nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒01‒19
116 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Updating the euro area Phillips curve: the slope has increased By Oinonen, Sami; Paloviita, Maritta
  2. A Keynesian factor in monetary policy: the Economic Growth Incentive Method (EGIM) By De Koning, Kees
  3. Land Collateral and Labor Market Dynamics in France. By L. Kaas; P. A. Pintus; S. Ray
  4. Post-Crisis Slow Recovery and Monetary Policy By Daisuke Ikeda; Takushi Kurozumi
  5. Effectiveness and transmission of the ECB’s balance sheet policies By Jef Boeckx; Maarten Dossche; Gert Peersman
  6. Rupee Depreciation: Its Causes and Cure By Raj, Madhusudan
  7. By Shapiro, Alan Finkelstein; Mandelman, Federico S.
  8. Inflation dynamics in a model with firm entry and (some) heterogeneity By Javier Andrés; Pablo Burriel
  9. Nominal Term Structure and Term Premia. Evidence from Chile By Ceballos, Luis; Naudon, Alberto; Romero, Damian
  10. Monetary Policy, Financial Conditions, and Financial Stability By Tobias Adrian; Nellie Liang
  11. "The Socialization of Investment, from Keynes to Minsky and Beyond" By Riccardo Bellofiore
  12. Commodity price shocks and inflation within an optimal monetary policy framework: the case of Colombia By Luis Eduardo Arango; Ximena Chavarro; Eliana González
  13. Addressing Household Indebtedness: Monetary, Fiscal or Macroprudential Policy? By Sami Alpanda; Sarah Zubairy
  14. Turkey: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Turkey By International Monetary Fund. European Dept.
  15. The international monetary and financial system: a capital account perspective By Borio, Claudio; James, Harold; Shin, Hyun Song
  16. Hot money and quantitative easing: the spillover effect of U.S. monetary policy on Chinese housing, equity and loan markets By Ho, Steven Wei; Zhang, Ji; Zhou, Hao
  17. Austerity, cyclical adjustment and the remaining leeway for expansionary fiscal policies in the Euro area By Achim Truger
  18. Fiscal Multipliers in the 21st Century By Pedro Brinca; Hans A. Holter; Per Krusell and Laurence Malafry
  19. Fiscal Multipliers in the 21st Century By Pedro Brinca; Hans Holter; Per Krusell; Laurence Malafry
  20. On the dynamics of the primary housing market and the forecasting of house prices By Augustyniak, Hanna; Leszczyński, Robert; Łaszek, Jacek; Olszewski, Krzysztof; Waszczuk, Joanna
  21. Constrained Discretion and Central Bank Transparency By Bianchi, Francesco; Melosi, Leonardo
  22. Peculiar Results and Theoretical Inconsistency of New Keynesian Models By Kim, Minseong
  23. Peculiar Results and Theoretical Inconsistency of New Keynesian Models By Kim, Minseong
  24. The retail bank interest rate pass-through: The case of the euro area during the financial and sovereign debt crisis By Darracq Pariès, Matthieu; Moccero, Diego; Krylova, Elizaveta; Marchini, Claudia
  25. The European Commission’s New NAIRU: Does it Deliver? By Sebastian Gechert; Katja Rietzler; Silke Tober
  26. Wages and Wedges in an Estimated Labor Search Model By Ryan Chahrour; Sanjay K. Chugh; Tristan Potter
  27. Japanese Repo and Call Markets Before, During, and Emerging from the Financial Crisis By Ichiro Fukunaga; Naoya Kato
  28. Oil Price Shocks and China’s Economy: Reactions of the Monetary Policy to Oil Price Shocks By Won Joong Kim; Shawkat Hammoudeh; Jun Seog Hyun; Rangan Gupta
  29. On the Missing Macroeconomics of Social Liberalism: From Physiocrats to Pre-war Chicagoans and Freiburg By Soldatos, Gerasimos T.
  30. Determinacy and Learnability of Equilibrium in a Small Open Economy with Sticky Wages and Prices By Eurilton Araújo
  31. Tax Reforms in Search-and-Matching Models with Heterogeneous Agents By Wei Jiang
  32. Republic of Fiji: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for the Republic of Fiji By International Monetary Fund. Asia and Pacific Dept
  33. Effects of Commodity Price Shocks on Inflation:A Cross-Country Analysis By Atsushi Sekine; Takayuki Tsuruga
  34. Credit Supply and the Housing Boom By Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea
  35. Forecasting Czech GDP Using Mixed-Frequency Data Models By Michal Franta; David Havrlant; Marek Rusnak
  36. Bureaucracy, Underground Activities, and Fluctuations By Soldatos, Gerasimos T.
  37. Unit of Account, Medium of Exchange, and Prices By Young Sik Kim; Manjong Lee
  38. Denmark: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Denmark By International Monetary Fund. European Dept.
  39. A Theory of Wage Adjustment under Loss Aversion By Ahrens, Steffen; Pirschel, Inske; Snower, Dennis J.
  40. Sovereign risk, interbank freezes, and aggregate fluctuations By Engler, Philipp; Große Steffen, Christoph
  41. "Why Raising Rates May Speed the Recovery" By Jan Kregel
  42. Sovereign Risk, Interbank Freezes, and Aggregate Fluctuations By Philipp Engler; Christoph Große Steffen
  43. The role of product diversification in skill-biased technological change By Nam, Choong Hyun
  44. Inflation Targeting In Emerging Markets: The Global Experience By John B. Taylor
  45. Kuwait: 2014 Article IV Consultation-Staff Report; Press Release By International Monetary Fund. Middle East and Central Asia Dept.
  46. Nominal Wage Rigidity in Village Labor Markets By Supreet Kaur
  47. Revealing the Components of the Intangible Wealth for Morocco By Driouchi, Ahmed; Achehboune, Amale; Gamar, Alae
  48. Rebalancing Serbia's Economy : Improving Competitiveness, Strengthening the Private Sector, and Creating Jobs By World Bank Group
  49. Indonesia Economic Quarterly, July 2014 : Hard Choices By World Bank
  50. World Bank Research Digest, Vol. 8(1) By World Bank
  51. Papua New Guinea: 2014 Article IV Consultation-Staff Report; Press Release By International Monetary Fund. Asia and Pacific Dept
  52. Quantifying Confidence By George-Marios Angeletos; Fabrice Collard; Harris Dellas
  53. Majority Voting: A Quantitative Investigation By Carroll, Daniel R.; Dolmas, James; Young, Eric R.
  54. Tajikistan : Capital Expenditures and Public Investment Management By World Bank
  55. Banking panics and protracted recessions By Sanches, Daniel R.
  56. Inflation Experience and Inflation Expectations: Spatial Evidence By Refet Gürkaynak; Gulserim Ozcan; Marcel Fratzscher
  57. Uganda: Third Review Under the Policy Support Instrument-Staff Report; and Press Release By International Monetary Fund. African Dept.
  58. Disaggregating Okun's law: decomposing the impact of the expenditure components of GDP on euro area unemployment By Anderton, Robert; Aranki, Ted; Bonthuis, Boele; Jarvis, Valerie
  60. Forward Guidance By Lars E.O. Svensson
  61. New evidence on elementary index bias By Gábor, Enikö; Vermeulen, Philip
  62. Unprecedented actions: the Federal Reserve’s response to the global financial crisis in historical perspective By Mishkin, Frederic S.; White, Eugene
  63. Oil price shocks and domestic price investment in Ghana By Wiafe, Emmanuel A.; Barnor, Charles; Quaidoo, Christopher
  64. Can interest rate factors explain exchange rate fluctuations? By Yung, Julieta
  65. Новая теория рынка и капитализма. В 3-х частях. Часть 3. Капитализм By Zheleznyak, Anatoliy
  66. Tajikistan Government Expenditures : Size, Composition and Trends By World Bank
  67. The Impact of Macroeconomic Variables on Stock Prices in Pakistan By Hunjra, Ahmed Imran; Chani, Muhammad Irfan; Ijaz, Muhammad Shahzad; Farooq, Muhammad; Khan, Kamran
  68. Human Capital Accumulation in a Federation By Daniele Coen-Pirani
  69. Risk, Aggregate Demand, and Commodity Prices: An Application to Colombia By Javier Guillermo Gómez-Pineda; Juan Manuel Julio-Román
  70. Estimating Upward Bias of Japanese Consumer Price Index Using Engel's Law By HIGA, Kazuhito
  71. Mexico: Arrangement Under the Flexible Credit Line and Cancellation of the Current Arrangement-Staff Report and Press Release By International Monetary Fund. Western Hemisphere Dept.
  72. The determinants of household debt: a cross-country analysis By Massimo Coletta; Riccardo De Bonis; Stefano Piermattei
  73. Crowding-in and Crowding-out Effects of Public Investments in the Portuguese Economy By João Sousa Andrade; António Portugal Duarte
  74. Impact and Implications of Recent and Potential Changes to Brazil's Subnational Fiscal Framework By World Bank
  75. Discretion Rather than Simple Rules: the Case of Social Protection By Alvaro Forteza; Cecilia Noboa
  76. Assessing the Change in Labor Market Conditions By Chung, Hess; Fallick, Bruce C.; Nekarda, Christopher J.; Ratner, David
  77. Intertemporal equilibrium with financial asset and physical capital. By Cuong Le Van; Ngoc-Sang Pham
  78. An Overview of Macroprudential Policy Tools By Stijn Claessens
  79. Monthly Report No. 7-8/2014 By Vasily Astrov; Rumen Dobrinsky; Vladimir Gligorov; Doris Hanzl-Weiss; Peter Havlik; Mario Holzner; Gabor Hunya; Michael Landesmann; Sebastian Leitner; Leon Podkaminer; Sandor Richter; Hermine Vidovic
  80. Новая теория рынка и капитализма. В 3-х частях. Предисловие By Zheleznyak, Anatoliy
  81. On the effectiveness of devaluations in emerging and developing countries By Carl Grekou
  82. Optimal Financial Repression By Olga A. Norkina; Sergey E. Pekarski
  83. Новая теория рынка и капитализма. В 3-х частях. Часть 2. Стоимость By Zheleznyak, Anatoliy
  84. Within- and cross-country price dispersion in the euro area By Reiff, Adam; Rumler, Fabio
  85. Effects of Oil Shocks on Oil-Importing Developing Economies: The Case of Georgia and Armenia By Lamazoshvili Beka
  86. Denmark: Selected Issues Paper By International Monetary Fund. European Dept.
  88. Price Setting in Online Markets: Does IT Click? By Yuriy Gorodnichenko; Viacheslav Sheremirov; Oleksandr Talavera
  89. The Circular Relationship between Inequality, Leverage, and Financial Crises: Intertwined Mechanisms and Competing Evidence By Rémi Bazillier; Jérôme Héricourt
  90. Sovereign Defaults and Banking Crises By Cesar Sosa-Padilla
  91. A feasible unemployment-based shock absorber for the Euro Area By Andrea Brandolini; Francesca Carta; Francesco D'Amuri
  92. Kosovo Public Finance Review : Fiscal Policies for a Young Nation By World Bank
  93. Pakistan: Fourth and Fifth Reviews Under the Extended Arrangement and Request for Waivers of Nonobservance of Performance Criteria By International Monetary Fund. Middle East and Central Asia Dept.
  94. Consumption behaviour and financial crisis in the Netherlands By Federica Teppa
  95. Is Europe Overbanked? By Marco Pagano; ESRB Advisory Scientific Committee
  96. Determinants of Bank Profitability and Basel Capital Regulation: Empirical Evidence from Nigeria By Ozili, Peterson
  97. Denmark: Financial Sector Assessment Program, Macroprudential Policies - Technical Note By International Monetary Fund. Monetary and Capital Markets Department
  98. Hysteresis in European labour market By Furuoka, Fumitaka
  99. Potential output from a euro area perspective By Anderton, Robert; Aranki, Ted; Dieppe, Alistair; Elding, Catherine; Haroutunian, Stephan; Jacquinot, Pascal; Jarvis, Valerie; Labhard, Vincent; Rusinova, Desislava; Szörfi, Béla
  100. Cambodia Services Trade : Performance and Regulatory Framework Assessment By World Bank Group
  101. MRO bidding in the presence of LTROs: an empirical analysis of the pre-crisis period By Vogel, Edgar
  102. Income taxation and equity: New dominance criteria and an application to Romania By Paolo Brunori; Flaviana Palmisano; Vito Peragine
  103. A dynamic model of price signaling, consumer learning, and price adjustment By Osborne, Matthew; Shapiro, Adam Hale
  104. Getting Rental Prices Right for Computers By Diewert, W. Erwin
  105. A macro stress testing framework for assessing systemic risks in the banking sector By Henry, Jérôme; Kok, Christoffer; Amzallag, Adrien; Baudino, Patrizia; Cabral, Inês; Grodzicki, Maciej; Gross, Marco; Halaj, Grzegorz; Kolb, Markus; Leber, Miha; Pancaro, Cosimo; Sydow, Matthias; Vouldis, Angelos; Zimmermann, Maik; Zochowski, Dawid
  106. Optimal Taxation with Endogenous Default under Incomplete Markets By Ignacio Presno; Demian Pouzo
  107. Algeria: Selected Issues Paper By International Monetary Fund. Middle East and Central Asia Dept.
  108. Betting on exports: Trade and endogenous heterogeneity By Alessandra Bonfiglioli; Gino Gancia
  109. Latino América: el día después. ¿Es distinta esta vez? By Guillermo Perry; Alejandro Forero
  110. Crises and Government: Some Empirical Evidence By Jamie Bologna; Andrew T. Young
  111. Brand Teams And Distribution Of Wealth In Brazilian State Championships By Thadeu Gasparetto; Carlos Fernandez-Jardon; Angel Barajas
  112. Análisis macroeconómico de los impactos sectoriales de cambio climático en Colombia By Andrés C. ÁLVAREZ ESPINOSA; Silvia Liliana CALDERÓN; German David ROMERO; Daniel Alejandro ORDOÑEZ
  113. Новая теория рынка и капитализма. В 3-х частях. Часть 1. Рынок By Zheleznyak, Anatoliy
  114. Why Doesn't Technology Flow from Rich to Poor Countries? By Harold L Cole; Jeremy Greenwood; Juan M Sanchez
  115. A Test Of Existential Motivations In Interpersonal Relationships By Elena M. Ukolova; Vladimir B. Shumskiy
  116. Can internet infrastructure help reduce regional disparities? : evidence from Turkey By Celbis M.G.; Crombrugghe D.P.I. de

  1. By: Oinonen, Sami (Bank of Finland Research); Paloviita, Maritta (Bank of Finland Research)
    Abstract: This paper examines recent changes in the cyclicality of euro area inflation. We estimate time-varying parameters for the hybrid New Keynesian Phillips curve using three alternative proxies for the output gap. Our analysis, which is based on the state-space method with Kalman filtering techniques, suggests that the slope of the euro area Phillips curve has become steeper since 2012. Thus, the current low level of inflation and persistently negative output gap increase the risk that euro area inflation will stay below the monetary policy target for an extended period.
