eurozone, in particular during the 90’s. Larger synchronization across regions occurs at beginning of the financial crisis but recently more heterogeneity takes place. Cluster analysis yields a group of core countries: Germany, France and Netherlands and a group of peripheral countries Spain and Italy. Reinforcement effects in the recession probabilities and in the probabilities of exiting recessions occur for both eurozone and US with substantial differences in phase transitions within the eurozone. Finally, credit spreads provide accurate predictive content for business cycle fluctuations. A credit shock results in statistically significant negative industrial production growth for several months in Germany, Spain and US. Our empirical result may serve as important information for the specification of a coordinated policy between the eurozone and the US and within the eurozone.
    Keywords: Bayesian Modelling, Panel VAR, Markov-switching, International Business Cycles, Interaction mechanisms
    JEL: C11 C15 C53 E37
    Date: 2014–11
  60. By: Valli, Mohammed; Masih, Mansur
    Abstract: This paper attempts to examine whether a long-run theoretical relationship does indeed exist between the level of inflation in South Africa and the amount of FDI eventually received by the country. It also attempts to provide insight into the purported macroeconomic benefits of the policy of ‘inflation targeting’, by ascertaining whether any causality exists between stable inflation levels and improved FDI inflows from a South African perspective. Utilising annual data ranging from 1970 to 2012, we employ time series techniques to answer our research objectives. Our results indicate that there is a long-run inverse relationship between the level of inflation and FDI inflow in South Africa, implying that a rise in the level of inflation would have a negative impact on the amount of FDI received by South Africa. Furthermore, the paper successfully demonstrates that a degree of causality does exist between stable inflation levels and improved FDI inflows from a South African perspective, suggesting that the policy change that occurred with the adoption of ‘inflation targeting’ by the South African authorities did have a significant impact on the average level of FDI inflow to the country. Consequently, one of the implications of our findings is that the policy of ‘inflation targeting’, if well-implemented, actively managed and consistently applied, could represent a vital organ of the policy toolkit available to governmental authorities and policymakers in South Africa and indeed all developing countries, in their bid to enhance the inflow of FDI to their respective countries.
    Keywords: inflation; foreign direct investment (FDI); South Africa; timeseries techniques
    JEL: C22 C58 E44 G15
    Date: 2014–08–24
  61. By: Bell, Venetia (Bank of England); Pugh, Alice (Bank of England)
    Abstract: This paper contains the first detailed empirical examination of the information content of the Bank of England Credit Conditions Survey (CCS). The CCS asks a wide selection of questions of UK lenders relating to all aspects of bank credit provision. We examine the association between the survey responses and comparable official quantitative rates and lending growth data, and the extent to which the survey responses can help us to predict changes in those variables one quarter ahead. We find that many of the survey responses – especially those for household lending – are significantly associated with movements in the quantitative data. Similarly to the findings of equivalent surveys in the United States and euro area, we find that a subset of banks’ survey expectations of credit conditions provide a statistically significant guide for predicting changes in credit spreads and lending growth one quarter ahead.
    Keywords: bank lending survey; credit conditions survey; credit growth; credit spreads
    JEL: C23 E43 E51 E52
    Date: 2014–11–21
  62. By: Florian Huber; Jesus Crespo-Cuaresma; Martin Feldkircher
    Abstract: This paper puts forward a Bayesian version of the global vector autoregressive model (B-GVAR) that accommodates international linkages across countries in a system of vec- tor autoregressions. We compare the predictive performance of B-GVAR models for the one- and four-quarter ahead forecast horizon for standard macroeconomic variables (real GDP, inflation, the real exchange rate and interest rates). Our results show that taking international linkages into account improves forecasts of inflation, real GDP and the real exchange rate, while for interest rates forecasts of univariate benchmark models remain difficult to beat. Our Bayesian version of the GVAR model outperforms forecasts of the standard cointegrated VAR for practically all variables and at both forecast horizons. The comparison of prior elicitation strategies indicates that the use of the stochastic search variable selection (SSVS) prior tends to improve out-of-sample predictions systematically. This finding is confirmed by density forecast measures, for which the predictive ability of the SSVS prior is the best among all priors entertained for all variables at all forecasting horizons.
