nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒01‒26
116 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Reputation and Liquidity Traps By Taisuke Nakata
  2. Post-Crisis Slow Recovery and Monetary Policy By Daisuke Ikeda; Takushi Kurozumi
  3. Effectiveness and transmission of the ECB’s balance sheet policies By Jef Boeckx; Maarten Dossche; Gert Peersman
  4. An evaluation of core inflation measures for Malta By Gatt, William
  5. China’s financial crisis – the role of banks and monetary policy By Le, Vo Phuong Mai; Matthews, Kent; Meenagh, David; Minford, Patrick; Xiao, Zhiguo
  6. Understanding the dichotomy of financial development: credit deepening versus credit excess By Alfonso Ugarte Ruiz
  7. How the euro crisis evolved and how to avoid another: EMU, fiscal policy and credit ratings By Vito Polito; Michael Wickens
  8. Inflation Uncertainty and Disagreement in Bond Risk Premia By D'Amico, Stefania; Orphanides, Athanasios
  9. The Dynamic Effects of Interest Rates and Reserve Requirements By Pérez-Forero, Fernando; Vega, Marco
  10. Development and application of the monetary rule for the base interest rate of the National Bank of Ukraine By Savchenko, Taras; Kozmenko, Serhiy; Piontkovska, Yanina
  11. Central Bank Credibility: An Historical and Quantitative Exploration By Michael D. Bordo; Pierre L. Siklos
  12. Lessons for monetary policy from the euro-area crisis By C.A.E Goodhart
  13. Is India's Long-Term Trend Growth Declining? By Patnaik, Ila; Pundit, Madhavi
  14. Do contractionary monetary policy shocks expand shadow banking? By Nelson, Benjamin; Pinter, Gabor; Theodoridis, Konstantinos
  15. The dilemma of central bank transparency By Stephen Hansen; Michael McMahon; Andrea Prat
  16. The output effect of fiscal consolidation plans By Alesina, Alberto; Favero, Carlo; Giavazzi, Francesco
  17. Investor borrowing heterogeneity in a Kiyotaki-Moore style macro model By Punzi, Maria Teresa; Rabitsch, Katrin
  18. Exchange rate as a shock absorber or a shock propagator in Poland and Slovakia - an approach based on Bayesian SVAR models with common serial correlation By Dąbrowski, Marek A.; Wróblewska, Justyna
  19. Does interbank market matter for business cycle fluctuation? An estimated DSGE model with financial frictions for the Euro area By Giri, Federico
  20. Spillover effects in a monetary union: Why fiscal policy instruments matter? By Amélie Barbier-Gauchard; Thierry Betti; Giuseppe Diana
  21. Global Sunspots and Asset Prices in a Monetary Economy By Roger E.A. Farmer
  22. The eurozone crisis: phoenix miracle or lost decade? By Barry Eichengreen; Naeun Jung; Stephen Moch; Ashoka Mody
  23. Handbook on DSGE models: some useful tips in modeling a DSGE models By Valdivia, Daney
  24. Inferring inflation expectations from fixed-event forecasts By Winkelried, Diego
  25. A Parallel Currency Proposal for the Stronger Euro-States By Ulrich van Suntum
  26. The Uncertainty Multiplier and Business Cycles By Hikaru Saijo
  27. Honduras: Request for a Stand-by Arrangement and an Arrangement Under the Standby Credit Facility - Staff Report; Press Release By International Monetary Fund. Western Hemisphere Dept.
  28. The crisis in the euro area: an analytic overview By Heather D. Gibson; Theodore Palivos; George S. Tavlas
  29. Supply restrictions, subprime lending and regional US house prices By André Kallåk Anundsen; Christian Heebøll
  30. Slow to Hire, Quick to Fire: Employment Dynamics with Asymmetric Responses to News By Cosmin Ilut; Matthias Kehrig; Martin Schneider
  31. Predicting Economic Activity via Eurozone Yield Spreads: Impact of Credit Risk By Schock, Matthias
  32. Republic of Mozambique: Third Review Under the Policy Support Instrument-Staff Report and Press Release By International Monetary Fund. African Dept.
  33. Saving Europe? The unpleasant arithmetic of fiscal austerity in integrated economies By Mendoza, Enrique G.; Tesar, Linda L.; Zhang, Jing
  34. Does Social Trust Speed up Reforms? The Case of Central-Bank Independence By Berggren, Niclas; Daunfelt, Sven-Olof; Hellström, Jörgen
  35. Consumer credit performance over the business cycle in Colombia: some empirical facts By Luis E. Arango; Lina Cardona-Sosa
  36. Haiti: Eighth Review Under the Extended Credit Facility and Request for Waiver of Nonobservance of Performance Criterion-Staff Report; Press Release; and Statement by the Executive Director for Haiti By International Monetary Fund. Western Hemisphere Dept.
  37. Monetary Policy Accommodation, Risk-Taking, and Spillovers : a speech at the Global Research Forum on International Macroeconomics and Finance, Washington, D.C., November 14, 2014. By Powell, Jerome H.
  38. Principles of Monetary System Transformation By Volodymyr Vysochansky
  39. Cyclically Adjusted Current Account Balances By Haltmaier, Jane
  40. Precautionary Saving and Aggregate Demand By E. Challe; J. Matheron; X. Ragot; M.F. Rubio-Ramirez
  41. The coevolution of money markets and monetary policy, 1815-2008 By Jobst, Clemens; Ugolini, Stefano
  42. Leverage, default, and forgiveness: lessons from the American and European crises By John Geanakoplos
  43. Austerity in 2009-2013 By Alberto Alesina; Omar Barbiero; Carlo Favero; Francesco Giavazzi; Matteo Paradisi
  44. Information Frictions, Nominal Shocks, and the Role of Inventories in Price-Setting Decisions By Camilo Morales-Jimenez
  45. Spillovers from United States Monetary Policy on Emerging Markets: Different This Time? By Jiaqian Chen; Tommaso Mancini Griffoli; Ratna Sahay
  46. The Law of Diminishing Elasticity of Demand in Harrod’s Trade Cycle (1936) By Michaël Assous; Olivier Bruno; Muriel Dal-Pont Legrand
  47. On the perils of stabilizing prices when agents are learning By Antonio Mele; Krisztina Molnar; Sergio Santoro
  48. Pensions, Education, and Growth: A Positive Analysis By Tetsuo Ono; Yuki Uchida
  49. St. Vincent and the Grenadines: Request for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument - Staff Report; Press Release By International Monetary Fund. Western Hemisphere Dept.
  50. Trilemmas and trade-offs: living with financial globalisation By Maurice Obstfeld
  51. Government Spending and Inclusive Growth in Developing Asia By Hur, Seok-Kyun
  52. Senegal: 2014 Article IV Consultation and Eighth Review Under the Policy Support Instrument-Staff Report; Press Release; and Statement by the Executive Director for Senegal By International Monetary Fund. African Dept.