    Keywords: inflation; Phillips curve; cycle
    JEL: E31 E32 E52
    Date: 2014–12–16
  2. By: De Koning, Kees
    Abstract: In the U.S. over the past 17 years competition among banks to provide home mortgages has failed. The reason is that there is a finite need for new housing starts at around 1.8 million homes per year and that there is a finite need for funds if house prices are to move in line with the CPI inflation index. In 1997 new home mortgage funds of $125,260 were allocated for each new home, with a median house price level of $145,900. The turning point was already reached in 1998 and in 2006 home mortgage funds per new home had grown to $574,550. In 2006 on basis of the CPI index for new homes, not 1.8 million but nearly 5.5 million new homes could have been build; way above the need. Over the period 1998-2007 the economic value of the output achieved with the money input had dropped considerably and the indebtedness of new mortgagees had increased dramatically. Both were a cause of a slow down in economic growth. The funding bubble burst in 2007. The actions taken by the Federal Reserve saved the banks- bar one- and other financial institutions, but the Fed did not address the financial plight of individual households. Quantitative easing bought up $2.4 trillion of past government debt, which helped lower long-term interest rates. What was not considered was to give a cash injection to individual households to be repaid out of future tax revenues. Such tax advance should not be personalized but repaid to the Fed out of future general tax revenues over a period of say 10 years: the Economic Growth Incentive Method. A Keynesian factor can be introduced into monetary policies. The U.S. has gone through a six-year adjustment period since the beginning of 2008 in order to get back to economic growth. The Eurozone has not achieved the same result. The EGIM method would be very helpful for the Eurozone countries.
    Keywords: Keynesian factor in monetary policy; Economic Growth Incentive Method (EGIM); U.S. home mortgages;money input-new housing starts output relationship, money efficiency index; U.S government debt; Federal Reserve response to financial crisis
    JEL: E44 E52 E58 E62 G21
    Date: 2015–01–05
  3. By: L. Kaas; P. A. Pintus; S. Ray
    Abstract: The value of land in the balance sheet of French firms correlates positively with their hiring and investment flows. To explore the relationship between these variables, we develop a macroeconomic model with firms that are subject to both credit and labor market frictions. The value of collateral is driven by the forward-looking dynamics of the land price which reacts endogenously to fundamental and non-fundamental (sunspot) shocks. We calibrate the model to French data and find that land price shocks give rise to significant amplification and hump-shaped responses of investment, vacancies and unemployment that are in line with the data. We show that both the endogenous movements in the firms’ discount factor and the sluggish response of the land price are key elements that drive the results.
    Keywords: Financial shocks; Labor market frictions.
    JEL: E24 E32 E44
    Date: 2014
  4. By: Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Takushi Kurozumi (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: In the aftermath of the recent financial crisis and subsequent recession, slow recoveries have been observed and slowdowns in total factor productivity (TFP) growth have been measured in many economies. This paper develops a model that can describe a slow recovery resulting from an adverse financial shock in the presence of an endogenous mechanism of TFP growth, and examines how monetary policy should react to the financial shock in terms of social welfare. It is shown that in the face of the financial shocks, a welfare-maximizing monetary policy rule features a strong response to output, and the welfare gain from output stabilization is much more substantial than in the model where TFP growth is exogenously given. Moreover, compared with the welfare-maximizing rule, a strict inflation or price-level targeting rule induces a sizable welfare loss because it has no response to output, whereas a nominal GDP growth or level targeting rule performs well, although it causes high interest-rate volatility. In the presence of the endogenous TFP growth mechanism, it is crucial to take into account a welfare loss from a permanent decline in consumption caused by a slowdown in TFP growth.
    Keywords: Financial shock, Endogenous TFP growth, Slow recovery, Monetary policy, Welfare cost of business cycle
    JEL: E52 O33
    Date: 2014–12
  5. By: Jef Boeckx (Research Department, NBB); Maarten Dossche (Research Department, NBB, ECB); Gert Peersman (Ghent University)
    Abstract: We estimate the effects of exogenous innovations to the balance sheet of the ECB since the start of the financial crisis within a structural VAR framework. An expansionary balance sheet shock stimulates bank lending, stabilizes financial markets, and has a positive impact on economic activity and prices. The effects on bank lending and output turn out to be smaller in the member countries that have been more affected by the financial crisis, in particular those countries where the banking system is less well-capitalized.
    Keywords: unconventional monetary policy, ECB blance sheet, euro area, VAR
    JEL: C32 E30 E44 E51 E52
    Date: 2014–12
  6. By: Raj, Madhusudan
    Abstract: Indian currency rupee is depreciating rapidly against the US dollar and other foreign currencies. This paper analyses the major causes of this depreciation. It also discusses its cures.
    Keywords: Rupee, RBI, Regime uncertainty, Inflation, Depreciation, Fractional reserve banking, Central bank.
    JEL: E41 E42 E51 E52 E58
    Date: 2014–07–01
  7. By: Shapiro, Alan Finkelstein (Universidad de los Andes); Mandelman, Federico S. (Federal Reserve Bank of Atlanta)
    Abstract: We incorporate remittances and microentrepreneurship (self-employment) into a small open-economy business cycle model with capital and labor market frictions. Countercyclical remittances moderate the decline of households' consumption during recessions. These remittances also are used to finance the start-up costs of microenterprises that bolster households' income during economic downturns. However, the positive income effect from countercyclical remittances also leads to a decrease in salaried labor supply, which generates offsetting upward pressure on wages during recessions and adversely affects the recovery of the salaried sector. Therefore, the behavior of remittances decisively affects labor force participation and the composition of employment between nonsalaried and salaried employment over the business cycle. The model delivers labor market and aggregate cyclical dynamics that are consistent with the Mexican data.
    Keywords: business cycles; search and matching frictions; remittances
    JEL: E24 E32
    Date: 2014–11–01
  8. By: Javier Andrés (University of Valencia); Pablo Burriel (Banco de España)
    Abstract: We analyse the incidence of endogenous entry and firm TFP-heterogeneity on the response of aggregate inflation to exogenous shocks. We build up an otherwise standard DSGE model in which the number of firms is endogenously determined and firms differ in their steady state level of productivity. This splits the industry structure into firms of different sizes. Calibrating the different transition rates, across firm sizes and out of the market we reproduce the main features of the distribution of firms in Spain. We then compare the inflation response to technology, interest rate and entry cost shocks, among others. We find that structures in which large (more productive) firms predominate tend to deliver more muted inflation responses to exogenous shocks.
    Keywords: firm dynamics, industrial structure, inflation, business cycles.
    JEL: E31 E32 L11 L16
    Date: 2014–12
  9. By: Ceballos, Luis; Naudon, Alberto; Romero, Damian
    Abstract: The downward trend exhibited in Chile’s nominal term structure since 2003 has been a common pattern shared by other developed and developing economies. To understand the behavior of the nominal yield curve in Chile, we rely on an affine dynamic term structure model (DTMS) which allows to decompose the term structure into the expected short-term premium (related to the monetary policy expectation) and a term premia. We show that most of the fall of long-term interest rates as well as its dynamics are related to the term premia rather than the expected short-term interest rate. With this, we report that the term premia is driven primarily by nominal uncertainty, i.e. the uncertainty for expected inflation and the US term premia.
    Keywords: Term premium; Chile; Yield curve; Risk neutral rates
    JEL: E31 E43 E52 G12 H63
    Date: 2014–12
  10. By: Tobias Adrian (Federal Reserve Bank of New York (E-mail:; Nellie Liang (Board of Governors of the Federal Reserve System (E-mail:
    Abstract: In the conduct of monetary policy, there exists a risk-return tradeoff between financial conditions and financial stability, which complements the traditional inflation-real activity tradeoff of monetary policy. The tradeoff exists even if monetary policy does not target financial stability considerations independently of its inflation and real activity goals, as the buildup of financial vulnerabilities from persistent accommodative monetary policy when the economy is close to potential increases risks to future financial stability. We review monetary policy transmission channels and financial frictions that give rise to this tradeoff between financial conditions and financial stability, within a monitoring program across asset markets, banking firms, shadow banking, and the nonfinancial sector. We focus on vulnerabilities that affect monetary policies' risk- return tradeoff including (i) pricing of risk, (ii) leverage, (iii) maturity and liquidity mismatch, and (iv) interconnectedness and complexity. We also discuss the extent to which structural and time-varying macroprudential policies can counteract the buildup of vulnerabilities, thus mitigating monetary policy's risk-return tradeoff.
    Keywords: risk taking channel of monetary policy, monetary policy transmission, monetary policy rules, financial stability, financial conditions, macroprudential policy
    JEL: E52 G01 G28
    Date: 2014–12
  11. By: Riccardo Bellofiore
    Abstract: An understanding of, and an intervention into, the present capitalist reality requires that we put together the insights of Karl Marx on labor, as well as those of Hyman Minsky on finance. The best way to do this is within a longer-term perspective, looking at the different stages through which capitalism evolves. In other words, what is needed is a Schumpeterian-like, nonmechanical view about long waves, where Minsky's financial Keynesianism is integrated with Marx's focus on capitalist relations of production. Both are essential elements in understanding neoliberalism's ascent and collapse. Minsky provided crucial elements in understanding the capitalist "new economy." This refers to his perceptive diagnosis of "money manager capitalism," the new form of capitalism that came from the womb of the Keynesian era itself. It collapsed a first time with the dot-com crisis, and a second time, and more seriously, with the subprime crisis. The focus is on the long-term changes in capitalism, and especially on what L. Randall Wray appropriately calls Minsky's "stages approach." Our aim is to show that this theme has a deep connection with the topic of the socialization of investment, central in the conclusions of the latter's 1975 book on Keynes.
    Keywords: Great Recession; Marx; Minsky; Money Manager Capitalism; Neoliberalism; Schumpeter; Socialization of Investment; Stages Approach
    JEL: E5 E11 E12 E32 E44 E60 G01 G20 N10 P16
    Date: 2014–12
  12. By: Luis Eduardo Arango; Ximena Chavarro; Eliana González
    Abstract: A small open macroeconomic model, in which an optimal interest rate rule emerges to drive the inflation behavior, is used to model inflation within an inflation targeting framework. This set up is used to estimate the relationship between commodity prices shocks and the inflation process in a country that both export and import commodities. We found evidence of a positive, yet small, impact from food international price shocks to inflation. However, these effects are no longer observable once the sample is split in the periods before and after the boom. The lack of effect from oil and energy price shocks we obtain supports the recent findings in the literature of a substantial decrease in the pass-through from oil prices to headline inflation. Thus, our interpretation is that monetary authority has faced rightly the shocks to commodity prices. Inflation expectations are the main determinant of inflation during the inflation targeting regime. Commodity prices movements are to a great extent included in the information set to form expectations. Classification JEL: E43, E58.
    Date: 2014–12
  13. By: Sami Alpanda; Sarah Zubairy
    Abstract: In this paper, we build a dynamic stochastic general-equilibrium model with housing and household debt, and compare the effectiveness of monetary policy, housing-related fiscal policy, and macroprudential regulations in reducing household indebtedness. The model features long-term fixed-rate borrowing and lending across two types of households, and differentiates between the flow and the stock of household debt. We use Bayesian methods to estimate parameters related to model dynamics, while level parameters are calibrated to match key ratios in the U.S. data. We find that monetary tightening is able to reduce the stock of real mortgage debt, but leads to an increase in the household debt-toincome ratio. Among the policy tools we consider, tightening in mortgage interest deduction and regulatory loan-to-value (LTV) are the most effective and least costly in reducing household debt, followed by increasing property taxes and monetary tightening. Although mortgage interest deduction is a broader tool than regulatory LTV, and therefore potentially more costly in terms of output loss, it is effective in reducing overall mortgage debt, since its direct reach also extends to home equity loans.
    Keywords: Housing; Transmission of monetary policy; Financial system regulation and policies; Economic models
    JEL: E52 E62 R38
    Date: 2014
  14. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context: Turkey’s economy has grown on average by 6 percent annually since 2010, but this has come at the expense of a persistently large external deficit making the economy sensitive to changes in external financing conditions. Inflation is high and above the authorities’ target, and real policy interest rates remain negative. The exchange rate continues to be stronger than suggested by fundamentals. Challenges: Policies should focus on rebalancing the economy, reducing the external deficit—by boosting savings rather than decreasing investment—and lowering inflation to preserve competitiveness. Over the medium term, implementation of the ambitious structural reform agenda is critical to raising potential growth. Key policy recommendations: • Fiscal policy should be tighter, raising domestic savings by increasing the primary surplus by 2 percent of GDP by 2017. • Renewing the focus of monetary policy on the inflation target, by setting and sustaining a positive real policy interest rate. • Expanding the (macro)prudential toolkit to contain risks to financial stability, in particular the banking system’s wholesale external foreign exchange funding. Traction of past Fund advice: The authorities and staff agree that the external imbalance should be reduced, and that this should be done while preserving investment. They also concur that lowering inflation is a key objective. Moreover, to preserve financial stability, the authorities introduced well-targeted macroprudential measures to slow the rise in household leverage and encourage banks to increase core funding. They plan to tackle structural issues through the 10th Development Plan. However, the authorities believe risks are lower than what staff believes and that the economy has enough buffers to withstand reasonable shocks. Thus fiscal and monetary policies would remain more accommodative than recommended by staff.
    Keywords: Article IV consultation reports;Economic growth;Capital inflows;Fiscal risk;Fiscal policy;Debt sustainability;Monetary policy;Banking sector;Macroprudential Policy;Economic indicators;Staff Reports;Press releases;Turkey;
    Date: 2014–12–05
  15. By: Borio, Claudio (Bank of International Settlements); James, Harold (Princeton University); Shin, Hyun Song (Bank of International Settlements)
    Abstract: In analysing the performance of the international monetary and financial system (IMFS), too much attention has been paid to the current account and far too little to the capital account. This is true of both formal analytical models and historical narratives. This approach may be reasonable when financial markets are highly segmented. But it is badly inadequate when they are closely integrated, as they have been most of the time since at least the second half of the 19th century. Zeroing on the capital account shifts the focus from the goods markets to asset markets and balance sheets. Seen through this lens, the IMFS looks quite different. Its main weakness is its propensity to amplify financial surges and collapses that generate costly financial crises – its “excess financial elasticity”. And assessing the vulnerabilities it hides requires going beyond the residence/non-resident distinction that underpins the balance of payments to look at the consolidated balance sheets of the decision units that straddle national borders, be these banks or non-financial companies. We illustrate these points by revisiting two defining historical phases in which financial meltdowns figured prominently, the interwar years and the more recent Great Financial Crisis.
    JEL: E40 E43 E44 E50 E52 F30 F40
    Date: 2014–10–01
  16. By: Ho, Steven Wei (Tsinghua University); Zhang, Ji (Tsinghua University); Zhou, Hao (Tsinghua University)
    Abstract: We study a factor-augmented vector autoregression model to estimate the effects of changes in U.S. monetary policy, as well as changes in U.S. policy uncertainty, on the Chinese economy. We find that since the Great Recession, a decline in the U.S. policy rate would result in a significant increase in Chinese regulated interest rates, and rise in Chinese housing investment. One possible reason for this is the substantial inflow of hot money into China. Responses of Chinese variables to U.S. shocks at the zero lower bound are different from that in normal times, which suggest structural changes in both the Chinese economy and the U.S. monetary policy transmission mechanism. Moreover, an increase in U.S. policy uncertainty negatively impacts Chinese stock and real estate market during normal times, but not at the zero lower bound.