    Keywords: Global vector autoregressions; forecasting; prior sensitivity analysis;
    JEL: C32 F44 E32 O54
    Date: 2014–11
  63. By: Furuoka, Fumitaka
    Abstract: Unemployment hysteresis is an important but rather controversial issue in applied economics because the existence of hysteresis in unemployment rate poses a challenge to a central building-block of macroeconomic theory. The current paper chooses five Central Asian countries, namely Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, as a case study to examine the unemployment hysteresis for the period of 1991-2012. The number of observation is 22. In order to overcome the insufficient data, this paper uses the Bootstrap method to estimate the critical values (Park, 2003). For the purpose of empirical analysis, this paper uses the SURADF tests (Breuer et al., 2002) and the Fourier ADF tests (Enders and Lee, 2012). The univariate unit root tests indicates that unemployment rate in Kazakhstan, Kyrgyzstan and Tajikistan can be the stationary process and unemployment rates in Turkmenistan and Uzbekistan can be the unit root process. The panel unit root indicates that unemployment rate in the Central Asia can be the stationary process. Overall, the current study concludes that unemployment rates in Central Asia can be best described as stationary process in line with the natural rate hypothesis.
    Keywords: Unemployment hysteresis, Central Asia, unit root, nonlinear
    JEL: E24
    Date: 2014–11–30
  64. By: World Bank Group
    Keywords: Finance and Financial Sector Development - Access to Finance Environmental Economics and Policies Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth Environment Social Protections and Labor
    Date: 2014–09
  65. By: Kontonikas, Alexandros; Nolan, Charles; Zekaite, Zivile
    Abstract: Some studies argue that the Fed reacts to financial market developments. Using data covering the period 1985:Q1 - 2008:Q4 and employing an augmented Taylor rule specification, we re-examine that conjecture. We find that evidence in favour of such a reaction is largely driven by the Fed’s behaviour during the 2007-2008 financial crisis.
    Keywords: Monetary Policy, Taylor Rule, Financial Crisis,
    Date: 2014
  66. By: Alfonso Arpaia; Aron Kiss; Alessandro Turrini
    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.
    JEL: J23 J24 E32
    Date: 2014–09
  67. By: Tatjana Dahlhaus; Garima Vasishtha
    Abstract: The Federal Reserve’s path for withdrawal of monetary stimulus and eventually increasing interest rates could have substantial repercussions for capital flows to emerging-market economies (EMEs). This paper examines the potential impact of U.S. monetary policy normalization on portfolio flows to major EMEs by using a vector autoregressive model that explicitly accounts for market expectations of future monetary policy. The “policy normalization shock” is defined as a shock that increases both the yield spread of U.S. long-term bonds and monetary policy expectations while leaving the policy rate per se unchanged. Results indicate that the impact of this shock on portfolio flows as a share of GDP is expected to be economically small. The estimated impact is closely in line with that seen during the end-May to August 2013 episode in response to a comparable rise in the yield spread of U.S. long-term bonds. However, as the events during the summer of 2013 have shown, relatively small changes in portfolio flows can be associated with significant financial turmoil in EMEs. Further, there is also a strong association between the countries that are identified by our model as being the most affected and the ones that saw greater outflows of portfolio capital over May to September 2013.
    Keywords: International topics; Transmission of monetary policy
    JEL: C32 E52 F33 F42
    Date: 2014
  68. By: Duncan, Roberto (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.
    JEL: E32 E65 F32 F41
    Date: 2014–10–01
  69. By: Snir, Avichai; Levy, Daniel; Gotler, Alex; Chen, Haipeng (Allan)
    Abstract: Using data from three sources (a laboratory experiment, a field study, and a large US supermarket chain), we document a surprising asymmetric behavior of 9-ending prices: they are more rigid upward, but not downward, in comparison to non 9-ending prices. The data from the lab experiment and the field study suggest that shoppers are less likely to notice higher prices when they end with 9, or price increases when the new prices end with 9, in comparison to other endings. The consumers' misperception seems to be caused by their use of 9-endings as a signal for low prices, which interferes with price information processing. The supermarket data suggest that retail price setters respond strategically to the consumer misperception by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, 9-ending prices exhibit asymmetric rigidity: they are more rigid than non 9-ending prices upward but not downward.