  53. Ending the Euro Crisis? By Martin S. Feldstein
  54. Polityka pieniezna a inwestycje w polskiej gospodarce By Andrzej Jedruchniewicz
  55. Combined Density Nowcasting in an uncertain economic environment By Knut Are Aastveit; Francesco Ravazzolo; Herman K. van Dijk
  56. Liquidity, Trends, and the Great Recession By Pablo Guerron-Quintana
  57. Are Labor or Product Markets to Blame for Recessions? By Peter Klenow; Ben Malin; Mark Bils
  58. Monetary Policy and Funding Spreads By Anella Munro; Benjamin Wong
  59. Sovereigns and banks in the euro area: a tale of two crises By Marta Gómez-Puig; Manish K. Singh; Simón Sosvilla-Rivero
  60. Public debt, economic growth and public sector management in developing countries: is there a link? By Megersa, Kelbesa; Cassimon, Danny
  61. La relación entre los ciclos discretos en la inflación y el crecimiento: Perú 1993 - 2012 By Barrera, Carlos
  62. Modeling Money Market Spreads: What Do We Learn about Refinancing Risk? By Brousseau, Vincent; Nikolaou, Kleopatra; Pill, Huw
  63. ICT and economic growth: Comparing developing, emerging and developed countries By Niebel, Thomas
  64. The Greek Economy and Banking System: Recent Developments and the Way Forward By George Provopoulos
  65. What drives the demand of monetary financial institutions for domestic government bonds? Empirical evidence on the impact of Basel II and Basel III By Lang, Michael; Schröder, Michael
  66. Turbulence and the Employment Experience of Older Workers By Etienne Lalé
  67. Fiscal Devaluations in the Euro Area: What has been done since the crisis? By Laura Puglisi
  68. The effects of capital on bank lending in EU large banks – The role of procyclicality, income smoothing, regulations and supervision By Malgorzata Olszak; Mateusz Pipien; Sylwia Roszkowska; Iwona Kowalska
  69. Lend out IOU: A Model of Money Creation by Banks and Central Banking By Tianxi Wang
  70. In Search of a Risk-free Asset By Yankov, Vladimir
  71. When does a central bank's balance sheet require fiscal support? By Christopher Sims; Marco Del Negro
  72. Inequality of opportunity in Europe before and after the Great Recession By Michał Brzeziński
  73. Playing the game the others want to play: Keynes’ beauty contest revisited. By Camille Cornand; Rodolphe Dos Santos Ferreira
  74. Revisions to the simpler approaches to operational risk: the need for enhanced disclosures and risk sensitive measures By Ojo, Marianne
  75. Stock market development and real economic activity in Peru By Lahura, Erick; Vega, Marco
  76. The Evolution of the Financial Stability Mandate: From Its Origins to the Present Day By Gianni Toniolo; Eugene N. White
  77. Coordination Capital By Mathieu Taschereau-Dumouchel; Edouard Schaal
  78. A model assessing innovativeness of administra-tion units awarding public contracts as a tool to conduct economic policy of the state By Arkadiusz Borowiec
  79. Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? By Leonardo Gambacorta; Anamaria Illes; Marco Jacopo Lombardi
  80. The impact of Basel III on trade finance: The potential unintended consequences of the leverage ratio By Auboin, Marc; Blengini, Isabella
  81. Assessing House Price Effects on Unemployment Dynamics By François Geerolf; Thomas Grjebine
  82. "Financialization and Corporate Investments: The Indian Case" By Sunanda Sen; Zico DasGupta
  83. What Drives Bank Funding Spreads? By King, Thomas B.; Lewis, Kurt F.
  84. The Dual Role of Mobile Payment in Developing Countries By Laetitia Chaix; Dominique Torre
  85. Five Paragraphs on the Common Political Economy of Abrahamic Religions; Shorter version: Three Paragraphs on the Common Economics of Abrahamic Religions, Contribuciones a la Economía, 2015, Jan. issue; By Soldatos, Gerasimos T.
  86. European economic and monetary union sovereign debt markets By Sensoy, Ahmet; Hacihasanoglu, Erk; Rostom, Ahmed
  87. The Limits of Bimetallism By Christopher M. Meissner
  88. Regras Fiscais no Brasil e na Europa: Um Estudo Comparativo e Propositivo By Sérgio Wulff Gobetti
  89. Sovereign default and the choice of maturity By Horacio Sapriza; Emircan Yurdagul; Juan Sanchez
  90. On trend robustness and end-point issues for New Zealand’s stylised business cycle facts By Hall, Viv; Thomson, Peter; McKelvie, Stuart
  91. Financial Access - Measurement and Determinants: A Case Study of Unorganised Manufacturing Enterprises in India. By Bhavani, T.A.; Bhanumurthy, N.R.
  92. A Macro CGE Model for the Colombian Economy By Andrés M. Velasco; Camilo A. Cárdenas Hurtado
  93. Asymmetric Liquidity Shocks and Optimality of the Freidman Rule By Eisei Ohtaki
  94. The impact of minimum wage on employment in an economic downturn using data from 17 OECD countries for the period 1985-2008 By Chletsos, Michael; Giotis, Georgios P.
  95. Where are the retirement savings of self-employed? An analysis of 'unconventional' retirement accounts By Mauro Mastrogiacomo; Rob Alessie
  96. Market sentiments and the sovereign debt crisis in the Eurozone By De Grauwe, Paul; Ji, Yuemei
  97. Capital Values and Job Values By Eran Yashiv
  98. What drives the German hog price cyle? Diagnostic modelling of a nonlinear dynamic system By Berg, Ernst; Huffaker, Ray
  99. El Salvador: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Authorities of El Salvador By International Monetary Fund. Western Hemisphere Dept.
  100. Globalny kryzys gospodarczy a zadluzenie Polski By Anna Cudowska-Sojko
  101. "Why Does Brazil's Banking Sector Need Public Banks? What Should BNDES Do?" By Felipe Rezende
  102. Youth Unemployment in India: From a European and Transitional Labour Market Point of View By Schmid, Günther
  103. "Minsky on Banking: Early Work on Endogenous Money and the Prudent Banker" By L. Randall Wray
  104. Optimal Time Series Momentum By Xue-Zhong He; Kai Li; Youwei Li
  105. Why Doesn't Technology Flow from Rich to Poor Countries? By Harold L. Cole; Jeremy Greenwood; Juan M. Sanchez
  106. From Hierarchy to Market: the Changing Industrial Organization of Epistemic Communities During Hong Kongs Transition to a Cashless Society (1965-2005) By Bernardo Batiz; Andrew Smith
  107. Centralization, Decentralization and Incentive Problems in Eurozone Financial Governance: A Contract Theory Analysis By Yutaka Suzuki
  108. Georgia: Financial Sector Assessment Program-Macroprudential Policy Framework-Technical Note By International Monetary Fund. Monetary and Capital Markets Department
  109. The endogeneity of the natural rate of growth: An alternative approach By Senay, Acikgöz; Mert, Merter
  110. Why Do SMEs Not Borrow More from Banks? Evidence from the People's Republic of China and Southeast Asia By Wignaraja, Ganeshan; Jinjarak, Yothin
  111. Censored spatial wind power prediction with random effects By Croonenbroeck, Carsten; Ambach, Daniel
  112. A pitfall of expectational stability analysis By Van Zandweghe, Willem; Kurozumi, Takushi
  113. Tertiarisation revisited in the perspective of Hill's views on services, with some insights on EU and France By Damien BROUSSOLLE
  114. The review of theories of mainstream economics on the example of economic models By Grazyna Wolska
  115. Переход к бескризисному развитию: миф или реальность? By Валентина Михайловна Бондаренко
  116. Green Agrowth as a Third Option: Removing the GDP-Growth Constraint on Human Progress By Jeroen van den Bergh

  1. By: Taisuke Nakata (Federal Reserve Board)
    Abstract: Can the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy suffi- ciently frequently, the incentive to maintain reputation outweighs the short-run incentive to close consumption and inflation gaps, keeping the central bank on the originally announced path of low nominal interest rates.