    JEL: C3 E4 E5 F3
    Date: 2014–11–01
  17. By: Achim Truger
    Abstract: Fiscal policy in the Euro area is still dominated by austerity measures implemented under the institutional setting of the 'reformed' stability and growth pact, and the even stricter 'fiscal compact'. At the same time, calls for a more expansionary fiscal policy to overcome the economic crisis have become more frequent, recently. Therefore, the article tries to assess the remaining leeway for a truly expansionary fiscal policy within the existing institutional framework. Special emphasis is put on the method of cyclical adjustment employed by the European commission in order to assess member states’ fiscal position and effort. It turns out that even in the existing framework the leeway for a macroeconomically and socially more sensible fiscal policy using the interpretational leeway inherent in the rules is quite substantial.
    Keywords: fiscal policy, austerity, cyclical adjustment of public finances, Euro area
    JEL: E61 E62 E65 H62 H63
    Date: 2014
  18. By: Pedro Brinca; Hans A. Holter; Per Krusell and Laurence Malafry
    Abstract: The recent experience of a Great Recession has brought the effectiveness of fiscal policy back into focus. Fiscal multipliers do, however, vary greatly over time and place. between wealth inequality and the magnitude of fiscal multipliers. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of OECD economies, including the distribution of wages and wealth, social security, taxes and debt and study the effects of changing policies and various forms of inequality on the fiscal multiplier. We find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also negatively related to the average wealth level in the economy. This explains the correlation between wealth inequality and fiscal multipliers.
    Keywords: Fiscal Multipliers, Wealth Inequality, Government Spending, Taxation
    JEL: E21 E62 H50
    Date: 2014–12
  19. By: Pedro Brinca; Hans Holter; Per Krusell; Laurence Malafry
    Abstract: The recent experience of a Great Recession has brought the effectiveness of fiscal policy back into focus. Fiscal multipliers do, however, vary greatly over time and place. Running VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of OECD economies, including the distribution of wages and wealth, social security, taxes and debt and study the effects of changing policies and various forms of inequality on the fiscal multiplier. We find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also negatively related to the average wealth level in the economy. This explains the correlation between wealth inequality and fiscal multipliers.
    JEL: E21 E62 H50
    Date: 2014–12–23
  20. By: Augustyniak, Hanna; Leszczyński, Robert; Łaszek, Jacek; Olszewski, Krzysztof; Waszczuk, Joanna
    Abstract: This article discusses and explains the dynamics of the primary housing market, focus-ing on housing supply, demand, price and construction costs dynamics. We focus our attention on the primary housing market, because it can create an excessive supply, which can cause distress to the economy. Due to multiplier effects, even small changes in fundamental factors, such as a minor changes in the interest rate, result in demand shocks. Positive demand shifts cannot be easily satisfied, as supply is rigid in the short run. This usually makes house prices grow and developers increase their production, which will be delivered to the market with a lag. Housing developers have the marketing tools to heat up the market for a prolonged period of time. Rising prices can lead to further demand increases, because housing is a consumer and an investment good. When demand moves back to its long run level, the economy is left with excessive supply, falling prices and bad mortgages. We create a simple four-equation model, which is able to replicate the dynamics of the Warsaw primary housing market. Our model replicates historical data in an appropriate way and we apply it to forecast house prices in the next two years on quarterly basis.
    Keywords: Housing market cycles, disequilibrium demand and supply forecast
    JEL: E32 E37 E44 R21 R31
    Date: 2014–12
  21. By: Bianchi, Francesco (Duke University); Melosi, Leonardo (Federal Reserve Bank of Chicago)
    Abstract: We develop and estimate a general equilibrium model in which monetary policy can deviate from active inflation stabilization and agents face uncertainty about the nature of these deviations. When observing a deviation, agents conduct Bayesian learning to infer its likely duration. Under constrained discretion, only short deviations occur: Agents are confident about a prompt return to the active regime, macroeconomic uncertainty is low, welfare is high. However, if a deviation persists, agents’ beliefs start drifting, uncertainty accelerates, and welfare declines. If the duration of the deviations is announced, uncertainty follows a reverse path. For the U.S. transparency lowers uncertainty and increases welfare.
    Keywords: Bayesian learning; reputation; uncertainty; expectations; Markov-switching models; impulse response
    JEL: C11 D83 E52
    Date: 2014–07–01
  22. By: Kim, Minseong
    Abstract: In this paper, several flaws of the basic no-capital/labor-only New Keynesian model are discussed. Some flaws were left undiscovered because mass of varieties n in Dixit-Stiglitz aggregator is often considered as not affecting overall outcomes. Only when n=1 would ordinary results of the basic New Keynesian model hold. To save the theory, we consider the case where production function exhibits constant return to scale for its input labor, then concludes that linear production function itself leads to other sets of problems. The aforementioned results are proven by checking several limit cases of the basic New Keynesian model, which itself is the limit case model of several New Keynesian models. Then we show some problems with applying transversality condition to consumption Euler equation of the model.
    Keywords: Dixit-Stiglitz aggregator; CES; New Keynesian model; Inconsistency; production function; consumption Euler equation; IS curve; transversality condition; monetary rule
    JEL: E12 E13 E32 E52
    Date: 2014–12–30
  23. By: Kim, Minseong
    Abstract: In this paper, several flaws of the basic no-capital/labor-only New Keynesian model are discussed. Some flaws were left undiscovered because mass of varieties n in Dixit-Stiglitz aggregator is often considered as not affecting overall outcomes. Only when n=1 would ordinary results of the basic New Keynesian model hold. To save the theory, we consider the case where production function exhibits constant return to scale for its input labor, then concludes that linear production function itself leads to other sets of problems. The aforementioned results are proven by checking several limit cases of the basic New Keynesian model, which itself is the limit case model of several New Keynesian models. Then we show some problems with applying transversality condition to consumption Euler equation of the model.
    Keywords: Dixit-Stiglitz aggregator; CES; New Keynesian model; Inconsistency; production function; consumption Euler equation; IS curve; transversality condition; monetary rule
    JEL: E12 E13 E32 E52
    Date: 2014–12–30
  24. By: Darracq Pariès, Matthieu; Moccero, Diego; Krylova, Elizaveta; Marchini, Claudia
    Abstract: This paper analyses the cross-country heterogeneity in retail bank lending rates in the euro area and presents newly developed pass-through models that account for the riskiness of borrowers, the balance sheet constraints of lenders and sovereign debt tensions affecting interest rate-setting behaviour. Country evidence for the four largest euro area countries shows that downward adjustments in policy rates and market reference rates have translated into a concomitant reduction in bank lending rates. In the case of Spain and Italy, however, sovereign bond market tensions and a deteriorating macroeconomic environment have put upward pressure on composite lending rates to non-financial corporations and households. At the same time, model simulations suggest that higher lending rates have propagated to the broader economy by depressing economic activity and inflation. As a response to increasing financial fragmentation, the ECB has introduced several standard and non-standard monetary policy measures. These measures have gone a long way towards alleviating financial market tensions in the euro area. However, in order to ensure the adequate transmission of monetary policy to financing conditions, it is essential that the fragmentation of euro area credit markets is reduced further and the resilience of banks strengthened where needed. Simulation analysis confirms that receding financial fragmentation could help to boost economic activity in the euro area in the medium term. JEL Classification: J64
    Keywords: bank lending rates, DSGE models, financial fragmentation, monetary policy, pass-through models
    Date: 2014–09
  25. By: Sebastian Gechert; Katja Rietzler; Silke Tober
    Abstract: The NAIRU is a key component of potential output and as such critically affects output gap estimates. In May 2014, the European Commission changed its specification of the NAIRU for several countries and lowered its NAIRU estimates – in the case of Spain from 26.6% to 20.7% for 2015. To test the dependence of the new NAIRU on unemployment versus structural factors, we run counterfactual simulations applying one-standard deviation shocks to actual unemployment and to the structural variable – real unit labor costs. We find that the NAIRU in its new specification is still largely determined by actual unemployment. This calls in question both the interpretation of potential output estimates as barriers to more vigorous inflation-stable economic activity and the accuracy of structural deficit figures.
    Keywords: NAIRU, Kalman filter, output gap, euro area, structural deficit
    JEL: E23 E24 E31
    Date: 2014
  26. By: Ryan Chahrour (Boston College); Sanjay K. Chugh (Boston College); Tristan Potter (Boston College)
    Abstract: We estimate a search-based real business cycle economy using quantity data and a broad set of wage indicators, allowing the latent wage to follow a non-structural ARMA process. Under the estimated process, wages adjust immediately to most shocks and induce substantial variation in labor's share of surplus. These results are not consistent with either a rigid real wage or Nash bargaining. The model fit is excellent, and smoothed realizations of the wage are consistent with empirical measures. According to the model, shocks to intertemporal preferences are the primary cause of inefficient fluctuations in the labor market and the driver of variation in labor's share of surplus.
    Keywords: Search and Matching, Wage Determination, DSGE, Bayesian Estimation
    JEL: E32 E24
    Date: 2014–12–17
  27. By: Ichiro Fukunaga (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Naoya Kato (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: We empirically investigate the relationship between the Japanese general collateral (GC) repurchase agreement (repo) and uncollateralized call rates before, during, and emerging from the recent financial crisis. Unlike the US and many other countries, the Japanese GC repo rate has been higher than the uncollateralized call rate, despite the former being secured by collateral. Moreover, during the financial crisis, the Japanese GC repo rate rose, whereas the US Treasury GC repo rate decreased. The results of our empirical analysis suggest that segmentation between the Japanese repo and call markets is a key factor explaining these features. The analysis also reveals how much changes in the policy target rate and the current account balances at the Bank of Japan, institutional changes in the payment system, and various policy and market events affected both the repo and call rates.
    Keywords: repurchase agreement (repo), call markets, monetary policy implementation, financial crisis, market segmentation, vector error correction model, threshold ARCH
    JEL: E43 E52 E58 G01 G12
    Date: 2014–12
  28. By: Won Joong Kim (Department of Economics, Konkuk University, Seoul, Korea); Shawkat Hammoudeh (LeBow College of Business, Drexel University, Philadelphia, PA, USA); Jun Seog Hyun (Department of Economics, Konkuk University, Seoul, Korea); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: The paper empirically analyzes the effect of oil price shocks on China’s economy with special interest in the response of the Chinese interest rate to those shocks. Using different econometric models, i) a time-varying parameter structural vector autoregression (TVP SVAR) model with short-run identifying restrictions, ii) a structural VAR (SVAR) model with the short-run identifying restrictions, and iii) a VAR model with ordering-free generalized impulse response VAR (GIR VAR), we find the response of the Chinese interest rate to the oil shocks is not only time-varying but also showing quite different signs of responses. Specifically, in the earlier sample period (1992:4-2001:10), the interest rate shows a negative response to the oil shock, while in the latter period (2001:11-2014:5) it shows a positive response to the shock. Given the negative response of the world oil production to an oil price shock in the earlier period, the shock is identified as a negative supply shock or a precautionary demand shock, thereby the negative response the interest rate the oil shock is deemed as economy-boosting. The positive response of interest rate the oil shock in the later period, given that this shock is identified as a positive world oil demand shock, gives evidence that stabilization of inflation is one of the main objectives of China’s monetary authority, even though the current main objective of the monetary policy is characterized as “maintaining the stability of the value of the currency and thereby promoting economic growth.” Finally, the variance decomposition results reveal that the oil price shock becomes an increasingly important source in the volatility of China’s interest rate.
    Keywords: Oil price shock, China’s monetary policy, TVP SVAR, SVAR, generalized impulse response
    JEL: C32 E52 O13 O53 Q43
    Date: 2014–12
  29. By: Soldatos, Gerasimos T.
    Abstract: Put in terms of the two fundamental theorems of welfare economics, social or welfare liberalism is being defined as the tenet criticizing classical liberalism for neglecting the second theorem, having nothing to say about the “liberalism” of macroeconomic policymaking. This note claims that the macroeconomic dimension of social liberalism is the one advanced by pre-war, Old Chicago, which, based on the quantity theory of money, was maintaining (i) that it abides by laissez-faire but against classical liberalism’s laissez faire of “let the cycle run its course”, and given (ii) that Old Chicago was seeing government intervention necessary for income-redistribution reasons, too. Which of the two liberalisms holds the true version of laissez faire? Going back to the Physiocrats who had coined the term, one realizes that they had done so from the welfare liberalist point of view abstracting from the macro-monetary issues raised of Jean Bodin separately. This abstraction continues until today neglecting the “fact” that what Old Chicago had really done was to integrate into social liberalism the quantity-theory-of-money macro-monetary considerations having started with Bodin. The German “experiment” with the Freiburg-School-inspired Soziale Marktwirtschaft - an experiment in social liberalism - attests to the need for “Chicago rules” if social liberalism is to stand out as a different system altogether. In sum, the only microeconomics-cum-macroeconomics consistent with the true, the socio-liberal laissez-faire is the Old Chicago economics. Examples in classical liberalism are Monetarism and Austrian economics whereas Keynesianism and Marxism abandon laissez faire altogether.
    Keywords: Liberalism, Physiocrats, Pre-war Chicagoans, Soziale Marktwirtschaft, Macro-Monetary Economics
    JEL: B1 B2 D02 E3 P1
    Date: 2014
  30. By: Eurilton Araújo
    Abstract: If the central bank attempts to minimize a welfare loss function in a small-open economy model with nominal wage and price rigidities, it has been argued that a monetary policy rule that responds to consumer price index (CPI) inflation performs better than rules that react to competing inflation measures. From the viewpoint of determinacy and learnability of rational expectations equilibrium (REE), this paper suggests that a rule that responds to CPI inflation does not significantly increase the central bank's ability to promote the convergence of an economy to a determinate and learnable REE nor improves the speed of this convergence when compared with rules that react to contending inflation measures
    Date: 2014–12
  31. By: Wei Jiang
    Abstract: Using a Mortensen-Pissarides search-and-matching framework, this paper investigates the importance of search frictions in determining the welfare and distributional effects of tax reforms that re-allocate the tax burden from capital to labour income. Calibrating the model to the UK economy, we find that the tax reforms are Pareto improving but increase inequality in the long run, despite welfare losses for at least one segment of the population in the short run. The results are robust to the variations in the relative bargaining power of workers and different specifications of unemployment benefit. But the welfare gains are higher for all agents if the relative bargaining power of workers is reduced or we assume that unemployment benefit depends on past wages.
    Keywords: search frictions; agent heterogeneity; unemployment benefits; tax reforms
    JEL: E21 E24 E62
    Date: 2014–12
  32. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Context: With successful landmark elections in September 2014, Fiji took a decisive stride toward returning to democratic government for the first time since 2006. The successful elections are expected to solidify the recent improvements in relationships with traditional development partners, improve access to concessional development finance, and boost confidence in the economy. In terms of economic policy, the comfortable Parliamentary majority for the former interim Prime Minister’s party (FijiFirst) is expected to support continued economic reform momentum. Key issues and policy recommendations: • With the economy now growing above potential, near-term macroeconomic management needs to be carefully calibrated. The accommodative monetary policy in place since 2011 has stimulated economic activity. The Reserve Bank of Fiji should now tighten policy in order to moderate credit growth and curb excess liquidity. • Fiscal policy has been prudent and well focused in recent years, but the expansionary 2014 budget was a major departure from these welcome trends. Reversion to the prudent trend is strongly encouraged. • The authorities have accelerated economic reforms in recent years, for example in the sugar sector and pension schemes, but the key policy challenges remain to raise potential growth, reduce unemployment, improve financial inclusion, and increase resilience to shocks. Following the elections, continued structural reform momentum is needed to improve the business environment, address the infrastructure backlog, and raise the absorptive capacity to take full advantage of a potential increase in investments.