    Keywords: Price Points,Price Recall,Sticky Prices,Rigid Prices,Price Rigidity,Price Adjustment,9-Ending Prices,Psychological Prices,Asymmetric Price Adjustment
    JEL: E31 L16 C91 C93 D03 D80 M31
    Date: 2014–11–05
  70. By: Sergio Cesaratto (University of Siena)
    Abstract: In a recent paper Marc Lavoie (2014) has criticized my interpretation of the Eurozone (EZ) crisis as a balance of payments crisis (BoP view for short). He rather identified the original sin “in the setup and self-imposed constraint of the European Central Bank”. This is defined here as the monetary sovereignty view. This view belongs to a more general view that see the source of the EZ troubles in its imperfect institutional design. According to the (prevailing) BoP view, supported with different shades by a variety of economists from the conservative Sinn to the progressive Frenkel, the original sin is in the current account (CA) imbalances brought about by the abandonment of exchange rate adjustments and in the inducement to peripheral countries to get indebted with core countries. An increasing number of economists would add the German neo-mercantilist policies as an aggravating factor. While the BoP crisis appears as a fact, a better institutional design would perhaps have avoided the worse aspects of the current crisis and permitted a more effective action by the ECB. Leaving aside the political unfeasibility of a more progressive institutional set up, it is doubtful that this would fix the structural unbalances exacerbated by the euro. Be this as it may, one can, of course, blame the flawed institutional set up and the lack an ultimate action by the ECB as the culprit of the crisis, as Lavoie seems to argue. Yet, since this institutional set up is not there, the EZ crisis manifests itself as a balance of payment crisis.
    Keywords: Socialist Marxian Sraffian, Central banks and their policies, Current account adjustment, International lending and debt problems, Macroeconomics issues of monetary unions.
    JEL: B51 E58 F32 F34
    Date: 2014–12
  71. By: Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio
    Abstract: We use data from the 2009 Internet Survey of the Health and Retirement Study to examine the consumption impact of wealth shocks and unemployment during the Great Recession in the US. We find that many households experienced large capital losses in housing and in their financial portfolios, and that a non-trivial fraction of respondents have lost their job. As a consequence of these shocks, many households reduced substantially their expenditures. We estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3.3 percentage points, respectively. In addition, those who became unemployed reduced spending by 10 percent. We also distinguish the effect of perceived transitory and permanent wealth shocks, splitting the sample between households who think that the stock market is likely to recover in a year’s time, and those who do not. In line with the predictions of standard models of intertemporal choice, we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks.
    Keywords: consumption; great recession; unemployment; wealth shocks
    JEL: D91 E21
    Date: 2014–10
  72. By: Fernando Morra
    Abstract: Al intentar explicar los fenómenos inflacionarios, la teoría económica ha utilizado modelos que resultan validos bajo situaciones extremas, como la alta inflación y la inflación baja. Existen, sin embargo, episodios donde el crecimiento de precios se sitúa en un rango intermedio, ni lo suficientemente alto como para representar un inconveniente severo para la actividad económica ni tan bajo como para considerarlo irrelevante. El siguiente trabajo intenta identificar este tipo de episodios al tiempo que se propone un marco conceptual para abordarlos. Finalmente, se intenta observar la forma en la que algunos países han realizado transiciones exitosas desde inflaciones moderadas hacia niveles de inflación baja.
    Keywords: Inflaciones Moderadas, Desinflación, Anclas Nominales.
    JEL: E31 E42 E52
    Date: 2014–12
  73. By: Estrada, Fernando
    Abstract: This review of the book by Thomas Piketty, The capital in the XXI century, presents the central themes of the work and exposes its scope on the relationship between inequality and wealth. In particular a positive reflections on the progressive tax is added.
    Keywords: Piketty, Capital, Distribution, Wealth, Fairness
    JEL: B1 B13 B15 B16 B22 B23 B24 B25 B41 B52 C21 C22 C82 E62 E64 H23 H26 N1 O1
    Date: 2014
  74. By: LONZO LUBU, Gastonfils
    Abstract: This study assesses the optimal size of government in the Democratic Republic of Congo. It uses the time series data over the period 1961-2013 and is based on a model using the Armey curve. It takes into account the possible effects of composition of public expenditure (wages and salaries, subsidies and transfers, education, health, infrastructure and public works, defense institutions, internal and external debt, public investment ...).The empirical results point out that the optimal size of government in the DRC is estimated at 25% between 1961 and 2013 against a staff level of 21%. It is 22% between 2001 and 2013. They show that the state spends well below its potential growth. The study also shows the weakness in spending on human capital including education, health and economic infrastructure, while the state continues to increase its expenditure composition of political institutions and defense spending significantly to beyond its potential.