    Keywords: Commitment, Credible Policy, Forward Guidance, Liquidity Trap, Reputation, Sustainable Plan, Time Consistency, Trigger Strategy, Zero Lower Bound.
    JEL: E32 E52 E61 E62 E63
    Date: 2013–03
  2. By: Daisuke Ikeda (Institute for Monetary and Economic Studies, Bank of Japan.); Takushi Kurozumi (Institute for Monetary and Economic Studies, Bank of Japan.)
    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
  3. 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
  4. By: Gatt, William
    Abstract: A box presenting a number of core inflation estimates for Malta.
    Keywords: Core inflation, trimmed-mean, persistence-weighted
    JEL: E31 E58
    Date: 2014–11
  5. By: Le, Vo Phuong Mai (Cardiff Business School); Matthews, Kent (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Xiao, Zhiguo
    Abstract: This paper develops a model of the Chinese economy using a DSGE framework that accommodates a banking sector and money. The model is used to shed light on the period of the recent period of financial crisis. It differs from other applications in the use of indirect inference to estimate and test the fitted model. We find that the main shocks that hit China in the crisis were international and that domestic banking shocks were unimportant. Officially mandated bank lending and government spending were used to supplement monetary policy to aggressively offset shocks to demand. An analysis of the frequency of crises shows that crises occur on average about every half-century, with about a third accompanied by financial crises. We find that monetary policy can be used more vigorously to stabilise the economy, making direct banking controls and fiscal activism unnecessary.
    Keywords: DSGE model; Financial Frictions; China; Crises; Indirect Inference; Money; Credit
    JEL: E3 E44 E52 C1
    Date: 2015–01
  6. By: Alfonso Ugarte Ruiz
    Abstract: In this paper we introduce several methodological innovations in an empirical analysis of the determinants of the private Credit-to-GDP ratio, which allow us to estimate the long-term sustainable level of credit deepening in a country and its deviations. We also find new evidence of different effects of some macroeconomic variables in the long, medium and short-term on the credit ratio.
    Keywords: credit deepening, credit-to-gdp ratio, financial development, leverage
    JEL: C33 E43 E44 E51 E58 F47 E61 G01 G18 G20 G21
    Date: 2015–01
  7. By: Vito Polito (Cardiff University); Michael Wickens (Cardiff University and University of York)
    Abstract: This paper argues that the crisis was an outcome of EMU: setting a common monetary policy for countries with different initial inflation rates. The crisis countries were those with high inflation rates which then had negative real interest rates and consequently over-borrowed. Current policy discussions focus on crisis measures: fiscal, banking and political union, not avoiding another crisis. This paper suggests two ways to avoid a future crisis: offset an inappropriate monetary policy using fiscal policy; markets could better price loan rates by taking into account default risk. The paper shows that neither was done prior to the crisis.
    Keywords: fiscal union; monetary and fiscal policy; credit ratings; default risk
    JEL: E52 E62 H63 H68
    Date: 2013–07
  8. By: D'Amico, Stefania (Federal Reserve Bank of Chicago); Orphanides, Athanasios (Federal Reserve Bank of Chicago)
    Abstract: This paper examines the relation between variations in perceived inflation uncertainty and bond premia. Using the subjective probability distributions available in the Survey of Professional Forecasters we construct a quarterly time series of average individual uncertainty about inflation forecasts since 1968. We show that this ex-ante measure of inflation uncertainty differs importantly from measures of disagreement regarding inflation forecasts and other proxies, such as model-based ex-post measures of macroeconomic risk. Inflation uncertainty is an important driver of bond premia, but the relation varies across inflation regimes. It is most important in the high-inflation regime early in the sample and the low-inflation regime over the last 15 years. Once the role of inflation uncertainty is accounted for, disagreement regarding inflation forecasts appears a much less important driver of bond premia.
    Keywords: Survey expectations; probabilistic forecasts; heterogeneity; inflation uncertainty; bond risk premia
    JEL: C53 E37 E44 E47 G12
    Date: 2014–01–11
  9. By: Pérez-Forero, Fernando (Banco Central de Reserva del Perú); Vega, Marco (Banco Central de Reserva del Perú)
    Abstract: This paper quantifies the dynamic macroeconomic effects derived from both; shocks to conventional monetary policy and shocks to reserve requirement ratios applied to bank deposits in Peru. The analysis tackles reserve requirements on domestic as well as foreign currency deposits. Structural Vector Autoregressive (SVAR) models are identified through a mixture of zero and sign restrictions for the period 1995-2013. Contractionary monetary policy shocks generate a negative effect on aggregate credit and a positive effect on bank spreads between loan and deposit rates. Likewise, shocks to the two reserve requirement ratios produce a negative effect on aggregate credit in their corresponding currencies and a mild effect on both aggregate real economic activity and the price level. We consider possible mechanisms that may help explain the dynamic effects uncovered in the paper.
    Keywords: Monetary Policy, Interest Rates, Reserve Requirements, Sign Restrictions
    JEL: E43 E51 E52
    Date: 2014–12
  10. By: Savchenko, Taras; Kozmenko, Serhiy; Piontkovska, Yanina
    Abstract: The paper studies methodological approaches to the formation of monetary policy rules for the base interest rate of the National Bank of Ukraine demonstrating the expediency of their development on the basis of the spread-adjusted Tay- lor rule. It carries out the assessment of equilibrium values for the rule’s parameters by using a modified Hodrick- Prescott filter as well as the identification of the possible parameters of the monetary rule and the estimation of their coefficients through the development of multivariate regression models.