    Keywords: Article IV consultation reports;Fiscal policy;Fiscal reforms;Monetary policy;Bank supervision;Flexible exchange rate policy;Exchange restrictions;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Fiji;
    Date: 2014–11–12
  33. By: Atsushi Sekine (Graduate School of Economics, Kyoto University); Takayuki Tsuruga (Graduate School of Economics, Kyoto University)
    Abstract: Since 2000s, large fluctuations in non-energy commodity prices have become a concern among policymakers about price stability. Using local projections, this paper investigates the effects of commodity price shocks on inflation. We estimate impulse responses of the consumer price indexes (CPIs) to commodity price shocks from a monthly panel consisting of 120 countries. Our analyses show that the effects of commodity price shocks on inflation are transitory. While the effect on the level of consumer prices varies across countries, the transitory effects on in- flation are fairly robust, suggesting that policymakers may not need to pay special attention to the recent fluctuation in non-energy commodity prices. Employing the smooth transition autoregessive models that use the past inflation rate as the transition variable, we also explore the possibility that the effect of commodity price shocks is influenced by the inflation regimes. In this specification, commodity prices may not have transitory effects when a country is less developed and its currency is pegged to the U.S. dollar. However, the effect remains transitory in developed countries with exchange rate flexibility.
    Keywords: Commodity prices, inflation, pass-through, local projections, smooth transition autoregressive models
    JEL: E31 E37 Q43
    Date: 2014–12
  34. By: Justiniano, Alejandro (Federal Reserve Bank of Chicago); Primiceri, Giorgio E. (Northwestern University); Tambalotti, Andrea (Federal Reserve Bank of New York)
    Abstract: The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust.
    Keywords: Credit; housing prices; mortgages
    JEL: E44 G21 R21
    Date: 2014–07–01
  35. By: Michal Franta; David Havrlant; Marek Rusnak
    Abstract: In this paper we use a battery of various mixed-frequency data models to forecast Czech GDP. The models employed are mixed-frequency vector autoregressions, mixed-data sampling models, and the dynamic factor model. Using a dataset of historical vintages of unrevised macroeconomic and financial data, we evaluate the performance of these models over the 2005–2012 period and compare them with the Czech National Bank’s macroeconomic forecasts. The results suggest that for shorter forecasting horizons the accuracy of the dynamic factor model is comparable to the CNB forecasts. At longer horizons, mixed-frequency vector autoregressions are able to perform similarly or slightly better than the CNB forecasts. Furthermore, moving away from point forecasts, we also explore the potential of density forecasts from Bayesian mixed-frequency vector autoregressions.
    Keywords: GDP, mixed-frequency data, real-time data, short-term forecasting
    JEL: C53 C82 E52
    Date: 2014–11
  36. By: Soldatos, Gerasimos T.
    Abstract: This is a note on corruption and underground economy in a Kaldor-type model of the business cycle. It appears that when the economy is booming and underground activities seek to enter the official economy, bureaucrats have the upper hand but until underground businesses cannot tolerate bureaucrats anymore and start reentering the informal sector. This is what checks the growth of the official output and gets it into its downward phase. Once in this phase, bureaucrats lose control and just follow passively the developments in the economy. At the trough of the contraction, official activities reach their nadir whereas the unofficial ones are at their zenith and seek to buy whatever has been left from the staggering official businesses. This is what leads to recovery in the absence of stabilization policies.
    Keywords: Bureaucracy, Corruption, Underground Economy, Business Cycle
    JEL: D73 E32 O17
    Date: 2014
  37. By: Young Sik Kim (epartment of Economics & SIRFE, Seoul National University, Seoul, South Korea); Manjong Lee (Department of Economics, Korea University, Seoul, South Korea)
    Abstract: The separation of a unit of account (UoA) from a medium of exchange (MoE) in the commodity-money system is investigated by considering explicitly a seller¡¯s choice with regard to posting price in terms of either an MoE or a UoA. If the likelihood of debasement of MoE or its rate is high enough and agents are sufficiently risk averse, there exists a monetary equilibrium in which price is quoted in terms of a UoA. Further, a UoA-posting equilibrium yields the flexible nominal price, whereas an MoE-posting equilibrium yields the sticky one. This suggests that in the fiat-money system where MoE and UoA are integrated, price would not be flexibly adjusted.
    Keywords: debasement, medium of exchange, unit of account, nominal price rigidity
    JEL: E31 E42 F33
    Date: 2014
  38. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context: The economy is recovering slowly, driven mostly by private consumption and non-oil-and gas exports. Employment is increasing and unemployment has been trending downward slightly over the past year. Macroeconomic policy: The exchange rate peg to the euro has served Denmark well. Fiscal policy turned slightly supportive in 2014 after a substantial consolidation in 2013. The government’s fiscal stance for 2015 and the medium term imply a slightly negative fiscal impulse and are broadly appropriate in light of the expected gradual recovery. Financial Sector Policy: Stress tests conducted as part of the IMF Financial Sector Assessment Program (FSAP) found that financial stability risks are contained. Important policy actions have helped to safeguard financial stability but the large size and high domestic interconnectedness of the financial system require even greater resilience and further measures are needed to reduce risks. Household Debt and House Prices: Some features of tax, rental market, and financial sector policy should be reconsidered in order to limit house price volatility and to prevent excessive debt accumulation in the future. Specifically, the proposed new supervisory guidelines for mortgage credit institutions should be complemented by reduced tax preferences for housing and less rigid rental market regulations. Productivity and labor market reforms: The government has included reforms in Growth Plan 2014 as a first response to the recommendations of the Productivity Commission. A continued consideration of reforms, including all of the remaining recommendations by the Commission, would be welcome. Increasing labor market participation is a high priority given the fiscal burden of an aging population and the recent actions by the government to address labor market challenges are welcome.
    Keywords: Article IV consultation reports;Economic recovery;Fiscal policy;Housing prices;Labor market reforms;Financial sector;Bank supervision;Economic indicators;Staff Reports;Press releases;Denmark;
    Date: 2014–12–09
  39. By: Ahrens, Steffen (Technische Universität Berlin); Pirschel, Inske (Kiel Institute for the World Economy); Snower, Dennis J. (Kiel Institute for the World Economy)
    Abstract: We present a new theory of wage adjustment, based on worker loss aversion. In line with prospect theory, the workers' perceived utility losses from wage decreases are weighted more heavily than the perceived utility gains from wage increases of equal magnitude. Wage changes are evaluated relative to an endogenous reference wage, which depends on the workers' rational wage expectations from the recent past. By implication, employment responses are more elastic for wage decreases than for wage increases and thus firms face an upward-sloping labor supply curve that is convexly kinked at the workers' reference price. Firms adjust wages flexibly in response to variations in labor demand. The resulting theory of wage adjustment is starkly at variance with past theories. In line with the empirical evidence, we find that (1) wages are completely rigid in response to small labor demand shocks, (2) wages are downward rigid but upward flexible for medium sized labor demand shocks, and (3) wages are relatively downward sluggish for large shocks.
    Keywords: downward wage sluggishness, loss aversion
    JEL: D03 D21 E24
    Date: 2014–12
  40. By: Engler, Philipp; Große Steffen, Christoph
    Abstract: This paper studies the bank-sovereign link in a dynamic stochastic general equilibrium set-up with strategic default on public debt. Heterogeneous banks give rise to an interbank market where government bonds are used as collateral. A default penalty arises from a breakdown of interbank intermediation that induces a credit crunch. Government borrowing under limited commitment is costly ex ante as bank funding conditions tighten when the quality of collateral drops. This lowers the penalty from an interbank freeze and feeds back into default risk. The arising amplification mechanism propagates aggregate shocks to the macroeconomy. The model is calibrated using Spanish data and is capable of reproducing key business cycle statistics alongside stylized facts during the European sovereign debt crisis.
    Keywords: sovereign default,interbank market,Bank-sovereign link,non-Ricardian effects,secondary markets,domestic debt,occasionally binding constraint
    JEL: E43 E44 F34 H63
    Date: 2014
  41. By: Jan Kregel
    Abstract: Criticisms of the Federal Reserve's "unconventional" monetary policy response to the Great Recession have been of two types. On the one hand, the tripling in the size of the Fed's balance sheet has led to forecasts of rampant inflation in the belief that the massive increase in excess reserves might be spent on goods and services. And even worse, this would represent an attempt by government to inflate away its high levels of debt created to support the solvency of financial institutions after the September 2008 collapse of asset prices. On the other hand, it is argued that the near-zero short-term interest rate policy and measures to flatten the yield curve (quantitative easing plus "Operation Twist") distort the allocation and pricing in the credit and capital markets and will underwrite another asset price bubble, even as deflation prevails in product markets. Both lines of criticism have led to calls for a return to a more conventional policy stance, and yet there is widespread agreement that this would have a negative impact on the economy, at least in the short-term. However, since the analyses behind both lines of criticism are mistaken, it is probable that the analyses of the impact of the risks of return to more normal policies are also in error.
    Date: 2014–12
  42. By: Philipp Engler; Christoph Große Steffen
    Abstract: This paper studies the bank-sovereign link in a dynamic stochastic general equilibrium set-up with strategic default on public debt. Heterogeneous banks give rise to an interbank market where government bonds are used as collateral. A default penalty arises from a breakdown of interbank intermediation that induces a credit crunch. Government borrowing under limited commitment is costly ex ante as bank funding conditions tighten when the quality of collateral drops. This lowers the penalty from an interbank freeze and feeds back into default risk. The arising amplification mechanism propagates aggregate shocks to the macroeconomy. The model is calibrated using Spanish data and is capable of reproducing key business cycle statistics alongside stylized facts during the European sovereign debt crisis.
    Keywords: Sovereign default, interbank market, bank-sovereign link, Non-Ricardian effects, secondary markets, domestic debt, occasionally binding constraint
    JEL: E43 E44 F34 H63
    Date: 2014
  43. By: Nam, Choong Hyun
    Abstract: Since the 1980s, the labour demand has shifted toward more educated workers in the US. The most common explanation is that the productivity of skilled workers has risen relative to the unskilled, but it is not easy to explain why the aggregate labour productivity was stagnant during the 1980s. Alternatively, I have constructed a theoretical model which assumes that the demand for white-collar workers increases not because their productivity grows faster, but because increasing product variety requires white-collar workers as fixed input. Hence, the transition from Ford-style mass production towards more diversified one has shifted labour demand toward white-collar workers.
    Keywords: Skill Demand; product innovation; inequality; productivity
    JEL: E23 E24 E32 J31 L1 O3 O4
    Date: 2014–12–31
  44. By: John B. Taylor (Stanford University)
    Abstract: This paper assesses the emerging market experience with inflation targeting in recent years. It places this experience in the broader context of global monetary policy. It shows that a shift away from rules based policy by many developed country central banks has adversely affected the inflation targeting performance of the emerging market countries. First, it has created direct economic spillovers, which have blurred the good effects of inflation targeting. Second, it has led to policy spillovers in which emerging market central banks have been driven to deviate from their inflation targeting rules. The implication of this research is that emerging market countries should stick to the type of inflation targeting they adopted a decade or more ago with macroprudential policy simply focused on getting the overall risk environment right.
    Date: 2014–10
  45. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: KEY ISSUES Context. High oil prices and production have contributed to sizable fiscal and external surpluses. Non-oil growth has picked up, mainly driven by consumption and investment. Political developments in the last few years have had an adverse impact on the implementation of public investment program. A new five-year Development Plan for 2015–19 has been proposed to the Parliament. The authorities are initiating subsidy and public wage reforms, as well as fiscal and financial institutional and regulatory reforms. Kuwait is at an inflection point as economic diversification, a key policy priority, has to start now to generate a higher and sustainable growth path. Recent oil price developments. The recent decline in oil prices further highlights current challenges. While the consultation with the authorities took place when oil prices were projected to decline from $105 per barrel in 2014 to $96 per barrel in 2019, since then they have fallen by about 20–25 percent. Staff’s policy recommendations on the pace of fiscal and structural reforms remain valid if the current drop in oil prices is temporary. Staff also developed with the authorities a downside scenario, with oil prices lower by $20 over the five year period. Under this scenario, with substantial buffers that have been built-up, a decline in oil prices should not trigger immediate spending cuts, especially in capital expenditure, but it places more urgency on implementing the government’s medium-term consolidation plans to contain current spending consistent with intergenerational equity. Political setting. Since the formation of the last Parliament after elections in July 2013, some tensions resurfaced in early 2014 (six parliamentary elections were held during 2006–13). It is vital for the government and the parliament to agree on an agenda to place the public investment program on track and continue structural reforms. Outlook and risks. Kuwait’s near- and medium-term economic outlook is favorable. Non-oil GDP growth in Kuwait is expected to pick up to 4.0–5.0 percent in the medium term, supported by government investment in infrastructure and the oil sector, and by consumption. The main downside risk to the outlook arises from lower global oil demand and prices. Macroeconomic policies. The current strong fiscal position notwithstanding, spending rigidities and reliance on oil revenues have highlighted fiscal risks. Containing current spending growth by restraining the wage bill and reforming subsidies (combined with targeted mitigating measures and a well-designed communication strategy) is important 2 INTERNATIONAL MONETARY FUND for ensuring fiscal sustainability. Developing a supportive fiscal policy framework underpinned by medium-term macroeconomic and expenditure frameworks, while preparing for an adoption of fiscal rules, would strengthen the reform process. In the context of the exchange rate basket peg, the central bank should continue to be proactive in liquidity management. Enhancing financial stability. Prudent regulation and supervision by the central bank has ensured banking system stability. Risks to the financial system from investment companies are contained, although a few companies continue to make losses and deleverage and restructure their balance sheets and operations. Enhancing the macroprudential policy framework would further strengthen systemic stability. Economic Diversification. Reforms are needed for improving the business environment, public investment efficiency, and education and skills. In addition, measures to realign incentives for firms and national workers to promote entrepreneurship and private sector employment are required. These would include increasing private sector competition, reducing wage gaps between the public and private sector, and containing public employment.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Fiscal reforms;Monetary policy;Macroprudential Policy;Banking sector;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Kuwait;
    Date: 2014–12–09
  46. By: Supreet Kaur
    Abstract: This paper tests for downward nominal wage rigidity in markets for casual daily agricultural labor in a developing country context. I examine transitory shifts in labor demand, generated by rainfall shocks, in 600 Indian districts from 1956-2009. First, there is asymmetric adjustment: nominal wages rise in response to positive shocks but do not fall during droughts. Second, transitory positive shocks generate ratcheting: after they have dissipated, nominal wages do not adjust back down. Third, inflation moderates these effects, enabling downward real wage adjustments both during droughts and after positive shocks. Fourth, wage distortions generate employment distortions, creating boom and bust cycles: employment is 9% lower in the year after a transitory positive shock than if the positive shock had not occurred. Fifth, consistent with the misallocation of labor across farms, households with small landholdings increase labor supply to their own farms when they are rationed out of the external labor market. The results are not consistent with other transmission mechanisms, such as migration or capital accumulation. These findings indicate the presence of rigidities in a setting with few institutional constraints. Survey evidence suggests that workers and employers believe that nominal wage cuts are unfair and lead to effort reductions.