    Keywords: Public expenditure, economic growth, optimal size of the state, curve Armey
    JEL: C10 C52 E62 H1
    Date: 2014–12–17
  75. By: Liu, Haiyang
    Abstract: This paper presents a growth model with decreasing returns of intra-industry research and development. With the old industries fade away, more and more researchers come out to create new industries. This means growth can keep constant, stagnancy can breed prosperity, and it can also explain business cycle, structural change, the rise and fall of national economy, and the importance of freedom market which allowing abound trial and error to seek new growth engine.
    Keywords: Economic Growth, Decreasing Return, Research and Development
    JEL: E32 O4
    Date: 2014–01–03
  76. By: Bigoni, Maria; Camera, Gabriele; Casari, Marco
    Abstract: Impersonal exchange is the hallmark of an advanced society. One key institution for impersonal exchange is money, which economic theory considers just a primitive arrangement for monitoring past conduct in society. If so, then a public record of past actions - or memory - supersedes the function performed by money. This intriguing theoretical postulate remains untested. In an experiment, we show that the suggested functional equality between money and memory does not translate into an empirical equivalence. Monetary systems perform a richer set of functions than just revealing past behaviors, which proves to be crucial in promoting large-scale cooperation.
    Keywords: cooperation,intertemporal trade,experiments,social norms,social dilemmas
    JEL: C70 C90 D03 E02
    Date: 2014
  77. By: Ken Urai (Graduate School of Economics, Osaka University); Hiromi Murakami (Graduate School of Economics, Osaka University)
    Abstract: An overlapping generations model with the double infinity of commodities and agents is the most fundamental framework to introduce outside money into a static economic model. In this model, competitive equilibria may not necessarily be Pareto-optimal. Although Samuelson (1958) emphasized the role of fiat money as a certain kind of social contract, we cannot characterize it as a cooperative game-theoretic solution like a core. In this paper, we obtained a finite replica core characterization of monetary equilibria. Preferences are not necessarily assumed to be ordered.
    Keywords: Monetary Equilibrium, Overlapping Generations Model, Core Equivalence, Replica Econ-omy, Non-Orderd Preference
    JEL: C71 D51 E00
    Date: 2014–11
  78. By: Hassan, Tarek; Mertens, Thomas M.
    Abstract: We show that the stock market may fail to aggregate information even if it appears to be efficient and that the resulting decrease in the information content of stock prices may drastically reduce welfare. We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors when forming expectations about future productivity. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When stock prices reflect less information, the conditional variance of stock returns rises. This increase in financial risk distorts the long-run level of capital accumulation, and causes costly (first-order) distortions in the long-run level of consumption.
    Keywords: dispersed information; information aggregation; information externality; stock market dysfunctionality
    JEL: D83 E2 E3 G1
    Date: 2014–06
  79. By: Huynh, Kim P.; Schmidt-Dengler, Philipp; Stix, Helmut
    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: counterfactual distributions; endogenous switching regression; inventory models of money
    JEL: C35 C83 E41
    Date: 2014–10
  80. By: Ehmer, Philipp
    Abstract: The measures implemented to reduce current account deficits within several euro area econ-omies are aimed at boosting competitiveness to raise exports. Due to low industrial capacities in Greece, Portugal and Spain, for instance, it is questionable, however, whether exports can contribute much to the required turnaround of the current account. The existing literature on current account determinants ignores the impact of economic structure. However, as industrial goods are more tradable than services, a specialisation on manufacturing industries should ceteris paribus lead to an improved current account. The empirical analysis of this paper con-firms a significant impact of the sectoral focus on the current account within the euro area. Hence, the turnaround in crisis-hit economies has to be accomplished mostly through imports. As can be observed, this brings about severe recessions - more severe than in manufacturing-based economies which use the exports channel to a larger extent. Within a currency union where there is no depreciation which facilitates the adjustment economies should aim at har-monising their economic structure regarding export capacity.