    Keywords: monetary policy rule, spread-adjusted Taylor rule, central bank, monetary market, inflation targeting
    JEL: E52 E58
    Date: 2014
  11. By: Michael D. Bordo; Pierre L. Siklos
    Abstract: In this paper we provide empirical measures of central bank credibility and augment these with historical narratives from eleven countries. To the extent we are able to apply reliable institutional information we can also indirectly assess their role in influencing the credibility of the monetary authority. We focus on measures of inflation expectations, the mean reversion properties of inflation, and indicators of exchange rate risk. In addition we place some emphasis on whether credibility is particularly vulnerable during financial crises, whether its evolution is a function of the type of crisis or its kind (i.e., currency, banking, sovereign debt crises). We find credibility changes over time are frequent and can be significant. Nevertheless, no robust empirical connection between the size of an economic shock (e.g., the Great Depression) and loss of credibility is found. Second, the frequency with which the world economy experiences economic and financial crises, institutional factors (i.e., the quality of governance) plays an important role in preventing a loss of credibility. Third, credibility shocks are dependent on the type of monetary policy regime in place. Finally, credibility is most affected by whether the shock can be associated with policy errors.
    JEL: C32 C36 E31 E58 N10
    Date: 2015–01
  12. By: C.A.E Goodhart (London School of Economics)
    Abstract: The earlier 2007/8 financial crisis generated the main lessons for monetary policy, notably that price stability does not necessarily guarantee financial stability. Nevertheless, the on-going Eurozone crisis has pointed to further lessons, notably that a single currency covering diverse states does need a Banking Union; and to problems of zero risk-weighting for sovereign debts. Without such a Banking Union, economic divergences between the Eurozone states have continued and look likely to persist.
    Keywords: Price stability; financial stability; banking union; zero lower-bound
    JEL: E52 E44 F36 G01
    Date: 2013–07
  13. By: Patnaik, Ila (National Institute of Public Finance and Policy); Pundit, Madhavi (Asian Development Bank)
    Abstract: The recent decline in gross domestic product (GDP) growth in India raised a debate about whether it is a trend or a business cycle slowdown. We observe a cyclical downturn post-global financial crisis due to external and domestic conditions. With global recovery strengthening and appropriate demand management policies, the business cycle downturn can be reversed. At the same time, the economy witnessed negative shocks to trend growth caused by policy uncertainty. In this paper, we argue that these shocks are temporary. A stable policy environment can give positive shocks to growth. Policy action eliminating frictions that hamper efficient allocation of resources in factor markets can be seen as a positive shock that will pull up trend growth of output. Given that the supply of factors, namely labor, human capital, infrastructure, and non-infrastructure capital appears robust and productivity growth potentially strong, timely reforms that eliminate structural bottlenecks will enable trend growth to pick up.
    Keywords: trend growth; business cycle; factors of production; policy shocks; India
    JEL: E32 O47
    Date: 2014–12–01
  14. By: Nelson, Benjamin (Bank of England); Pinter, Gabor (Bank of England); Theodoridis, Konstantinos (
    Abstract: Using vector autoregressive models with either constant or time-varying parameters and stochastic volatility for the United States, we find that a contractionary monetary policy shock has a persistent negative impact on the asset growth of commercial banks, but increases the asset growth of shadow banks and securitisation activity. To explain this ‘waterbed’ effect, we propose a standard New Keynesian model featuring both commercial and shadow banking, and we show that the model comes close to explaining the empirical results. Our findings cast doubt on the idea that monetary policy can usefully ‘get in all the cracks’ of the financial sector in a uniform way.
    Keywords: Monetary policy; financial intermediaries; shadow banking; VAR; DSGE
    JEL: E43 E52 G21
    Date: 2015–01–16
  15. By: Stephen Hansen; Michael McMahon; Andrea Prat
    Abstract: If central banks publish the transcripts of their internal policy debates, will discussions be enhanced or inhibited? Michael McMahon and colleagues use tools from computational linguistics to analyse the positive and negative effects of transparency on deliberations of the monetary policymakers at the US Federal Reserve.
    Keywords: Monetary policy, deliberation, FOMC, transparency, career concerns
    JEL: E52 E58 D78
    Date: 2015–01
  16. By: Alesina, Alberto; Favero, Carlo; Giavazzi, Francesco
    Abstract: We show that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of a multi year fiscal plan rather than of individual fiscal shocks. Simulation of fiscal plans adopted by 16 OECD countries over a 30-year period supports the hypothesis that the effects of consolidations depend on their design. Fiscal adjustments based upon spending cuts are much less costly, in terms of output losses, than tax-based ones and have especially low output costs when they consist of permanent rather than stop and go changes in taxes and spending. The difference between tax-based and spending-based adjustments appears not to be explained by accompanying policies, including monetary policy. It is mainly due to the different response of business confidence and private investment.
    Keywords: confidence,fiscal adjustment,investment
    JEL: H60 E62
    Date: 2014
  17. By: Punzi, Maria Teresa; Rabitsch, Katrin
    Abstract: TWe allow for heterogeneity in investors' ability to borrow from collateral in a Kiyotaki-Moore style macro model. We calibrate the model to match the quintiles of the distri- bution of leverage ratios of US non-financial firms. We show that financial amplification of the model with heterogeneous investors can be orders of magnitude higher, because of more pronounced asset price reactions.
    Keywords: Collateral Constraints,Leverage,Heterogeneity,Financial Amplification
    JEL: E32 E44
    Date: 2014
  18. By: Dąbrowski, Marek A.; Wróblewska, Justyna
    Abstract: The paper examines whether exchange rates in Poland and Slovakia acted as shock absorbers or rather shock-propagating mechanisms. A set of Bayesian structural VAR models is built for each country that enables us to identify supply, demand, monetary and financial shocks. Identifying restrictions are derived from the extended stochastic macroeconomic model of an open economy. Sample covers quarterly data 1998-2013. After careful consideration of alternative VAR specifications it is demonstrated that overly parsimonious VARs result in an imperfect identification of shocks that distorts the results. Empirical evidence is found that the higher exchange rate flexibility in Poland than in Slovakia contributed to the absorption of shocks. Though financial shocks had stronger influence on the exchange rate in Poland than in Slovakia, especially in the run-up to the crisis, the participation in the ERM II did not protected the Slovak koruna against the strong and excessive appreciation.
    Keywords: open economy macroeconomics; real exchange rate; monetary integration; Bayesian structural VAR; common serial correlation; financial shocks
    JEL: C11 E44 F41
    Date: 2015–01–18
  19. By: Giri, Federico
    Abstract: The aim of this paper is to assess the impact of the interbank market on the business cycle fluctuations. In order to do that, we build a DSGE model with heterogeneous households and banks. The surplus bank can allocate its resources between interbank lending and risk free government bonds. This portfolio choice is affected by an exogenous counterpart risk shock on the interbank lending. An increase of the counterpart risk diverts funds from the interbank markets toward the risk free market. This mechanism allow us to capture the collapse of the interbank market and the fly to quality mechanism underlying the 2007 financial crisis. The main result is that an interbank riskiness shock seems to explain part of the 2007 downturn and especially the rise of the interest rates on the credit market during and just after the financial turmoil.