    JEL: E24 J31 O10 O12
    Date: 2014–12
  47. By: Driouchi, Ahmed; Achehboune, Amale; Gamar, Alae
    Abstract: Abstract: This paper attempts to reveal the intangible components of wealth that need to be considered for further economic and social policies in Morocco. This objective is achieved through selecting secondary time series data and international indices and regressing the residual intangible wealth as measured by the World Bank method, on different components that are likely to be tested as genuine wealth indicators for Morocco. The attained results are not different from those revealed in previous publications. Governance, Intellectual capital besides Safety and Peace in addition to some cultural features appear to be the main components of the intangible wealth in Morocco. They consequently constitute new directions for economic policy improvements.
    Keywords: Keywords: Intangible capital, regression analysis, wealth intangible components.
    JEL: E21 E22 O11 Q57
    Date: 2015–01–01
  48. By: World Bank Group
    Keywords: Environmental Economics and Policies Private Sector Development - E-Business Social Protections and Labor - Labor Policies Economic Theory and Research Social Protections and Labor - Labor Markets Macroeconomics and Economic Growth Environment
    Date: 2014–06
  49. By: World Bank
    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: 2014–07
  50. By: World Bank
    Keywords: Macroeconomics and Economic Growth - Climate Change Economics Macroeconomics and Economic Growth - Markets and Market Access Social Protections and Labor - Labor Policies Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets
    Date: 2013–11
  51. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Context. Papua New Guinea’s (PNG) economy is experiencing an important transition, as new liquefied natural gas (LNG) production and exports commence. While resource sector activity in 2014–15 will be buoyed by gas production, non-resource sector growth will remain low in 2014 as LNG production has little knock-on effect on the wider economy. Meanwhile, the sharp fiscal expansions of the past three years have significantly reduced fiscal space, and excess demand for foreign exchange has persisted following a large de facto appreciation of the kina after the introduction in early June 2014 of a trading band around the official exchange rate and the requirement for banks to use the band in their transactions with customers. Outlook and risks. The overall growth outlook in the short run is favorable, but it masks weakness in the non-resource sector and employment conditions. Risks to the near-term outlook are increasingly tilted to the downside as global economic weakness could weigh on external demand and commodity prices, with fiscal stimulus limited by the need to ensure debt sustainability. The recent exchange rate measure also heightens risks to the growth outlook as well as to the external position. Policy assessment. A key challenge facing PNG is to maintain fiscal and debt sustainability while pursuing development objectives. Continued macroeconomic and financial stability will also require better management of excess banking system liquidity and exchange rate policy. To meet these challenges, policies should aim to: • Consolidate the fiscal position in line with the government’s current debt targets through restraining low-impact expenditure and strengthening revenue collection. • Improve spending quality, through improved composition and public financial management, and ensure budget integrity in managing public resources. • Withdraw excess liquidity held by banks more fully and allow the exchange rate to be more determined by market forces in order to eliminate excess demand for foreign exchange. • Accelerate structural reforms, focusing on lowering the cost of doing business, to support non-resource sector growth.
    Keywords: Article IV consultation reports;Fiscal policy;Government expenditures;Fiscal reforms;Monetary policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Papua New Guinea;
    Date: 2014–12–02
  52. By: George-Marios Angeletos; Fabrice Collard; Harris Dellas
    Abstract: We enrich workhorse macroeconomic models with a mechanism that proxies strategic uncertainty and that manifests itself as waves of optimism and pessimism about the short-term economic outlook. We interpret this mechanism as variation in confidence and show that it helps account for many salient features of the data; it drives a significant fraction of the volatility in estimated models that allow for multiple structural shocks; it captures a type of fluctuations in aggregate demand that does not rest on nominal rigidities; and it calls into question existing interpretations of the observed recessions. We complement these findings with evidence that most of the business cycle in the data is captured by an empirical factor which is unlike certain structural forces that are popular in the literature but similar to the one we formalize here.
    JEL: E0
    Date: 2014–12
  53. By: Carroll, Daniel R. (Federal Reserve Bank of Cleveland); Dolmas, James (Federal Reserve Bank of Dallas); Young, Eric R. (University of Virginia)
    Abstract: We study the tax systems that arise in a once-and-for-all majority voting equilibrium embedded within a macroeconomic model of inequality. We find that majority voting delivers (i) a small set of outcomes, (ii) zero labor income taxation, and (iii) nearly zero transfers. We find that majority voting, contrary to the literature developed in models without idiosyncratic risk, is quite powerful at restricting outcomes; however, it also delivers predictions inconsistent with observed tax systems.
    Keywords: Political Economy; Essential Set; Voting; Inequality; Incomplete Markets
    JEL: D52 D72 E62
    Date: 2015–01–07
  54. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Macroeconomics and Economic Growth - Investment and Investment Climate Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth - Subnational Economic Development Public Sector Expenditure Policy Public Sector Development
    Date: 2014–06
  55. By: Sanches, Daniel R. (Federal Reserve Bank of Philadelphia)
    Abstract: This paper develops a dynamic theory of money and banking that explains why banks need to hold an illiquid portfolio to provide socially optimal transaction and liquidity services, opening the door to the possibility of equilibrium banking panics. Following a widespread liquidation of banking assets in the event of a panic, the banking portfolio consistent with the optimal provision of transaction and liquidity services during normal times cannot be quickly reestablished, resulting in an unusual loss of wealth for all depositors. This negative wealth effect stemming from the liquid portion of the consumers' portfolio is strong enough to produce a protracted recession. A key element of the theory is the existence of a dynamic interaction between the ability of banks to offer transaction and liquidity services and the occurrence of panics.
    Keywords: Banking Panics; Medium Of Exchange; Random Matching; Transaction Services; Liquidity Insurance
    JEL: E32 E42 G21
    Date: 2014–12–22
  56. By: Refet Gürkaynak (Bilkent University); Gulserim Ozcan (Bilkent University); Marcel Fratzscher
    Abstract: Understanding inflation expectations is an integral part of understanding asset pricing and real economic decisions. We study the role of inflation experience in the formation of inflation expectations by investigating whether and to what extent inflation expectations of different forecasters are affected by the inflation they observe in the area they are residing in. In particular, we focus on the expectations of professional forecasters from different countries of euro area inflation and ask whether their forecast errors are correlated with the observed inflation in the forecaster’s country at the time the expectation was formed. We find that forecasters perceive the world to be more spatially correlated than it actually is: higher inflation in the home country leads to abnormally—in the rational expectations sense--higher expectations of future euro area inflation that result in more pronounced and forecastable forecast errors. This has important implications for asset pricing in internationally diversified portfolios and correlations of international asset prices.
    Date: 2014
  57. By: International Monetary Fund. African Dept.
    Abstract: KEY ISSUES Supported by generally sound policies, economic performance was positive in FY2013/14. A fiscal stimulus and some monetary easing limited the slowdown in growth, which remained robust—albeit below projections. Difficulties in implementation capacity slowed the execution of externally-financed investments, and global and domestic uncertainties prevented further monetary easing. Against this backdrop, low inflation and strong reserves shielded the economy against shocks affecting key trading partners. The envisaged policy mix is set to maintain the growth momentum in FY2014/15. A strong revenue package approved by parliament eliminated many statutory exemptions and set the basis for a structural change in the tax revenue trend. Its full implementation —alongside tax efficiency gains and expenditure restraint—is expected to create space for scaled-up development investment. Well-planned infrastructure investment will support medium-term prospects. The upcoming oil production and progress on regional integration will be supported by scaled-up infrastructure. The infrastructure upgrades are ambitious and need to be well defined and sequenced to avoid undue effects on debt and domestic demand. Progress achieved on structural reforms is expected to improve policy formulation. Institution building in the Ministry of Finance, Planning and Economic Development, with significant progress on public financial management; and improvements in the Bank of Uganda’s inflation targeting framework are anticipated to boost public investment management and monetary policy effectiveness. Risks to the program are not negligible. The pre-electoral period poses risks to fiscal discipline, which are compounded by possible regional and global spillovers. Based on the satisfactory program performance and the proposed policies, staff supports completion of the third PSI review. All quantitative assessment criteria and structural benchmarks were met, and the authorities have taken action to address the shortfall in tax revenue collection. Progress toward the achievement of other key structural reforms has proceeded as expected.
    Keywords: Policy Support Instrument;Economic growth;Fiscal policy;Public investment;Infrastructure;Monetary policy;Economic indicators;Staff Reports;Letters of Intent;Press releases;Uganda;
    Date: 2014–12–12
  58. By: Anderton, Robert; Aranki, Ted; Bonthuis, Boele; Jarvis, Valerie
    Abstract: This paper examines the usefulness of the Okun relationship as a “rule of thumb” for predicting changes in unemployment, as a result of changes in output. It argues that a disaggregated version of the Okun relationship – making use of the differential reaction of unemployment to changes in the various expenditure components of GDP - significantly enhances the capacity of the Okun relationship (in comparison to the aggregate “rule of thumb”) for predicting movements in unemployment. The paper tests this hypothesis using a dataset for the 17 euro area countries over the period 1996Q1-2013Q4. The results suggest that euro area unemployment is particularly sensitive to movements in the consumption component of GDP, while movements in foreign trade (exports and imports) have a much lower impact on unemployment developments. This reflects the highly labour-intensive nature of the services that represent the bulk of consumers’ expenditure, while the higher productivity manufacturing-related content of exports tends to be less labour intensive. JEL Classification: E2, E24, C23
    Keywords: expenditure components of GDP, Okun relationship, panel econometrics, unemployment
    Date: 2014–12
  59. By: Gopakumar K.U. (Sri Sathya Sai Institute of Higher Learning); V. Pandit (Sri Sathya Sai Institute of Higher Learning)
    Abstract: Persistent increase in food prices and its impact on society and economy have been of prime concern for the government and its policy makers in India since 2005-06. Though these rates have eased to some extent in the recent months; with expected recovery of the economy and inherent supply bottle necks, the problem of inflation remains serious. This paper examines the price movements in rice and wheat, following structuralist principles emphasizing the necessity of long term solutions in combination with short and medium term management. However, unlike completely free systems, markets for these products are characterized by government interventions, calling for a slightly different approach under which interactions of demand and supply need to incorporate government interventions by way of minimum support price and procurement. The sample for this study consists of the period, 1980-81 through 2011-12 on an annual basis. Our results confirm strong impact of demand and supply factors in determining inflation for both the products. These include the role of government interventions as well as public investment in agriculture in ensuring price stability.
    Keywords: Food grain inflation, demand and supply management, procurement, minimum support prices, capital stock.
    JEL: C3 E31 Q11 Q18
    Date: 2014–12
  60. By: Lars E.O. Svensson
    Abstract: Forward guidance about future policy settings, in the form of a published policy-rate path, has for many years been a natural part of normal monetary policy for several central banks, including the Reserve Bank of New Zealand and the Swedish Riksbank. The Swedish and New Zealand experience of a published policy-rate path is examined, especially to what extent the market has anticipated the path (the predictability of the path) and to what extent market expectations line up with the path after publication (the credibility of the path). The recent Swedish experience is very dramatic. In particular, it shows a case with a large discrepancy between a high and rising Riksbank path and a low and falling market path, with the market path providing a good forecast of the future policy rate. The discrepancy is explained by the Riksbank’s leaning against the wind in recent years and related circumstances. The New Zealand experience is less dramatic, but shows cases where the market implements either a substantially tighter or easier policy than intended by the RBNZ. There are also cases of the market being ahead of the RBNZ and the RBNZ later following the market.
    JEL: E52 E58 G14
    Date: 2014–12
  61. By: Gábor, Enikö; Vermeulen, Philip
    Abstract: We provide evidence on the effect of elementary index choice on inflation measurement. Using scanner data for 15844 individual items from 42 product categories and 10 euro area countries, we compute product category level elementary price indexes using nine different elementary index formulas. Measured inflation outcomes of the different index formulas are compared with the Fisher Ideal index to quantify elementary index bias. Across product categories, mean levels of annual elementary index bias vary between -0.53 percentage points and 0.55 percentage points depending on the index, while the standard deviation is larger than 1 percentage point. National indexes based on aggregation of the elementary indexes remain biased. The average effect of elementary index bias on national inflation ranges from -0.45 to 0.45 percentage points depending on the index. The results show that elementary index bias is quantitatively more important than upper level substitution bias. JEL Classification: E31, C43
    Keywords: elementary index, HICP, inflation measurement bias, lower level substitution bias
    Date: 2014–12
  62. By: Mishkin, Frederic S. (Columbia University); White, Eugene (Rutgers University)
    Abstract: Interventions by the Federal Reserve during the financial crisis of 2007-2009 were generally viewed as unprecedented and in violation of the rules---notably Bagehot’s rule---that a central bank should follow to avoid the time-inconsistency problem and moral hazard. Reviewing the evidence for central banks’ crisis management in the U.S., the U.K. and France from the late nineteenth century to the end of the twentieth century, we find that there were precedents for all of the unusual actions taken by the Fed. When these were successful interventions, they followed contingent and target rules that permitted pre- tive actions to forestall worse crises but were combined with measures to mitigate moral hazard.
    JEL: E58 G01 N10 N20
    Date: 2014–10–01
  63. By: Wiafe, Emmanuel A.; Barnor, Charles; Quaidoo, Christopher
    Abstract: This study examines the effect of oil prices on domestic investment in Ghana using quarterly time series data from 1984 to 2012. Dynamic Ordinary Least Squares (DOLS) technique was used to estimate the effect of oil price on domestic investment in Ghana. The analysis revealed that there is long run relationship between domestic private investment, oil price shocks, exchange rate, inflation, income and credit to private sector. The study found negative effect of oil price shocks on investment. This indicate that shock in oil prices leads to a reduction in investment. It is therefore recommended that mechanisms be put in place to check or cushion the economy against oil price shocks and variability. This could be done through providing domestic credit to the private sector to boast investment.
    Keywords: Investment, Oil price shocks, Oil price, DOLS, Shocks, Ghana
    JEL: E22 E29 G00 G11
    Date: 2014
  64. By: Yung, Julieta (Federal Reserve Bank of Dallas)
    Abstract: This paper explores whether interest rate factors, derived from the yield curve, can explain exchange rate fluctuations at different horizons. Using a dynamic term structure model under no-arbitrage, exchange rates are modeled as the ratio of two countries’ stochastic discount factors. Key to this framework is that factors are observable, which allows the model to be estimated by Maximum Likelihood. Results show that interest rate factors can explain half of the variation in one-year exchange rates and up to ninety percent of five-year movements, for free-floating currencies from 1999 to 2014. These findings suggest that yield curves contain important information for modeling exchange rate dynamics, particularly at longer horizons.
    JEL: E43 F31 G15
    Date: 2014–10–01
  65. By: Zheleznyak, Anatoliy
    Abstract: A new heterodox theory of capitalism is suggested. Its key moments and general logic are presented. Capitalism is considered as a special case of market, as its higher form. Disequilibrium and "imperfect competition" are admitted to be a functional norm of capitalism. Respectively, an equilibrium and "perfect competition" are admitted to be a functional anomaly; crises are considered as the result of such an anomaly. General principles and concrete measures of crisis-proof policy and crisis-proof behavior are suggested. Comparison with alternative theories is made.