    Keywords: euro area,current account imbalances,current account determinants,savings rate, economic structure,sectoral focus,optimum currency area
    JEL: E21 F32 F41 L16 O14
    Date: 2014
  81. By: Michael Siegenthaler (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Graff (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Massimo Mannino (University of St. Gallen)
    Abstract: While Switzerland’s recent growth of employment was high in historical and international perspective, the reasons for this “job miracle” were not well understood. As the “miracle” was not anticipated by economic forecasters, it consequently resulted in systematic and persistent forecast errors. This paper shows that the “miracle” is related to a substantial increase in the labor intensity of economic activity. To this end, we present a number of stylized facts reflecting shifts and structural changes that affected the Swiss economy around 2000. Then, we discuss potential drivers of the “miracle” which are consistent with these facts. Finally, we demonstrate how they contribute to understand why, during the last ten years, forecasters systematically underestimated the growth of domestic employment. Finally, we highlight that immigration was not only a consequence of the “miracle”, but also an important cause, as it created additional jobs in Switzerland by raising local demand for goods and, most importantly, services.
    Keywords: Migration, Labor Market, employment forecasts, local multipliers, free movement of persons, Swiss job miracle
    JEL: C52 E24 J21 J61
    Date: 2014–12
  82. By: Minford, Patrick; Xu, Yongdeng; Zhou, Peng
    Abstract: Out-of-sample forecasting tests of DSGE models against time-series benchmarks such as an unrestricted VAR are increasingly used to check a) the specification b) the forecasting capacity of these models. We carry out a Monte Carlo experiment on a widely-used DSGE model to investigate the power of these tests. We find that in specification testing they have weak power relative to an in-sample indirect inference test; this implies that a DSGE model may be badly mis-specified and still improve forecasts from an unrestricted VAR. In testing forecasting capacity they also have quite weak power, particularly on the lefthand tail. By contrast a model that passes an indirect inference test of specification will almost definitely also improve on VAR forecasts.
    Keywords: DSGE; forecast performance; indirect inference; out of sample forecasts; specification tests; VAR
    JEL: E10 E17
    Date: 2014–11
  83. By: Bernd Bartels (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany); Constantin Weiser (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)
    Abstract: In this paper, we explore the institutional investors' assessment of relative creditworthiness across selected country groups with a special focus on the impact of public debt on the perception of sovereign risk. Our results show that general government debt is among the most important determinants of credit risk in industrialized countries and emerging markets alike. When using a multivariate framework, we further find that the inuence of debt on ratings do es not differ between both groups. Also, our results point towards a rating penalty for highly-indebted advanced countries when their debt ratio is associated with a growing one. By contrast, a high debt level alone does not lead to an additional rating decline. Finally, we show that peripheral euro area economies (GIIPS) received a rating privilege before the financial crisis that turned into a penalty after 2008.
    Keywords: Sovereign Risk, Public Debt, European Monetary Union, Debt Sustainability
    JEL: E62 F34
    Date: 2014–11–29
  84. By: Bellino, Enrico
    Abstract: Within the rich literature that has flowed from Sraffa’s framework of Production of Commodities by means of Commodities a prominent position is occupied by the research programmes carried out independently by two authoritative exponents of this school: Pierangelo Garegnani and Luigi Pasinetti. Certain specific features of their approaches might lead one to perceive them as alternative to one another. Yet, when analysed through a constructive perspective, one discovers not only a common origin and methodology, but also strict complementarity in analysing the main characteristics of industrial systems.
    Keywords: surplus approach, ‘core’ of a capitalist system, structural economic dynamics, ‘natural system’, Garegnani, Pasinetti, Sraffa, Keynes, post-Keynesians
    JEL: B12 B24 B51 D33 E11 E12 E2
    Date: 2014–12–18
  85. By: Boons, M.F. (Tilburg University, School of Economics and Management)
    Abstract: The dissertation consists of three essays in asset pricing. Chapter I is motivated by the recent surge in institutional investment in commodity futures markets. The chapter studies how commodity risk is priced in stock and futures markets and asks whether this risk premium is time-varying with these changes in investment practices. Chapter II and III are at the intersection of macroeconomics and asset pricing. Chapter II is motivated by the introduction of real bonds as well as the poor empirical track record for inflation as a risk factor in stock returns. The chapter estimates the inflation risk premium in the stock market and identifies the proximate causes of its variation over time. Chapter III tests an element that is common to most asset pricing models, but often overlooked in empirical tests: time-series and cross-sectional consistency. The chapter studies whether risk premiums for state variable risks in the cross-section of individual stocks are consistent with how these variables predict macroeconomic activity in the time-series. The dissertation resuscitates a central role for real factors in asset pricing and identifies a novel channel through which stock market risk premiums vary over time: the introduction of an asset that hedges the underlying risk more adequately.