    Keywords: DSGE model,financial frictions,interbank market,Bayesian estimation
    JEL: E30 E44 E51
    Date: 2014
  20. By: Amélie Barbier-Gauchard; Thierry Betti; Giuseppe Diana
    Abstract: Using a two-country DSGE model, we analyze the spillover effects of fiscal policy in a monetary union. Based on a non-Walrasian labor market and a detailed fiscal sector, our analysis focuses on the relative cross-border effects of different kinds of fiscal instruments (expenditure side and revenue side). We show that different fiscal instruments produce quite different qualitative effects on the foreign economy. For instance, a public consumption expansion or a cut in social protection tax triggers a decrease in foreign GDP and an increase in foreign unemployment. On the contrary, an increase in transfers to households or a decrease in VAT leads to an increase in foreign GDP and a decrease in foreign unemployment. Moreover, we demonstrate that the choice of the fiscal instrument strongly affects the size of the spillover effects, meaning that different fiscal instruments also produce different quantitative effects on the foreign economy.
    Keywords: Fiscal policy, spillover effects, new-Keynesian model, labor market, unemployment.
    JEL: E62 F41 F42 J20
    Date: 2015
  21. By: Roger E.A. Farmer
    Abstract: The representative agent (RA) model, widely used by macroeconomists, successfully explains the co-movements among consumption, investment, employment and GDP. It is much less successful at explaining asset price data. Here, I construct a simple heterogeneous agent model, driven by sunspots, that provides a bridge between macroeconomics and finance theory. Most existing sunspot models use local linear approximations: instead, I construct global sunspot equilibria. My agents are expected utility maximizers with logarithmic utility functions, there are no fundamental shocks and markets are sequentially complete. Despite the simplicity of these assumptions, I am able to go a considerable way towards explaining features of asset pricing data that have presented an obstacle to previous models that adopted similar assumptions. My model generates volatile persistent swings in asset prices, a substantial term premium for long bonds and bursts of conditional volatility in rates of return. If my explanation for asset price volatility is accepted, models that build on my framework have the potential to unify macroeconomics with finance theory in a simple and parsimonious way.
    JEL: E3 E43 G12
    Date: 2015–01
  22. By: Barry Eichengreen (University of California); Naeun Jung (Princeton University); Stephen Moch (Princeton University); Ashoka Mody (Princeton University)
    Abstract: We analyze why the Eurozone crisis increasingly resembles Latin America’s lost decade instead of Asia’s phoenix miracle, emphasizing the roles of the real exchange rate, the external environment, and debt restructuring. In addition, we contrast the adjustment to housing bubbles in Ireland, Spain and the U.S. Here our explanation for the contrast departs from the conventional wisdom in placing less emphasis on labor mobility but more on participation rates and bank mergers and acquisitions in the adjustment process.
    Keywords: fiscal policy; phoenix miracle; housing bubble; banking crisis
    JEL: E44 E62 H63 G01
    Date: 2013–07
  23. By: Valdivia, Daney
    Abstract: Despite there are useful books and text books from recognized authors about modeling macroeconomics through various types of methods and methodologies, “Some Useful tips in Modeling a DSGE models” try to add special features through an economist can use to model macro and micro relations to explain different scenarios in an specific economy. In this sense, this work begin since basic conceptions of difference equations to build a Dynamic Stochastic General Equilibrium model covering special topics like rule – of – thumb consumers, monetary and fiscal policies, sticky prices, investment and problem of the firms, topics in Dynare and others.
    Keywords: Differential equation, dynamic stochastic general equilibrium refinements, policy instruments
    JEL: A33 C00 E1
    Date: 2015–01–10
  24. By: Winkelried, Diego (Universidad del Pacífico)
    Abstract: Often, expected inflation measured by surveys are available only as fixed-event forecasts. Even though these surveys do contain information of a complete term structure of expectations, direct inferences about them are troublesome. Records of a fixed-event forecast through time are associated with time-varying forecast horizons, and there is no straightforward way to interpolate such figures. This paper proposes an adaptation of the measurement model of Kozicki and Tinsley (2012) [“Effective use of survey information in estimating the evolution of expected inflation”, Journal of Money, Credit and Banking, 44(1), 145-169] to suit the intricacies of fixed-event data. Using the Latin American Consensus Forecasts, the model is estimated to study the behavior of inflation expectations in four inflation targeters (Chile, Colombia, Mexico and Peru). For these countries, the results suggest that the announcement of credible inflation targets has been instrumental in anchoring long-run expectations.
    Keywords: Survey expectations, fixed-event forecasts, Kalman filter, inflation targeting, Latin America
    JEL: C32 E37 E52
    Date: 2014–12
  25. By: Ulrich van Suntum
    Abstract: It is argued that the stronger member states of the European Monetary Union should find their way out of the Euro in order to avoid being dragged into a disastrous course of inflation and over-indebtedness by the weaker members. A sudden exit would presumably cause financial turmoil as well as political damage and is, thus, no realistic option. However, by creating a parallel currency called “Hard-Euro” as an intermediate solution, there would indeed be a way of separating the EMU into two parts, with a weaker Euro in the southern countries and a stronger Euro in the northern countries. Using a small macro-model, the paper discusses this idea and its economic consequences in more detail. Following the early idea of separating the functions of money by Eisler (1932), the Hard-Euro is invented in the form of a pure book-money, while the Euro is still the only cash money until further notice. The Hard-Euro is designed as an index-currency such that its exchange rate exactly compensates for the inflation rate of the common Euro. Hence, it is absolutely stable in terms of consumer prices, and at the same time the exchange rate can never overshoot. By this means, savers in the stronger member states are protected from both inflation and financial repression, while the weaker member states can improve their competitiveness by inflating the Euro. It is shown, that this approach is likely to increase both investment and total output in the EMU. Later on, this intermediate regime could be substituted by the definite separation of the Euro-Zone into a stronger northern and a weaker southern part.
    Keywords: Monetary policy, parallel currency
    JEL: E50 E58
  26. By: Hikaru Saijo
    Abstract: I study a business cycle model where agents learn about the state of the economy by accumulating capital. During recessions, agents invest less, and this generates noisier estimates of macroeconomic conditions and an increase in uncertainty. The endogenous increase in aggregate uncertainty further reduces economic activity, which in turn leads to more uncertainty, and so on. Thus, through changes in uncertainty, learning gives rise to a multiplier effect that amplies business cycles. I use the calibrated model to measure the size of this uncertainty multiplier.
  27. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: The government of President Hernandez inherited a difficult macroeconomic situation upon taking office in January 2014. Economic growth decelerated significantly in 2013, driven mainly by lower private demand from policy uncertainty and by weaker trade-partner growth. The fiscal accounts weakened considerably in 2011–13, reflecting sizeable increases in government spending and in the deficit of the state-owned electricity company. The relaxation of fiscal policy has led to a rapid increase in public debt, which would continue into the medium term absent a change in economic policies. The balance of payments position has also weakened over the last three years, reflecting both expansionary macroeconomic policies and a less favorable terms of trade.