    Keywords: Theory of capitalism; capitalism; profit; equilibrium (balance); disequilibrium (imbalance); perfect competition; imperfect competition; monopoly; crisis; crisis-proof policy; crisis-proof behaviour
    JEL: A10 B50 D00 D50 E00 E32 P10
    Date: 2014–12
  66. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Public Sector Expenditure Policy Finance and Financial Sector Development - Debt Markets Public Sector Economics Macroeconomics and Economic Growth - Subnational Economic Development Public Sector Development
    Date: 2013–08
  67. By: Hunjra, Ahmed Imran; Chani, Muhammad Irfan; Ijaz, Muhammad Shahzad; Farooq, Muhammad; Khan, Kamran
    Abstract: Purpose: The macroeconomic variables are crucial for any change in economy for a country. Any abrupt change among these variables has impact on the economy in various ways. In case of any change the regulatory authority take steps and make amendment in their policies that would put the economy on development track. The aim of the study is to determine the impact of interest rate, exchange rate, and GDP and inflation rate on stock prices in Pakistan. The monthly data of eleven years ranges from 1st January, 2001 to December 31th 2011 was used for this research study. Methodology: Granger causality and cointegration tests are applied on the data to estimate the possible impact of macroeconomic variables on stock prices. Findings: The findings of the study revealed that there is no relationship between dependent variable and explanatory variables in short run. On the other hand results show that there is strong relationship in long run. Recommendations: It is concluded that in long run there is significant relationship between macroeconomic variables on stock prices.
    Keywords: Interest rate, Exchange rate, Inflation rate, GDP, Stock prices
    JEL: G1 G11 G2 G21
    Date: 2014–01–11
  68. By: Daniele Coen-Pirani (University of Pittsburgh)
    Abstract: More than half of the variation across U.S. school districts in real K-12 education expenditures per student is due to differences between, rather than within, states. I study the welfare implications of redistribution of education expenditures by the Federal government, using an analytically tractable model of human capital accumulation with heterogeneous agents and endogenous state policies. The net welfare effect of Federal redistribution depends on a trade-off between the positive effect of redistributing resources toward poorer states and the negative effect resulting from misallocation of population across states. Federal redistribution increases welfare in a calibrated version of the model.
    Keywords: human capital, education expenditures, redistribution, federal, local, state governments, geographic mobility
    JEL: E24 H70 I20 J60
    Date: 2014–12
  69. By: Javier Guillermo Gómez-Pineda; Juan Manuel Julio-Román
    Abstract: We embed a small open economy model for Colombia into the global risk model of Gómez-Pineda, Guillaume, and Tanyeri (2014). The small open economy model is estimated by Bayesian methods and used for analysis and projections. The model enable us to give a consistent treatment of shocks to global risk, country risk, and oil and commodity prices. This treatment is consistent because these shocks affect the global economy as a whole, as dictated by a structural global model, in contrast with other treatments that deal with “rest of the world" shocks as univariate auto regressive processes. The a-priori parameter distributions were found by calibrating for impulse response functions, the evolution of latent variables, equation fit, error decompositions, and model forecast performance. Among other results, we found that the identified episodes of retrenchment and buoyancy in global risk were transmitted to Colombia's country risk premium and that global risk shocks are important drivers of Colombia's output and unemployment gaps. Furthermore, aggregate demand-related shocks are not important as drivers of non-core inflation in Colombia, in contrast with the findings for other countries.
    Keywords: Global risk, Financial linkages, Commodity prices
    JEL: F32 F37 F41 F31 F47 E58
    Date: 2014–12–30
  70. By: HIGA, Kazuhito
    Abstract: The Japanese Consumer Price Index (CPI) is considered to be upwardly biased. This paper estimated the Engel curve based on National Survey of Family Income and Expenditure data to measure the bias. The estimated bias for the period 1989 to 2004 was 0.53 percentage points per annum. Correcting the bias led to a lower inflation rate of 0.14 percent per year, against the official inflation rate of 0.65 percent during the period. A demographic analysis showed that a household with a non-working spouse faced a larger bias suggesting that the opportunity cost of shopping determines the size of the bias.
    Keywords: consumer price index bias, Engel’s Law
    JEL: C10 E31 D12
    Date: 2014–12–17
  71. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: EXECUTIVE SUMMARY Context: Mexico’s growth is recovering, supported by strong export demand, while inflation pressures remain contained. The implementation of wide-ranging structural reforms is expected to boost potential growth in the medium term. The current account deficit is projected to remain broadly stable as a share of GDP, and the real exchange rate is judged to be in line with fundamentals. The authorities are committed to maintaining prudent policies. Nevertheless, Mexico’s strong trade and financial links to the global economy, while a sign of Mexico’s economic strength, make it susceptible to a retrenchment of global risk appetite. Risks: An abrupt surge in global financial market volatility, caused by uncertainties related to the unwinding of the U.S. monetary policy stimulus or heightened geopolitical tensions, could lead to a reversal of capital flows to emerging markets, including Mexico. A rise in emerging market risk premiums could affect not only portfolio flows, but also FDI flows. FCL: The authorities are requesting a new two-year precautionary FCL arrangement in the amount of SDR 47.292 billion (1,304 percent of quota, approximately US$72 billion) and the cancellation of the current arrangement, approved on November 30, 2012. They consider that, in an environment where external risks remain elevated, an FCL arrangement in the amount requested will play a critical role in supporting their overall macroeconomic strategy, preserving investors’ confidence, and providing insurance against adverse global risks. Staff agreed with the authorities that it would be premature to reduce access under the FCL in the case of Mexico, given the proximity to the takeoff window for the policy interest rate in the U.S. The authorities stated that, conditional on a reduction of global risks, they intend to cut access to Fund resources in any subsequent FCL arrangements, with a view to gradually phasing out Mexico’s use of this arrangement. In the staff’s assessment, Mexico continues to meet the qualification criteria for access under the FCL arrangement. Fund liquidity: The proposed commitment would have a manageable impact on the Fund’s liquidity position. Process: An informal meeting to consult with the Executive Board on a possible FCL arrangement for Mexico was held on November 7, 2014.
    Keywords: Flexible Credit Line;Capital account;Balance of payments;Fiscal risk;Staff Reports;Press releases;Extended arrangement cancellations;Extended arrangement requests;Mexico;
    Date: 2014–12–01
  72. By: Massimo Coletta (Bank of Italy); Riccardo De Bonis (Bank of Italy); Stefano Piermattei (Bank of Italy)
    Abstract: In most countries household debt increased from the 1990s until the crisis of 2007-2008 before stabilizing due to recession and deleveraging. However, there are national differences in household debt/GDP ratios. This paper studies the determinants of household debt, using a 32-country dataset and taking both demand-side and supply-side factors into account. The econometric exercises, covering the period 1995-2011, yield two main results. First, debt is greater in countries with higher per capita GDP and household wealth. Second, the efficacy of bankruptcy laws is correlated with the level of household debt, while a longer time to resolve insolvencies is associated with lower debt. These two institutional variables are linked to household debt more robustly than is the quality of credit registers.
    Keywords: household debt, income, wealth
    JEL: E21 G21 P5
    Date: 2014–10
  73. By: João Sousa Andrade (Faculty of Economics, University of Coimbra and GEMF, Portugal); António Portugal Duarte (Faculty of Economics, University of Coimbra and GEMF, Portugal)
    Abstract: This study analyses the effects of public and private investment on Portuguese GDP in the period 1960-2013. After a brief review of the literature based on works developed primarily in the context of VAR analyses, such as those by Pereira and Andraz (2005), and Afonso and St Aubyn (2008), an alternative econometric strategy is proposed. The use of VAR models to estimate the magnitude of crowding-in and crowding-out effects associated with these two components of investment has not been robust. So, we opted for the use of ADL models to estimate the behavioral equations of four variables: output, private investment, public investment, and the real exchange rate. For each of the four equations considered in this study the methodology of Krolzig-Henry (2001, 2005) was applied. Additionally, we also estimate a system of simultaneous equations by the SUR method and calculate the multipliers of the exogenous variables, represented by the current external transfers and the short-run nominal interest rate. Additionally, we tested a model with the first three equations of the system, using the real exchange rate as an exogenous variable. The results point to the existence of a complementarity between private investment and public investment rather than any idea of substitutability. Public investment has positive effects on output and on private investment. The appreciation of the real exchange rate does not have a very significant impact on private and public investment, but it does have a long-lasting negative effect upon output, confirming the presence of a Dutch-disease phenomenon in the Portuguese economy.
    Keywords: Crowding-in, crowding-out, Portuguese Economy, private investment, public investment, ADL and SUR.
    JEL: C32 E22 E62
    Date: 2014–12
  74. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Macroeconomics and Economic Growth - Subnational Economic Development Finance and Financial Sector Development - Debt Markets Public Sector Economics Banks and Banking Reform Public Sector Development
    Date: 2013–09
  75. By: Alvaro Forteza (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Cecilia Noboa (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: We present a simple model of a benevolent government that provides insurance to risk averse individuals. As in macroeconomics, commitment to fully contingent rules is better than discretion, but when the government can only commit to simple rules, discretion may be the best available option. The model provides a simple albeit precise characterization of discretion and commitment to a simple rule in the context of social protection, showing when and why discretion may be better than commitment. We argue that the forces highlighted in our model can provide a rationale for several highly distortive policies often observed in the real world in weak institutional environments.
    Keywords: Discretion, Commitment, Simple Rules, Informality
    JEL: E61 H20 H30 H50 O17
    Date: 2014–08
  76. By: Chung, Hess (Federal Reserve Board of Governors); Fallick, Bruce C. (Federal Reserve Bank of Cleveland); Nekarda, Christopher J. (Federal Reserve Board of Governors); Ratner, David (Federal Reserve Board of Governors)
    Abstract: This paper describes a dynamic factor model of 19 U.S. labor market indicators, covering the broad categories of unemployment and underemployment, employment, workweeks, wages, vacancies, hiring, layoffs, quits, and surveys of consumers’ and businesses’ perceptions. The resulting labor market conditions index (LMCI) is a useful tool for gauging the change in labor market conditions. In addition, the model provides a way to organize discussions of the signal value of different labor market indicators in situations when they might be sending diverse signals. The model takes the greatest signal from private payroll employment and the unemployment rate. Other infl uential indicators include the insured unemployment rate, consumers’ perceptions of job availability, and help-wanted advertising. Through the lens of the LMCI, labor market conditions have improved at a moderate pace over the past several years, albeit with some notable variation along the way. In addition, from the perspective of the model, the unemployment rate declined a bit faster over the past two years than was consistent with the other indicators.
    Keywords: LMCI; U.S.labor market; dynamic factor model; unemployment rate; employment
    JEL: E24 E66 J20 J6
    Date: 2015–01–06
  77. By: Cuong Le Van (Centre d'Economie de la Sorbonne - Paris School of Economics, IPAG Business School and VCREME); Ngoc-Sang Pham (Centre d'Economie de la Sorbonne)
    Abstract: We build an infinite-horizon dynamic deterministic general equilibrium model with imperfect markets (because of borrowing constraints), in which heterogeneous agents invest in capital or/and financial asset, and consume. There is a representative firm who maximizes its profit. Firstly, the existence of intertemporal equilibrium is proved even if aggregate capital is not uniformly bounded. Secondly, we study the interaction between the financial market and the productive sector. We also give conditions to have no bubbles on the financial asset market and the physical asset market as well.
    Keywords: Infinite horizon, intertemporal equilibrium, financial friction, productivity, efficiency, fluctuation.
    JEL: C62 D31 D91 G10 E44
    Date: 2014–08
  78. By: Stijn Claessens
    Abstract: Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools.
    Keywords: Macroprudential policies and financial stability;Monetary policy;Procyclicality of financial system;Financial intermediation;Other systemic risk tools;Financial stability, financial intermediation, externalities, market failures, procyclicality, systemic risks
    Date: 2014–12–11
  79. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Table Overview 2013 and outlook 2014-2016 (p. 1) Figure 2013 estimate and 2014 forecast for CESEE growth drivers (p. 2) Bulgaria upcoming early elections take centre stage (by Rumen Dobrinsky; p. 3) Croatia recession continues (by Hermine Vidovic; p. 4) Czech Republic fiscal relaxation to strengthen the recovery (by Leon Podkaminer; p. 5) Estonia ongoing stagnation (by Sebastian Leitner; p. 6) Hungary EU funds support accelerating growth (by Sándor Richter; p. 7) Latvia consumers keep the wheel turning (by Sebastian Leitner; p. 8) Lithuania investing in growth (by Sebastian Leitner; p. 9) Poland abrupt acceleration of investment activities (by Leon Podkaminer; p. 10) Romania consumption-driven growth (by Gábor Hunya; p. 11) Slovakia domestic demand on the rise (by Doris Hanzl-Weiss; p. 12) Slovenia first signs of recovery (by Hermine Vidovic; p. 13) Albania candidate, at last (by Mario Holzner; p. 14) Macedonia monuments and elections (by Vladimir Gligorov; p. 15) Montenegro tourism and elections (by Vladimir Gligorov; p. 16) Serbia floods and reforms (by Vladimir Gligorov; p. 17) Turkey economic adjustment in progress, political tussle continues (by Michael Landesmann; p. 18) Bosnia and Herzegovina floods and elections (by Vladimir Gligorov; p. 19) Kosovo unstable government in a stable economy? (by Mario Holzner; p. 20) Russian Federation stuck in stagnation (by Peter Havlik; p. 21) Ukraine in search of stability (by Vasily Astrov; pp. 22-23)
    Keywords: economic forecasts, GDP, investment, consumer prices, unemployment, current account, household consumption, net exports, GDP growth
    Date: 2014–07
  80. By: Zheleznyak, Anatoliy
    Abstract: A new heterodox theory of market and capitalism is suggested. Its key moments and general logic are presented. The theory is based on the distinction between two market types – the simple commodity market and the capitalist one. Disequilibrium and "imperfect competition" are admitted to be a functional norm of capitalist market. Respectively, an equilibrium and "perfect competition" are admitted to be a functional anomaly; crises are considered as the result of such an anomaly. General principles and concrete measures of crisis-proof policy and crisis-proof behavior are suggested. The theory consists of three interconnected parts – a theory of market, a theory of value and a theory of capitalism. Every part is shaped as a separate text (with its abstract, introduction, conclusions and other attributes). Comparison with alternative theories is made in each part. This text contains a common preface and common references only.
    Keywords: Theory of market and capitalism; market; capitalism; value; price; profit; equilibrium (balance); disequilibrium (imbalance); perfect competition; imperfect competition; monopoly; crisis; crisis-proof policy; crisis-proof behaviour
    JEL: A10 B50 D00 D50 E00 E32 P00 P10
    Date: 2014–12
  81. By: Carl Grekou
    Abstract: In this paper, we address the issue of devaluations' effectiveness by investigating to what extent a nominal devaluation leads to a real depreciation. Beyond the traditional factors identified by the literature, we pay particular attention to the size of the nominal devaluation and to the initial misalignment of the real exchange rate. Using a sample of 57 devaluation episodes (in 40 developing and emerging countries) and relying on panel data techniques, we evidence that the existence of a sizeable overvaluation of the real exchange rate is a prerequisite to ensure that nominal devaluations will have an expected effect in terms of real depreciations. Furthermore, our results put forward a potential nonlinear relationship between the size of the devaluation and the effectiveness of the nominal adjustment: devaluations operate more efficiently when the magnitude of the nominal adjustment is lower.