    Date: 2014
  86. By: Reinhart, Carmen M.; Trebesch, Christoph
    Abstract: We take a first pass at quantifying the magnitudes of debt relief achieved through default and restructuring in two distinct samples: 1979-2010, focusing on credit events in emerging markets, and 1920-1939, documenting the official debt hangover in advanced economies that was created by World War I and its aftermath. We examine the economic performance of debtor countries during and after these overhang episodes, by tracing the evolution of real per capita GDP (levels and growth rates); sovereign credit ratings; debt servicing burdens relative to GDP, fiscal revenues, and exports; as well as the level of government debt (external and total). Across 45 crisis episodes for which data is available we find that debt relief averaged 21 percent of GDP for advanced economies (1932-1939) and 16 percent of GDP for emerging markets (1979-2010), respectively. The economic landscape after a final debt reduction is characterized by higher income levels and growth, lower debt servicing burdens and lower government debt. Also ratings recover markedly, albeit only in the modern period.
    JEL: E6 F3 H6 N0
    Date: 2014–10
  87. By: S. Mohammad R. Davoodalhosseini
    Abstract: I characterize the constrained efficient (or planner's) allocation in a directed (competitive) search model with private information. There are sellers with private information on one side of the market and homogeneous buyers on the other side. They match bilaterally in different submarkets and trade. In each submarket, there are search frictions. In the market economy, homogeneous buyers enter different submarkets (i.e., post different contracts) and sellers with private information direct their search toward their preferred submarket. I define a planner whose objective is to maximize social welfare subject to the information and matching frictions of the environment. The planner can impose taxes and subsidies on agents that vary across submarkets while being subject to an overall budget-balance condition. I show that the planner generally achieves strictly higher welfare than the market economy. I also derive conditions under which the planner achieves the complete information allocation. I present examples in the context of financial and labor markets, explicitly solve for the efficient tax and transfer schemes and compare the planner's allocation with the equilibrium allocation.
    JEL: D8 E24 G1 J31 J64
    Date: 2014–11–30
  88. By: Kemp-Benedict, Eric
    Abstract: In the face of increasingly likely dangerous climate change, many developing countries are designing green economy or low-emissions development strategies, but are simultaneously on a course of investment locking them into high-emission infrastructure. Meanwhile, many high-income countries are working to reduce their emissions but are hampered by the cost of switching from an existing capital stock designed for a fossil fuel-based economy. This paper looks at economic aspects of the challenge of escaping carbon lock-in using a “brown-green capital” model. In the model, brown capital is more productive than green capital in a brown capital-dominated economy, while green capital is more productive in a green capital-dominated economy; that is, the model allows for “carbon lock-out”. We explore possible macroeconomic consequences of policies to drive a transition to a low-carbon economy and policy responses in the case that macroeconomic imbalances result. Three results are particularly interesting. First, the effect of policy instruments depends on whether the economy is wage-led or profitled, a distinction that emerges from post-Keynesian theory. Second, if investors hedge against uncertainty over expected levels of green and brown investment, then there is likely to be underinvestment in green capital even at quite high levels of green capital penetration, creating a substantial challenge for policymakers. Third, the model suggests an unusual role for a carbon price, to control inflationary pressure arising from public green capital investment, in addition to its usual role of encouraging emissions reductions at the margin.
    Keywords: green economy; brown-green capital; carbon lock-in; post-Keynesian; Kaleckian
    JEL: E12 E61 G11 Q01
    Date: 2014–11–25
  89. By: Bart Cockx; Corinna Ghirelli (-)
    Abstract: We study the impact of graduating in a recession in Flanders (Belgium), i.e. in a rigid labor market. In the presence of a high minimum wage, a typical recession hardly influences the hourly wage of low educated men, but reduces working time and earnings by about 4.5% up to twelve years after graduation. For the high educated, the working time is not persistently affected, but the penalty on the hourly wage (and earnings) increases with experience, and attains roughly -6% ten years after labor market entry. We also contribute to the literature on inference with few clusters.