    Keywords: Stand-by arrangement requests;Fiscal policy;Fiscal consolidation;Fiscal reforms;Monetary policy;Economic indicators;Debt sustainability analysis;Staff Reports;Letters of Intent;Standby Credit Facility;Press releases;Honduras;
    Date: 2014–12–24
  28. By: Heather D. Gibson (Bank of Greece); Theodore Palivos (Athens University of Economics and Business); George S. Tavlas (Bank of Greece)
    Abstract: This paper provides an introduction to the special issue “The Crisis in the Euro Area”. We take stock of what the euro area crisis has taught us about monetary integration. At the inception of the euro area in 1999, the main parameters of the theory of monetary integration seemed to have been pretty well-settled. Although it was common knowledge that the euro area fell short of fully satisfying all the conditions needed for an optimallyfunctioning monetary union, most politicians and many economists thought that the euro area satisfied enough conditions so that it would not encounter major difficulties. This paper discusses several developments that came as surprises about the conditions needed for monetary unification as the euro crisis unfolded. These developments include the need of an adequate adjustment mechanism, the links between banking and sovereign crises, and the sharp costs of adjustment to adverse asymmetric shocks.
    Keywords: Financial crises; euro-area; monetary integration; optimum currency areas; adjustment mechanism
    JEL: E51 E52 F33 F41 G01
    Date: 2013–07
  29. By: André Kallåk Anundsen (Norges Bank (Central Bank of Norway)); Christian Heebøll (Department for Convergence and Competitiveness, European Central Bank)
    Abstract: With regard to the recent US house price cycle, we analyze how the interaction between housing supply restrictions, mortgage credit constraints and a price-to-price feedback loop affects house price volatility. Considering 247 Metropolitan Statistical Areas, we estimate a simultaneous boom-bust system for house prices, housing supply and subprime lending. The model accounts for regional differences in supply elasticities that are determined by local variations in topographical and regulatory supply restrictions. Our results suggest that tighter supply restrictions lead to both a larger house price boom and bust, and that this is due to supply restricted areas being signicantly more exposed to a financial accelerator effect and a price-to-price expectation mechanism. We further find that the presence of endogenous price acceleration mechanisms contribute to dilute the positive relationship between the total quantity response and the supply elasticity.
    Keywords: Regional boom-bust cycles, Housing supply restrictions, Subprime lending, Financial accelerator
    JEL: E32 E44 G21
    Date: 2014–12–22
  30. By: Cosmin Ilut; Matthias Kehrig; Martin Schneider
    Abstract: We study the distribution of employment growth when hiring responds more to bad shocks than to good shocks. Such a concave hiring rule endogenously generates higher moments observed in establishment-level Census data for both the cross section and the time series. In particular, both aggregate conditional volatility ("macro-volatility") and the cross-sectional dispersion of employment growth ("micro-volatility") are countercyclical. Moreover, employment growth is negatively skewed in the cross section and time series, while TFP is not. The estimated response of employment growth to TFP innovations is su ciently concave to induce signi cant skewness as well as movements in volatility of employment growth.
    Keywords: business cycles, time varying volatility, asymmetric adjustment, skewness
    JEL: D2 D8 E2 J2
    Date: 2015–01
  31. By: Schock, Matthias
    Abstract: A "lost decade" for the Eurozone is looming on the horizon. Under these circumstances, stable indicators for future economic activity are especially valuable to decision makers. This paper examines the predictive power of the yield spread, one of the most reliable indicators for gross domestic product (GDP) growth. Despite the continuously high level of yield spreads, growth is sparse in the Eurozone. We find this to be caused by default risks, which are distorting the long-term interest rates of many Eurozone countries. Therefore, a new method of risk adjustment is introduced. We employ credit default swap (CDS) spreads on sovereign bonds, which provide a direct measure of credit risk. Incorporating those spreads significantly enhances the in- and out-of-sample predictive power of the yield-spread approach. Ordinary least squares (OLS) and fixed-effects models are used to forecast GDP growth in the Eurozone, and a probit model is used for recession prediction. The results show that the accuracy of predicting growth and recessions using the yield spread is high, provided that biases associated with Eurozone sovereign default risk are considered.
    Keywords: yield curve, CDS spreads, economic activity
    JEL: G1 E37 E43 E44
    Date: 2015–01
  32. By: International Monetary Fund. African Dept.
    Abstract: Context and policy challenges. Mozambique’s macroeconomic performance remains robust, with strong growth and low inflation. In spite of the heightened risks from an uncertain global outlook, growth is expected to be broad-based in the medium term and boosted by the natural resource boom and infrastructure investment. Short-term policy framework. The main short-term challenge is to maintain the growth momentum while preserving fiscal and debt sustainability. The 2014 fiscal stance is expansionary, and fiscal consolidation needs to be initiated in the 2015 budget to restore prudent fiscal management. While low international prices have dampened inflation, the Bank of Mozambique should stay vigilant and adhere to its medium-term inflation target. Key structural reform priorities include improving VAT and overall tax administration, continuing public financial management reforms, strengthening capacity for transparent public investment management and borrowing, and enhancing the business environment and financial sector development. Completion of the LNG contract negotiations is a critical milestone for the launch of this project, one of the largest in sub-Saharan Africa. Medium-term reforms. Fiscal adjustment over the medium term will be essential to preserve debt sustainability and macroeconomic stability. This requires measures to contain current spending pressures while bringing investment to a more sustainable level. Structural reforms focusing on public financial management, monetary policy tools and banking supervision, and business facilitation should be implemented vigorously to sustain growth and render it more inclusive. With foreign aid likely to decline over the medium term, increased borrowing can provide additional resources for improving both Mozambique’s physical infrastructure and human capital. To ensure the efficiency of investment and borrowing, further strengthening of investment planning and implementation, and debt management are essential.
    Keywords: Policy Support Instrument;Economic conditions;Fiscal policy;Fiscal reforms;Monetary policy;Economic indicators;Staff Reports;Letters of Intent;Press releases;Mozambique;
    Date: 2015–01–09
  33. By: Mendoza, Enrique G.; Tesar, Linda L.; Zhang, Jing
    Abstract: Europe's debt crisis casts doubt on the effectiveness of fiscal austerity in highly-integrated economies. Closed-economy models overestimate its effectiveness, because they underestimate tax-base elasticities and ignore cross-country tax externalities. In contrast, we study tax responses to debt shocks in a two-country model with endogenous utilization that captures those externalities and matches the capital-tax-base elasticity. Quantitative results show that unilateral capital tax hikes cannot restore fiscal solvency in Europe, and have large negative (positive) effects at "home" ("abroad"). Restoring solvency via either Nash competition or Cooperation reduces (increases) capital (labor) taxes significantly, and leaves countries with larger debt shocks preferring autarky.