    Keywords: Bayesian model averaging; Currency devaluations; Macroeconomic policies; Real exchange rates’ misalignments.
    JEL: C1 E6 F3 F41
    Date: 2014
  82. By: Olga A. Norkina (National Research University Higher School of Economics); Sergey E. Pekarski (National Research University Higher School of Economics)
    Abstract: Modern financial repression in advanced economies does not rely on increasing seigniorage revenue, but mostly rests upon regulatory measures to enlarge the demand for public debt that delivers extremely low or negative real interest rate. In this paper we propose the extension of the overlapping generations model to question the optimality of financial repression in the form of non-market placement of the public debt in the captive pension fund. We show that financial repression and capital income taxation are not perfect substitutes. The optimal degree of financial repression depends on the growth rate of population. Moreover, the benevolent government makes a decision to confiscate some part of the pension wealth
    Keywords: financial repression; fully-funded pension system; public debt; overlapping generations.
    JEL: E62 G28 H21 H55 H63
    Date: 2014
  83. By: Zheleznyak, Anatoliy
    Abstract: A new theory of value is suggested. Its key moments and general logic are presented. The theory has all-purpose nature (is applicable to any commodities, any markets and any market situations). Value is considered as a multicomponent notion which characterizes commodity's internal behaviour (i.e. behaviour independent of market conjuncture). Labour and use values as well as supply and demand ones are interpreted as different components of total value. The role of these components in pricing on balanced and unbalanced markets is investigated. The fundamental conclusion about relationship between value and social psychology and culture is made. Comparison with alternative theories is made.
    Keywords: Value; price; supply; demand; market equilibrium (market balance); market disequilibrium (market imbalance)
    JEL: A10 D00 D46 D50 E00 E31
    Date: 2014–12
  84. By: Reiff, Adam; Rumler, Fabio
    Abstract: Using a comprehensive data set on retail prices across the euro area, we analyse within- and cross-country price dispersion in European countries. First, we study price dispersion over time, by investigating the time-series evolution of the coefficient of variation, calculated from price levels. Second, since we find that cross-sectional price dispersion by far dominates price dispersion over time, we study price dispersion across space and investigate the role of geographical barriers (distance and national borders). We find that (i) prices move together more closely in locations that are closer to each other; (ii) cross-country price dispersion is by an order of magnitude larger than within-country price dispersion, even after controlling for product heterogeneity; (iii) a large part of cross- country price differences can be explained by different tax rates, income levels and consumption intensities. In addition, we find some indication that price dispersion in the euro area has declined since the inception of the Monetary Union. JEL Classification: E31, F41
    Keywords: border effect, international relative prices, price dispersion
    Date: 2014–11
  85. By: Lamazoshvili Beka
    Abstract: We study the impact of oil price fluctuations on oil-importing developing economies focusing on Armenia and Georgia as examples of a small open economy. Our analysis takes into account the underlying sources of the increase in oil prices and the structure of energy flows. Our objective is to understand the role of oil price jumps in the context of endogeneity of oil prices to global economic activity and to identify the key channels of transmission (compared to the developed countries). Using the methodology of Kilian (2009a), we decompose the oil price shocks based on the original source of the increase. We conclude that accounting for underlying reasons for the increase in oil prices in the world energy markets is important for understanding the impact of oil shocks on the small open economies under study. The identified responses of key macroeconomic variables suggest that demand channel may be an important transmission factor. Given the high share of food items in the CPI of the developing economies under study, increased world real activity is likely to translate into increased food prices directly as well as indirectly through higher oil prices. The structure of energy flows and the politics of natural gas matter for the transmission of oil shocks.
    JEL: C32 E32 Q43
    Date: 2014–11–24
  86. By: International Monetary Fund. European Dept.
    Keywords: Debt;Private sector;Fiscal policy;Productivity;Gross domestic product;Selected Issues Papers;Denmark;
    Date: 2014–12–09
  87. By: Šerif Šaboviæ, Vuk Miletiæ (Faculty of Economics Pristina in Kosovska Mitrovica; University Union Nikola Tesla, Belgrade)
    Abstract: For the majority of international investors, country's risk and sovereignty risk are the greatest risks. Country's risk usually includes political and economic uncertainty. Transition countries are characterized by big budget deficit, inflation, domestic currrency appreciation, inconstant exchange terms, low accumulation, limits and market restrictons. Special risk type is market concentration and monopoly. Other factors increasing foerign capital investment in transition countries are payment risk, market risk, operating risk, off-balance sheet risks, consolidation and convergence, money laundering, off-shore business, inadequate prudential control of banks and other financial mediators, outstanding corruption and criminal. Due to sinergetic action of these factors, transition states may be exposed to the risk of international reputation decrease.
    Keywords: transition countries, country's risk and sovereignty risk, political and economic uncertainty, joint investments, managing foreign investment risk.
    JEL: E22 G32
    Date: 2014–09
  88. By: Yuriy Gorodnichenko; Viacheslav Sheremirov; Oleksandr Talavera
    Abstract: Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, we shed new light on how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors' prices, and low costs of nominal price adjustment. We document that although online prices are more flexible than offline prices, they continue to exhibit relatively long spells of fixed prices, large size and low synchronization of price changes, considerable cross-sectional dispersion, and low sensitivity to predictable or unanticipated changes in demand conditions. Qualitatively these patterns are similar to those observed for offline prices, which calls for more research on the sources of price rigidities and dispersion.
    JEL: E3
    Date: 2014–12
  89. By: Rémi Bazillier; Jérôme Héricourt
    Abstract: The academic interest around the well-known inequality-finance nexus has recently been the subject of a renewed attention. A recent, yet flourishing literature started pointing inequality as a possible cause credit bubbles, leading to financial crises. Based on the existing literature, this paper aims at disentangling the various influences underlying the two-way relationship between inequality and finance, by focusing on a causality chain made of three main links: inequality, credit, and financial crises. The literature finds evidence of a positive causal relationship from inequality to credit, both direct (a rise of credit demand as a result of high inequalities) and indirect (inequality incites governments to support credit supply in order to maintain aggregate consumption); coincident factors are not to be excluded either (financial deregulation increasing simultaneously both inequalities and leverage). As credit booms appear to be the main determinant of financial crises, the possible direct and indirect impact of inequalities on such booms is a fundamental dimension to be taken into account by policymakers. Finally, the literature does not provide decisive conclusions concerning the sign of the distributional impact of financial development, financial deregulation and financial crises. It is fair to say however, that a majority of studies conclude to an increase of inequality following a financial crisis. The gaps identified in the literature allow pointing at several avenues for future research.
    Keywords: Finance;Inequality;financial crises;household debt
    JEL: D31 D33 E25 E50 G18
    Date: 2014–12
  90. By: Cesar Sosa-Padilla (McMaster University)
    Abstract: Episodes of sovereign default feature three key empirical regularities in connection with the banking systems of the countries where they occur: (i) sovereign defaults and banking crises tend to happen together, (ii) commercial banks have substantial holdings of government debt, and (iii) sovereign defaults result in major contractions in bank credit and production. This paper provides a rationale for these phenomena by extending the traditional sovereign default framework to incorporate bankers that lend to both the government and the corporate sector. When these bankers are highly exposed to government debt a default triggers a banking crisis, which leads to a corporate credit collapse and subsequently to an output decline. When calibrated to Argentina's 2001 default episode the model produces default on equilibrium with a frequency in line with actual default frequencies, and when it happens credit experiences a sharp contraction which generates an output drop similar in magnitude to the one observed in the data. Moreover, the model also matches several moments of the cyclical dynamics of macroeconomic aggregates.
    Date: 2014
  91. By: Andrea Brandolini (Banca d'Italia); Francesca Carta (Banca d'Italia); Francesco D'Amuri (Banca d'Italia)
    Abstract: This paper contributes to the debate on the design of a centralised fiscal tool absorbing country-specific negative shocks in the euro area. Based on theoretical insights, it identifies the broad characteristics that a shock absorber based on unemployment should have in order to be incentive-compatible and politically feasible. It then derives empirically the combination of activation thresholds, experience rating, eligibility criteria, and benefit generosity which define the systems offering the highest stabilisation for given levels of redistribution, accounting for the large variation in benefit take-up rates across European countries. The analysis suggests that the shock absorber should: i) give rise to macro cross-national transfers, mimicking those that would be generated by a notional euro-wide unemployment benefit scheme of minimal coverage and generosity; ii) be activated by a trigger; and iii) feature partial experience rating. The simulation results, confirmed by robustness checks, show that even systems that do not redistribute resources between countries can have a considerable stabilisation impact in the medium run. Low benefit take-up in Southern Europe substantially reduces the stabilisation properties and the size of the scheme.
    Keywords: unemployment benefits, absorption of macroeconomic shocks, fiscal union.
    JEL: E6 J65 H53
    Date: 2014–11
  92. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Public Sector Expenditure Policy Finance and Financial Sector Development - Debt Markets Transport Economics Policy and Planning Public Sector Economics Transport Public Sector Development
    Date: 2014–06
  93. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: A 36 month, SDR 4,393 million (425 percent of quota) Extended Arrangement under the EFF was approved by the Executive Board on September 4, 2013 and the third review was completed on June 27, 2014, with a total of SDR 1,440 million disbursed. Fifth and sixth tranches totaling of SDR 720 million will be available upon the completion of this review.
    Keywords: Fiscal policy;Fiscal consolidation;Revenue mobilization;Fiscal reforms;Monetary policy;Economic indicators;Staff Reports;Letters of Intent;Press releases;Performance criteria modifications;Extended arrangement reviews;Pakistan;
    Date: 2014–12–22
  94. By: Federica Teppa
    Abstract: The focus of this paper in on the effect that changes in income and financial assets have on household consumption in the Netherlands over the period 2009-2012. The empirical evidence is based on the LISS panel, a longitudinal survey representative of the Dutch-speaking population conducted and administrated by CentERdata at Tilburg University. We find a point estimate of the marginal propensity to consume (MPC) of 0.21 out of household income, that is in line with the international microeconomic evidence. We also find that less fragile households display a double MPC out of income than those more fragile (0.44 vs 0.21, respectively). The point estimate of the MPC out of total financial assets equals 0.04. We also find support of the fact that the MPC out of wealth is smaller for richer households.
    Keywords: Marginal propensities to consume; consumption behavior; survey data
    JEL: E21 D12 D91
    Date: 2014–12
  95. By: Marco Pagano; ESRB Advisory Scientific Committee
    Abstract: This paper is after a difficult question: has banking grown too much in Europe? The difficultly of the question lies in the words “too much”, which require a normative answer. The authors took a stance on how much is “too much”, based on the needs of the real economy in Europe. To tackle the question, they take an approach similar to that of a doctor treating a patient who seems overweight. They were not the first doctors that the European banking system has consulted in recent years. Their patient had just taken a potent medicine (the CRD IV package) and had prescriptions for more (BRRD, SSM, SRM, and possibly structural reform). Indeed, the patient has grown tired of this medicinal onslaught: he has “therapy fatigue”. But, in the authors' view, more is needed. Some therapies could have a higher dosage; others have not been tried at all. Pagano et al. thought that a course of new treatments will brighten the prognosis: helping the European banking system to make a speedy and lasting recovery from its current bloated state. This publication was originally published by ESRB – European Systemic Risk Board as Reports of the Advisory Scientific Committee No. 4/June 2014 “Is Europe Overbanked?”. It was presented during the mBank-CASE Seminar no 132 "Is Europe overbanked?". This report was written by a group of the ESRB’s Advisory Scientific Committee, chaired by Marco Pagano and assisted by Sam Langfield. In addition, the ASC group comprised Viral Acharya, Arnoud Boot, Markus Brunnermeier, Claudia Buch, Martin Hellwig, Andr´e Sapir and Ieke van den Burg.
    Keywords: Money Supply, Credit, Money multipliers, Central Banks and Their Policies, Mergers; Acquisitions, Restructuring, Corporate governance
    JEL: E51 E58 G34
    Date: 2014–11
  96. By: Ozili, Peterson
    Abstract: This study, empirically, investigates the determinants of bank profitability. After including the regulatory variable into the model, I find no significant difference in bank profitability during pre-and post-capital regulation regime. Second, after employing NIM and ROA profitability metrics, I find that the determinants of bank profitability, and its significance, depends on the profitability metric employed. Third, I find that asset quality is a strong determinant of bank interest margin, relative to return on asset. Also, I observe that economies of scale and scope enables larger banks to be profitable (ROA) relative to smaller banks. Overall, the insignificant effect of Basel capital regime on bank profitability seems to suggest that such regulation might not be aimed at decreasing bank profits.
    Keywords: Bank Profitabilty, Basel Capital Regulation
    JEL: E5 E58 G2 G21 N2 N20 N27
    Date: 2015–01
  97. By: International Monetary Fund. Monetary and Capital Markets Department
    Keywords: Financial Sector Assessment Program;Macroprudential Policy;Banking sector;Financial institutions;Insurance;Pension funds;Financial stability;Denmark;
    Date: 2014–12–18
  98. By: Furuoka, Fumitaka
    Abstract: This paper revisits the hysteresis and unemployment problem in Europe by using new data and some innovative methods. Blanchard and Summers are among first researchers to detect the existence of unemployment hysteresis and to attribute the hysteresis effects to the European unemployment problem (Blanchard and Summers, 1986). Despite numerous empirical inquiries on this topic, researchers have not decided whether the hysteresis would exist in unemployment. Thus, this paper chooses five countries in the region, namely France, Germany, Italy, Spain and United Kingdom, and examines systematically their unemployment behaviours by employing several different econometric tests, such as the SUR-ADF test (Breuer et al., 2002), the Fourier ADF (FADF) test (Enders and Lee, 2012) and the SUR-Fourier ADF (SUR-FADF) test. These four tests produced consistent findings that unemployment rates in these five European countries could be described as the unit root process. In other words, these different unit root tests uniformly detected the existence of hysteresis in these five countries in line with the hysteresis hypothesis.