    Keywords: scars, graduating, labor market rigidity, recession, few clusters, cluster robust
    JEL: C12 C41 E32 I21 J22 J23 J31 J6
    Date: 2014–11
  90. By: Karam, Philippe; Merrouche, Ouarda; Souissi, Moez; Turk, Rima
    Abstract: We analyze the transmission of bank-specific liquidity shocks triggered by a credit rating downgrade through the lending channel. Using bank-level data for US Bank Holding Companies, we find that a credit rating downgrade is associated with an immediate and persistent decline in access to non-core deposits and wholesale funding, especially during the global financial crisis. This translates into a reduction in lending to households and non-financial corporates at home and abroad. The effect on domestic lending, however, is mitigated when banks (i) hold a larger buffer of liquid assets, (ii) diversify away from rating-sensitive sources of funding, and (iii) activate internal liquidity support measures. Foreign lending is significantly reduced during a crisis at home only for subsidiaries with weak funding self-sufficiency.
    Keywords: credit ratings; credit supply; internal capital markets; liquidity management; multinational banks
    JEL: E51 F23 F34 F36 G21
    Date: 2014–11
  91. By: Dimitri Lorenzani; Janos Varga
    Abstract: This work aims to contribute to the policy debate on how to spur "digital growth" in Europe in the context of the crisis, by assessing the potential economic impact of structural reforms efforts either already undertaken or imminently foreseen in the field of European digital markets. Namely, this is done by analysing the growth effect of European reforms in the areas of radio spectrum, professional e-skills, eCommerce, and fixed broadband take-up. Each policy area is analysed separately, in the first place by hypothesizing and econometrically testing specific “transmission channels”, i.e. the direct impact of selected reform variables on intermediate economic outcomes, such as prices and productivity. In the second place, the price and productivity shocks estimated on the basis of the actually observed change in the reform variable (as a proxy for the countries’ reform effort) are fed into QUEST III to simulate macroeconomic impacts on GDP. Despite their heterogeneity, the importance of analysing these reforms together lies in the possibility of shedding light on the overall economic impact of fostering specific aspects of the Digital Single Market in the EU. Indeed, summing up the simulated macroeconomic impacts for different policy areas shows that the long-run growth impact of the already observed digital reform effort is above 1%, and that further efforts in line with the Digital Agenda for Europe targets would entail additional 2.1% of GDP growth over the baseline. From a methodological point of view, the findings highlight the importance to test the adequate functioning of the microeconomic transmission channels through which digital structural reforms could exert their overall macroeconomic impact.
    JEL: C33 E17 F15 L51 L96
    Date: 2014–09
  92. By: Matthew N. White (Department of Economics, University of Delaware)
    Abstract: In dynamic optimization problems with multiple continuous state variables and multiple continuous controls, the method of endogenous gridpoints (ENDG) generates an irregular collection of gridpoints for which standard interpolation techniques do not apply, while alternative interpolation methods are extremely slow. This paper presents an interpolation technique that allows ENDG to be used in multi-dimensional problems in an intuitive and computationally e?cient way. The method translates irregular grid sectors onto the unit square (unit cube, unit hypercube, etc) and then applies standard linear interpolation. This method’s superiority to traditional solution approaches, in terms of speed and accuracy, is demonstrated on a benchmark model. At commonly used grid densities, the method of endogenous gridpoints with non-linear grid interpolation is 7.7 times faster than the traditional solution method, with slightly greater accuracy. This computational acceleration erodes only very slowly as grid density increases, unlike with alternative interpolation methods.
    Keywords: Dynamic models, numerical solution, endogenous gridpoint method, non-linear grid interpolation, endogenous human capital
    JEL: C61 C63 E21
    Date: 2014
  93. By: Chan R. Mang
    Abstract: I use the term structure model in Cochrane and Piazzesi (2008) and construct currency market prices. The implied currency market prices are counterfactually volatile and predictable, at least with respect to commonly used predictor variables. Getting the model closer to currency market data means reducing bond risk compensation but doing so nearly eliminates predictability in bond markets. One way to generate sensible time-variation in predictable bond and currency excess returns allows the volatility of returns to be time-varying. Additional avenues that can jointly account for the stochastic properties of bond and currency excess returns are also discussed.