    Keywords: European debt crisis,capacity utilization,fiscal austerity,tax competition
    JEL: E61 E62 E66 F34 F42
    Date: 2014
  34. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Daunfelt, Sven-Olof (HUI Research and Dalarna University); Hellström, Jörgen (Umeå University)
    Abstract: Many countries have undertaken central-bank independence reforms, but the years of implementation differ. What explains such differences in timing? This is of interest more broadly, as it sheds light on factors that matter for the speed at which economic reforms come about. We study a rich set of potential determinants, both economic and political, but put special focus on a cultural factor, social trust. We find empirical support for an inverse u-shape: Countries with low and high social trust implemented their reforms earlier than countries with intermediate levels. We make use of two factors to explain this pattern: the need to undertake reform (which is more urgent in countries with low social trust) and the ability to undertake reform (which is greater in countries with high social trust).
    Keywords: Central banks; Independence; Social trust; Inflation; Monetary policy; Reform
    JEL: E52 E58 P48 Z13
    Date: 2015–01–08
  35. By: Luis E. Arango; Lina Cardona-Sosa
    Abstract: This paper studies the behavior of the survival function of accruing loans during the slowdown experienced by the Colombian economy between January-2008 and March-2009 as documented by Alfonso et al. (2013). We use a dataset with information of different vintage loans between July-2007 and March-2014 from a private credit union that operates in Medellín, the second largest city in Colombia, and its metropolitan area. The analysis suggests that the survival function of accruing loans reduces before and during the slowdown event: if the probability of survival at month ten of a consumer credit vintage is below the 97.5% and below 95% at month fifteen, the probability of a future slowdown is not negligible. Classification JEL: C41, E32, E44, G21.
    Date: 2015–01
  36. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: EXECUTIVE SUMMARY This is the final review under the Extended Credit Facility (ECF) arrangement. The program contributed to maintaining macroeconomic stability, and there was progress on structural reforms. The authorities intend to request a successor arrangement under the ECF. A new finance minister was appointed in April; uncertainly remains on the timing of elections. Preliminary data suggest that GDP in FY2014 grew by 3.5–4 percent, while inflation increased slightly to about 5 percent. An increase in fuel prices (in October) should result in fiscal savings of at least 1 percent of GDP during FY2015. The March performance criterion on net international reserves (NIR) was met, but although the deficit was lower than projected, the performance criterion on net central bank credit to the central government was missed. Downside risks are significant and include a pull-back of Venezuela-related flows, a resumption of political tensions, and vulnerability to weather events. A total of SDR 1.638 million will become available upon completion of this review, bringing total disbursements under the ECF to SDR 40.950 million. Key Policy Recommendations: • The policy mix, in particular the adjustment going forward, should come from a lower fiscal deficit rather than from a tighter monetary policy. The FY2015 fiscal deficit should be reduced to mitigate financing risks as part of a medium-term plan to restore fiscal sustainability. • The central bank should let the exchange rate adjust more to market pressures. Intervention should be parsimonious, geared at avoiding excess volatility and disorderly movements in the exchange rate; it should be guided by fundamentals in the medium term. • Progress on structural reforms (including on the energy sector and on public financial management) should catalyze more donor support and is essential for supporting growth. A possible new ECF arrangement would entrench macroeconomic stability and promote policies to generate sustained GDP growth.
    Date: 2015–01–05
  37. By: Powell, Jerome H. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2014–11–14
  38. By: Volodymyr Vysochansky (Uzhhorod University)
    Abstract: The paper considers theoretic reasoning of necessity and technological implementation of self-regulated monetary system based on commodity backed money. Transformational approach to conversion of the current monetary system model using modern exchange infrastructure and technologies in the USA is proposed.
    Keywords: money, commodity units, exchange-traded fund, futures contracts, monetary system
    JEL: E42 G1 G2
    Date: 2014–12–12
  39. By: Haltmaier, Jane (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The Great Financial Crisis coincided with a sizable reduction in global external imbalances, defined as the absolute value of the sum of individual country current account surpluses and deficits relative to global GDP. Although current account balances should not respond to a downturn that is uniform across countries, one that hits countries with current account deficits harder than those with surpluses might result in a decline in the global balance. This paper quantifies the cyclical portion of the current account balance for 35 countries using estimates of the severity of the cycle in each country relative to that of its trading partners in conjunction with three estimates of the sensitivity of the current account balance to changes in the output gap. Two of the estimates are derived from equations linking trade to income and the third is derived from the relationship between changes in current account balances and changes in output gap differentials. The main result is that the bulk of the reduction in the global current account imbalance since 2006 appears to have been structural. Cyclical forces are estimated to account for between 10 and 30 percent of the decline. In the aggregate, the cyclical effect is estimated to be currently holding down the global current account balance by about 1/2 percentage point. However, the size of the cyclical effect is more substantial for some countries. Both surplus and deficit countries have contributed to the decline in the absolute value of the global current account imbalance, but the contribution of the deficit countries is about twice as large as that of the surplus countries. Changes in oil prices have had largely offsetting effects on the global current account balance, but changes in real exchange rates in recent years have contributed to the reduction.
    Keywords: current account; cycles
    JEL: E32 F17
    Date: 2014–11–27
  40. By: E. Challe; J. Matheron; X. Ragot; M.F. Rubio-Ramirez
    Abstract: We formulate and estimate a tractable macroeconomic model with time-varying precautionary savings. We argue that the latter affect aggregate fluctuations via two main channels: a stabilizing aggregate supply effect working through the supply of capital; and a destabilizing aggregate demand effect generated by a feedback loop between unemployment risk and consumption demand. Using the estimated model to measure the contribution of precautionary savings to the propagation of recent recessions, we find strong aggregate demand effects during the Great Recession and the 1990–1991 recession. In contrast, the supply effect at least offset the demand effect during the 2001 recession.
    Keywords: Incomplete markets, DSGE model, Bayesian estimation, Great Recession.
    Date: 2015
  41. By: Jobst, Clemens; Ugolini, Stefano
    Abstract: Money market structures shape monetary policy design, but the way central banks perform their operations also has an impact on the evolution of money markets. This is important, because microeconomic differences in the way the same macroeconomic policy is implemented may be non-neutral. In this paper, we take a panel approach in order to investigate both directions of causality. Thanks to three newly-collected datasets covering ten countries over two centuries, we ask (1) where, (2) how, and (3) with what results interaction between money markets and central banks has taken place. Our findings allow establishing a periodization singling out phases of convergence and divergence. They also suggest that exogenous factors – by changing both money market structures and monetary policy targets – may impact coevolution from both directions. This makes sensible theoretical treatment of the interaction between central bank policy and market structures a particularly complex endeavor. JEL Classification: E52, G15, N20
    Keywords: central banking, monetary policy implementation, money markets
    Date: 2014–12
  42. By: John Geanakoplos (Yale University and Santa Fe Institute)
    Abstract: This paper argues that in ebullient times equilibrium leverage and asset prices are too high; in bad times, equilibrium leverage and asset prices are too low. This is the leverage cycle. Looking at the recent American and European crises, the paper draws lessons for central banks about how to avoid another leverage cycle crisis. It argues that central banks should collect information regarding leverage to map out the entire credit surface. Instead of just the riskless interest rates, they should target the whole credit surface and use leverage an instrument. After a crisis, they should partially forgive some of the debt.