    Keywords: Unemployment hysteresis, Europe, unit root, nonlinear
    JEL: C22 E24
    Date: 2014
  99. By: Anderton, Robert; Aranki, Ted; Dieppe, Alistair; Elding, Catherine; Haroutunian, Stephan; Jacquinot, Pascal; Jarvis, Valerie; Labhard, Vincent; Rusinova, Desislava; Szörfi, Béla
    Abstract: This paper reviews potential output from a euro area perspective by summarising the developments according to international institutions and assessing the impact of the crisis. The paper also considers the methodological basis for potential output estimates, and the high degree of uncertainty that surrounds them. Although it is too early to see the full effects of structural reforms implemented since 2007/08, further structural reforms are needed to support euro area potential growth, especially in view of the negative impact that population ageing is expected to have on potential growth in the future. JEL Classification: C5, E6, C62
    Keywords: output gap, potential output, production function, structural reforms
    Date: 2014–11
  100. By: World Bank Group
    Keywords: Public Sector Corruption and Anticorruption Measures Banks and Banking Reform Governance - Governance Indicators Information and Communication Technologies - ICT Policy and Strategies Macroeconomics and Economic Growth - Knowledge Economy Finance and Financial Sector Development Public Sector Development
    Date: 2014–07
  101. By: Vogel, Edgar
    Abstract: Using individual data from the Eurosystem’s liquidity providing tenders for the pre-crisis period we investigate banks’ joint bidding behaviour in Main Refinancing Operation (MRO) and Longer Term Refinancing Operations (LTRO). We test whether banks bid at lower rates in MROs before the LTRO and at higher rates after the LTRO, compared to other operations. We offer two main findings. First, we find that in general banks bid in the MRO before the LTRO at lower rates as compared to “other” MROs. Moreover, MRO participants which also bid in the following LTRO bid at even lower rates, compared to peers not bidding in the LTRO. These findings support the hypothesis that banks view obtaining liquidity from the two operations as substitutes and bid strategically. Second, we find that banks generally bid more aggressively in the MRO after the LTRO. Even more striking, banks which participated also in the LTRO preceding the MRO bid at substantially higher rates. These findings reflect that “short” banks, with potentially large net liquidity needs after the LTRO bid more aggressively. Other counterparties with liquidity needs in that particular operation are forced, as a best response reaction, to bid also at higher rates. Although size plays a considerable role for bidding behaviour, the conclusions are valid for banks of different size. JEL Classification: D44, D53, D84, E43, E50, G10, G21
    Keywords: central bank operations, monetary policy, open market operations, repo auctions, strategic bidding
    Date: 2014–12
  102. By: Paolo Brunori (University of Bari, Italy); Flaviana Palmisano (University of Luxembourg); Vito Peragine (University of Bari, Italy)
    Abstract: This paper addresses the problem of the normative evaluation of income tax systems and income tax reforms. While most of the existing criteria, framed in the utilitarian tradition, are uniquely based on information about individual incomes, this paper, building upon the opportunity egalitarian theory, proposes new equity criteria which take into account also the socio-economic characteristics of individuals. Suitable dominance conditions that can be used to rank alternative tax systems are derived by means of an axiomatic approach. Moreover, the theoretical results are used to assess the redistributive effects of an hypothetical tax reform in Romania through a microsimulation analysis.
    Keywords: Income inequality, inequality of opportunity, tax reforms, microsimulation, progressivity, horizontal equity.
    JEL: D63 E24 O15 O40
    Date: 2014–11
  103. By: Osborne, Matthew (University of Toronto, Rotman School ofManagement.); Shapiro, Adam Hale (Federal Reserve Bank of San Francisco)
    Abstract: We examine a model of consumer learning and price signaling where price and quality are optimally chosen by a monopolist. We find that price signaling causes the firm to raise prices, lower quality, and dampen the degree to which it passes on cost shocks to price. We identify two mechanisms through which signaling affects pass-through and find that signaling can lead to asymmetric pass-through.
    Date: 2014–11
  104. By: Diewert, W. Erwin
    Abstract: National statistical agencies frequently assume very high geometric depreciation rates in order to capture the fact that computers are usually retired after 3 or 4 years of use. However, typically the service flow that a computer generates over its useful life is roughly constant, which contradicts the geometric model of depreciation where the service flow falls at a constant rate forever. Thus a one hoss shay or light bulb model of depreciation seems to be more appropriate for computers. The paper uses Australian data on computer investment over the past 25 years to construct one hoss shay estimates of computer capital stocks and flows and considers how best to approximate these more realistic models of depreciation with a geometric model. The paper shows that under certain simplifying assumptions, a geometric model of depreciation can provide an exact approximation to an underlying one hoss shay model. This exactness result is extended to a more general model of depreciation, the Constant Efficiency Profile model. Finally, using Australian data, the paper shows how well the geometric approximation fits a one hoss shay model when the simplifying assumptions are not satisfied.
    Keywords: Geometric model of depreciation, one hoss shay model of depreciation, the Constant Efficiency Profile model of depreciation, user cost formulae, capit
    JEL: C43 C81 D24 D92 E22 M41
    Date: 2014–12–17
  105. By: Henry, Jérôme; Kok, Christoffer; Amzallag, Adrien; Baudino, Patrizia; Cabral, Inês; Grodzicki, Maciej; Gross, Marco; Halaj, Grzegorz; Kolb, Markus; Leber, Miha; Pancaro, Cosimo; Sydow, Matthias; Vouldis, Angelos; Zimmermann, Maik; Zochowski, Dawid
    Abstract: The use of macro stress tests to assess bank solvency has developed rapidly over the past few years. This development was reinforced by the financial crisis, which resulted in substantial losses for banks and created general uncertainty about the banking sector's loss-bearing capacity. Macro stress testing has proved a useful instrument to help identify potential vulnerabilities within the banking sector and to gauge its resilience to adverse developments. To support its contribution to safeguarding financial stability and its financial sector-related work in the context of EU/IMF Financial Assistance Programmes, and looking ahead to the establishment of the Single Supervisory Mechanism (SSM), the ECB has developed a top-down macro stress testing framework that is used regularly for forward-looking bank solvency assessments. This paper comprehensively presents the main features of this framework and illustrates how it can be employed for various policy analysis purposes. JEL Classification: C32, E60, H62
    Keywords: banking sector, financial crisis, macro stress test, macro-prudential policy, Systemic risk
    Date: 2013–10
  106. By: Ignacio Presno (Federal Reserve Bank of Boston); Demian Pouzo (UC Berkeley)
    Abstract: In a dynamic economy, we characterize the fiscal policy of the government when it levies distortionary taxes and issues defaultable bonds to finance its stochastic expenditure. Households predict the possibility of default, generating endogenous debt limits that hinder the government's ability to smooth shocks using debt. Default is followed by temporary financial autarky. The government can only exit this state by paying a fraction of the defaulted debt. Since this payment may not occur immediately, in the meantime, households trade the defaulted debt in secondary markets; this device allows us to price the government debt before and during the default.
    Date: 2014
  107. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: Conclusions * Algeria will need to undertake significant and consistent fiscal consolidation to restore fiscal sustainability. In the wake of the crisis, Algeria expanded wages, subsidies, and transfers in an effort to address social demands. At the same time, revenues declined as a result of slumping hydrocarbon exports. Five consecutive years of fiscal deficits, combined with declining hydrocarbon exports and a relatively short time horizon for hydrocarbon resources, have placed fiscal policy on an unsustainable trajectory that threatens to leave future generations less well off. Fiscal consolidation initiated in 2013 was welcome but limited in scope. Future consolidation must be more ambitious and sustained over many years to restore sustainability. 30. Successful fiscal consolidation depends on both mobilizing more revenues and rationalizing expenditures. On the revenue side, Algeria must find ways to increase nonhydrocarbon revenues, given finite hydrocarbon resources and the volatile nature of oil prices. Although statutory tax rates are not especially low, the tax base is small, implicit subsidies are costly in terms of foregone revenues, and more can be done to strengthen tax administration. On the expenditure side, Algeria must contain current spending while preserving growth-enhancing capital 14 The authorities intend to have a medium-term budget framework and performance-based budgeting in place by 2016, with a transition period beginning in 2015.
    Keywords: Fiscal policy;Revenue mobilization;Government expenditures;Hydrocarbons;Exports;Private sector;Labor markets;Employment;Selected Issues Papers;Algeria;
    Date: 2014–12–11
  108. By: Alessandra Bonfiglioli; Gino Gancia
    Abstract: We study the equilibrium determinants of firm-level heterogeneity in a model in which firms can choose between different probability distributions when drawing productivity at the entry stage and explore the implications in closed and open economy. One novel result is that export opportunities, by increasing payoffs in the tail, induce firms to draw technology from riskier distributions. When more productive firms also pay higher wages, trade amplifies wage dispersion by inducing firms to take more risk ex-ante and hence making them more unequal ex-post. Our model is consistent with new evidence on how firm-level heterogeneity varies across U.S. industries.
    Keywords: Firm Heterogeneity, Productivity Dispersion, Wage Inequality, International Trade.
    JEL: F12 F16 E24
    Date: 2014–12
  109. By: Guillermo Perry; Alejandro Forero
    Abstract: Latino América tuvo una década de oro de 2002 a 2012, gracias principalmente a condiciones externas favorables. Los precios de exportación de sus commodities crecieron casi continuamente, hubo flujos de capital abundantes y bajas tasas de interés internacional. Esta década dorada ha llegado a su fin, aun cuando no se espera un súbito empeoramiento de las condiciones externas. Usando diversos indicadores tanto de corto plazo como estructurales, este documento analiza si esta década representó un punto de quiebre para la región. Las vulnerabilidades macroeconómicas y financieras se redujeron sustancialmente, las condiciones de los mercados de trabajo mejoraron significativamente y las tasas de inversión aumentaron en la mayoría de países. Muchos de estos logros probablemente permanecerán y Latinoamérica puede ser más resiliente a choques futuros que lo que fue en el pasado. Sin embargo, el auge de los precios de las exportaciones extractivas llevó a una sobre concentración de exportaciones, un estancamiento en otras actividades transables y otros síntomas de enfermedad holandesa. Peor aún, las brechas de productividad no se redujeron puesto que sus determinantes estructurales mejoraron demasiado lentamente. En resumen, el auge no fue desperdiciado completamente, pero tampoco fue totalmente capitalizado.
    Keywords: política macroeconómica, crecimiento, enfermedad holandesa
    JEL: E60 O54
    Date: 2014–12–09
  110. By: Jamie Bologna (West Virginia University, College of Business and Economics); Andrew T. Young (West Virginia University, College of Business and Economics)
    Abstract: We examine a panel of 70 countries during 1966-2010 and utilize Reinhart and Rogoff crisis dates to estimate the effects of crises on the size and scope of government over both 5-year and 10-year horizons. We also estimate cross section regressions using 40-year (1970-2010) changes in government variables. Banking crises appear to be associated with decreases in the size and scope of government, while sovereign external debt crises are associated with increases. Otherwise, the size and scope of government appears to be persistent to the extent that even crisis episodes fail to leave a significant mark upon them. A notable exception may be that, over 40-year periods, countries that spend more years in crisis are associated with weaker legal systems and property rights.
    Keywords: sovereign debt crises, banking crises, currency crises, inflation crises, institutional quality, size of government, ratchet effect
    JEL: E02 O11 O43
    Date: 2014–12
  111. By: Thadeu Gasparetto (Universidad de Vigo); Carlos Fernandez-Jardon (National Research University Higher School of Economics); Angel Barajas (National Research University Higher School of Economics)
    Abstract: The paper contributes to explain an unexplored competition that is the Brazilian State Championships. How it is organized and the financial features of three championships are described. The aim of the paper is to discover if the presence of "Brand-teams" in a competition increases the income of all participating teams and if the type of championship conditions the effect of Brand Team on revenues of all teams. As the present study aims to be a pioneer in economic research on Brazilian State Championships, it has an exploratory character. The study uses an equations system to estimate for testing the hypothesis. The estimation method is 3SLS to delete the possible endogeneity of the variables. There have been studied 400 matches played by 48 teams from Mineiro, Paulista and Carioca Championships in season 2013. The structure of the Brazilian State Championship, with the participation of brand-teams, creates an income redistribution effect. The features of the visiting team imply an increase in attendance. This effect is moderated by the type of Championship. The Championship structure generates an additional increase of the revenue. They increase according to the phase in which the competition develops. This paper contributes to introduce the Brazilian State Championships. Moreover, it comes to justify the participation of brand-teams in order to help smallest teams to increase their revenues. The paper shows that the organization of some Championships has more beneficial effects than others
    Keywords: Competition structure, redistribution effect, Brazilian football, State Championships, brand-teams.
    JEL: L83 L10 H23 E25
    Date: 2014
  112. By: Andrés C. ÁLVAREZ ESPINOSA; Silvia Liliana CALDERÓN; German David ROMERO; Daniel Alejandro ORDOÑEZ
    Abstract: Este artículo presenta los efectos potenciales del cambio climático sobre la economía del país. A partir de datos sobre los efectos del clima futuro en la productividad de componentes de los sectores agrícola, forestal, pesquero, ganadero y de transporte se estima el impacto agregado del cambio climático en la economía del país, utilizando el Modelo de Equilibrio General Computable de Cambio Climático para Colombia (MEG4C). Los resultados muestran que el impacto sería negativo con pérdidas promedio anuales en el PIB del 0,49% en el periodo 2011 al 2100.
    JEL: Q54 E17
    Date: 2014–12–10
  113. By: Zheleznyak, Anatoliy
    Abstract: A new heterodox theory of market is suggested. Its key moments are presented. The theory is based on the distinction between two market types – the simple commodity market and the capitalist one. Definitions of market and of each of its types are given. Internal logic of transition from the former to the latter is considered. Comparison with alternative theories is made.
    Keywords: Market; simple commodity market; capitalist market
    JEL: A10 B50 D00 D50 E00 P00
    Date: 2014–12
  114. By: Harold L Cole (University of Pennsylvania); Jeremy Greenwood (University of Pennsylvania); Juan M Sanchez (Federal Reserve Bank of St. Louis)
    Abstract: What determines the technology that a country adopts? While many factors affect technological adoption, the efficiency of the country's financial system may also play a significant role. To address this question, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The ability of an intermediary to monitor and control the cash flows of a firm plays an important role in the technology adoption decision. Can such a theory help to explain the differences in total factor productivity and establishment-size distributions across India, Mexico, and the United States? A quantitative illustration suggests the answer is yes.
    Keywords: Costly cash-flow control, costly state verification, dynamic contract theory, economic development, establishment-size distributions, finance and development, financial intermediation, India, Mexico, and the United States, monitoring; productivity, self-finance, technology adoption, ventures
    JEL: E13 O11 O16
    Date: 2014–12
  115. By: Elena M. Ukolova (National Research University Higher School of Economics); Vladimir B. Shumskiy (National Research University Higher School of Economics)
    Abstract: We developed a questionnaire with the intention of measuring existential fulfillment in interpersonal relationships. The paper presents the purpose, methodological basis, and structure of the Test of Existential Motivations in Interpersonal Relationships (TEMIR), as well as the validation process and research findings which were obtained using the TEMIR.
    Keywords: existential motivations, interpersonal relationships, trust, value of life, authenticity, meaning
    JEL: E32
    Date: 2014
  116. By: Celbis M.G.; Crombrugghe D.P.I. de (UNU-MERIT)
    Abstract: This study presents novel evidence regarding the role of regional internet infrastructure in reducing regional per capita income disparities. We base our study on the assumptions that 1 the diffusion of information homogenizes regional economies through reducing the dissimilarities in institutions and culture, and 2 the telecommunication capacity, represented as the internet infrastructure of a region, facilitates this flow of information. Using the data from the 26 statistical regions of Turkey, we find evidence that internet infrastructure has contributed to regional convergence during the period 1999-2011. We also observe that the Turkish economic geography is defined by a strong core-periphery pattern and significant spatial clustering.
    Keywords: Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data); Public Goods; Telecommunications; Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure; Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence; Size and Spatial Distributions of Regional Economic Activity;
    JEL: R12 L96 E20 H41 O18 O47
    Date: 2014

This nep-mac issue is ©2015 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.