    JEL: E43 E47 F31 F37 G12
    Date: 2014–12–08
  94. By: Juan R. Cuadrado-Roura; Andres Maroto-Sanchez
    Abstract: The economic and financial crisis has generated a significant amount of adverse effects in all European economies, although with substantial differences by countries. For Spain the effects have been severe. From the last third of the last century until the middle of 2008 the economy experienced a period of strong expansion, with an average growth rate up of 3.2%, high job creation and a sharp increase in public and private spending. However, this masked low productivity, a growing external imbalance and, among other, high household, corporate and public indebtedness thanks to the lax financing and low interest rates. Construction, real estate, the industries particularly linked to construction and some services led the expansion and they have also led the strong fall of the economy process. The imbalances developed along the expansion process called already for some stabilization of the economy, but the sudden emergence of the international crisis caused a rapid and dramatic turn. The economy as a whole and all the Spanish regions were strongly affected -unemployment, negative growth rates, need for financial adjustment...- albeit with notable regional differences. The aim of this paper is twofold: 1) to evaluate how the crisis has affected the Spanish interregional disparities, which have worsened, and 2) to explain this divergence pattern using the regional productive specialization, the changes in productive structures and their effects in terms of within regional productivity. In doing so, the paper firstly presents a sythetic description of the features that have characterized the Spanish crisis and their most visible regional effects. Secondly, the differences that existed in regional productive structures and the changes they have gone through are analyzed, trying to find a possible explanation for the diverse regional behavior. Finally, the possibilities of future regional recovery are also explored, taking into account the dynamics of the regional productivities. To perform these analyses public statistics are used together with data from reliable sources applying various analytical and decomposition methods and techniques.
    Keywords: Economic crisis; regional disparities; economic structure.
    JEL: R2 E3 R11
    Date: 2014–11
  95. By: Heather D. Gibson; Stephen G. Hall; George S. Tavlas
    Abstract: During the euro-area financial crisis, interactions between sovereign spreads and credit ratings appeared to have led to self-generating feedback loops. To examine the interaction between spreads and ratings, we estimate a simultaneous two-equation model in which spreads and ratings are endogenous. Using a panel of 5 euro-area countries, we construct time series comprising the ratings of its sovereigns determined by the three major rating agencies. We find that, controlling for the economic and political fundamentals, spreads and ratings strongly interacted with each other during the crisis, producing effects well-beyond those of the fundamentals, and with the interactions demonstrating high persistence.
    Keywords: euro area financial crisis, sovereign spreads, rating agencies
    JEL: E63 G12
    Date: 2014–12
  96. By: Yunus Aksoy (Department of Economics, Mathematics & Statistics, Birkbeck); Henrique S. Basso (Banco de Espana)
    Abstract: During the 15 years prior to the global financial crisis the volume of securitized assets transacted in the US has grown substantially, reflecting a change in the nature of the financial intermediation process. Together with increased securitization, financial entities, who participate more heavily in the asset-backed security (ABS) market and hold a diversified portfolio of assets, have also become more relevant. As a result, the volume of securitization, although traditionally associated with credit markets, influences the outcomes of other asset markets. We investigate the link between securitization and asset prices and show that increases in the growth rate of the volume of ABS issuance lead to a decline in both the bond and equity premia. We then build a model of bank portfolio choice where the creation of synthetic securities may occur. The pooling and tranching of credit assets relaxes both the funding and the risk constraints financial entities face allowing them to increase balance sheet holdings. This increase in asset demand depresses the compensation for undertaking risk in the economy, confirming our empirical results. We show that financial intermediation is linked with asset prices through this portfolio mechanism, whose strength depends on the volume of deals in the securitization market.
    Keywords: Pooling and Tranching, Equity, Government Bonds, Bank Portfolio, Risk Premia.
    JEL: E44 G12 G2
    Date: 2014–11
  97. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Testimony before the Senate Committee on Banking, Housing, and Urban Affairs Financial Institutions and Consumer Protection Subcommittee.
    Keywords: regulatory capture; conscientious supervision; effective supervision; This American Life; Basel III Liquidity Coverage Ratio; stress tests
    JEL: E50 G21 G28
    Date: 2014–11–25
  98. By: Di Caro, Paolo
    Abstract: This paper analyses regional resilience and local economic growth patterns in Italy over the past four decades. Place-specific transient and permanent effects of aggregate employment shocks are studied. Geographical asymmetries in engineering and ecological resilience are found, providing auxiliary insights on the rooted Italian regional inequalities. The territorial impact of different crises is investigated and a direct comparison with the UK case is offered. The importance of manufacturing activities for explaining economic resilience is assessed, finding out a positive relation between the resilience of the industrial sector and the overall local economic development. Some policy implications are conclusively discussed.
    Keywords: recessions, recoveries, regional resilience, local economic growth
    JEL: E32 R1
    Date: 2014

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