    Keywords: Leverage Cycle; American and European Crises; Credit surface; Debt forgiveness
    JEL: G01 G18 E44
    Date: 2013–07
  43. By: Alberto Alesina; Omar Barbiero; Carlo Favero; Francesco Giavazzi; Matteo Paradisi
    Abstract: The conventional wisdom is (i) that fiscal austerity was the main culprit for the recessions experienced by many countries, especially in Europe, since 2010 and (ii) that this round of fiscal consolidation was much more costly than past ones. The contribution of this paper is a clarification of the first point and, if not a clear rejection, at least it raises doubts on the second. In order to obtain these results we construct a new detailed "narrative" data set which documents the actual size and composition of the fiscal plans implemented by several countries in the period 2009-2013. Out of sample simulations, that project output growth conditional only upon the fiscal plans implemented since 2009 do reasonably well in predicting the total output fluctuations of the countries in our sample over the years 2010-13 and are also capable of explaining some of the cross-country heterogeneity in this variable. Fiscal adjustments based upon cuts in spending appear to have been much less costly, in terms of output losses, than those based upon tax increases. The difference between the two types of adjustment is very large. Our results, however, are mute on the question whether the countries we have studied did the right thing implementing fiscal austerity at the time they did, that is 2009-13. Finally we examine whether this round of fiscal adjustments, which occurred after a financial and banking crisis, has had different effects on the economy compared to earlier fiscal consolidations carried out in "normal" times. When we test this hypothesis we do not reject the null, although in some cases failure to reject is marginal. In other words, we don't find sufficient evidence to claim that the recent rounds of fiscal adjustment, when compared with those occurred before the crisis, have been especially costly for the economy.
    JEL: C51 C53 E62 H60
    Date: 2015–01
  44. By: Camilo Morales-Jimenez (University of Maryland, College Park)
    Abstract: Models with information frictions display output and inflation dynamics that are consistent with the empirical evidence. However, an assumption in the existing literature is that pricing managers do not interact with production managers within firms. If this assumption were relaxed, nominal shocks would not have real effects on the economy. In this paper, I present a model with information frictions, output inventories, and perfect communication within firms where nominal shocks have real effects. In this model, final goods firms observe aggregate variables with one period lag but observe their nominal input price and demand at all times. Hence, firms will accumulate inventories as long as they think that they are facing a low input price (cost-smoothing role of inventories). After a contractionary nominal shock, the nominal input price goes down, and firms accumulate inventories because the probability of a good productivity shock is positive. This prevents firms' prices from decreasing, which distorts relative prices and makes current profits and households' income go down. As a consequence, the aggregate demand falls. I found that nominal shocks have a delayed effect on output, and that the responses to nominal shocks are significant, persistent, and hump-shaped. Output, capital, and total investment decrease by 0.5%, 1.8% and 3.4%, respectively, after a 1% increase in the nominal interest rate. Moreover, the peak of most of the responses is two quarters after the shock. When the model is simulated, it displays moments that are closer to the data than a comparable model with perfect information.
    Date: 2014
  45. By: Jiaqian Chen; Tommaso Mancini Griffoli; Ratna Sahay
    Abstract: The impact of monetary policy in large advanced countries on emerging market economies—dubbed spillovers—is hotly debated in global and national policy circles. When the U.S. resorted to unconventional monetary policy, spillovers on asset prices and capital flows were significant, though remained smaller in countries with better fundamentals. This was not because monetary policy shocks changed (in size, sign or impact on stance). In fact, the traditional signaling channel of monetary policy continued to play the leading role in transmitting shocks, relative to other channels, affecting longer-term bond yields. Instead, we find that larger spillovers stem more from structural factors, such as the use of new instruments (asset purchases). We obtain these results by developing a new methodology to extract, separate, and interpret U.S. monetary policy shocks.
    Keywords: Monetary policy;Spillovers;United States;Emerging markets;Capital flows;Regression analysis;monetary policy announcements, unconventional monetary policies, spillovers, capital flows, equity markets, bond markets, exchange rates, emerging markets.
    Date: 2014–12–24
  46. By: Michaël Assous (PHARE; University of Paris 1); Olivier Bruno (GREDEG CNRS; University of Nice Sophia Antipolis, France; SKEMA Business School; OFCE DRIC); Muriel Dal-Pont Legrand (Clersé CNRS; University of Lille 1)
    Abstract: In The Trade Cycle, Roy Harrod [1936a] propounded the Law of Diminishing Elasticity of Demand. The present paper tries to clarify the precise role Harrod assigned to this law in order to understand his trade cycle theory. We discuss the micro and macro foundations of the Law of Diminishing Elasticity of Demand and how, according to Harrod, it explains one of the main mechanisms that stabilize the economy during the trade cycle. In addition, we show how the Law of Diminishing Elasticity of Demand allowed Harrod to micro-found a non-linear saving function that can give rise to an endogenous countercyclical value of the multiplier. The paper concludes by reviewing the main arguments related to the Law of Diminishing Elasticity of Demand proposed in the late 1930s.
    Keywords: Trade cycle, Imperfect competition, Law of Diminishing Elasticity of Demand, Roy Harrod
    JEL: B22 E32
    Date: 2015–01
  47. By: Antonio Mele (University of Surrey); Krisztina Molnar (Norwegian School of Economics); Sergio Santoro (Bank of Italy)
    Abstract: We show that price level stabilization is not optimal in an economy where agents have incomplete knowledge about the policy implemented and try to learn it. A systematically more accommodative policy than what agents expect generates short term gains without triggering an abrupt loss of confidence, since agents update expectations sluggishly. In the long run agents learn the policy implemented, and the economy converges to a rational expectations equilibrium in which policy does not stabilize prices, economic volatility is high, and agents suffer the corresponding welfare losses. However, these losses are outweighed by short term gains from the learning phase.
    JEL: C62 D83 D84 E52
    Date: 2015–02
  48. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study presents an overlapping generations model to capture the nature of the competition between generations regarding two redistribution policies, public education and public pensions. In addition, we investigate the effects of population aging on these policies and economic growth from a political economy viewpoint. We show that two aging factors, longevity and the political power of the old, have op- posite effects on redistribution policies and economic growth. The relative strength between the two factors is negative for pensions, but hump-shaped patterns appear for public education and economic growth.
    Keywords: economic growth; population aging; public education; public pen-sions
    JEL: D78 E24 H55
    Date: 2014–12
  49. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: On December 24, 2013, a tropical trough system impacted St. Vincent and the Grenadines. The heavy rains resulted in severe floods and landslides, with damages and losses estimated to be equivalent to about 15 percent of GDP. With most of the impact falling on infrastructure, including bridges, roads and hydroelectric facilities, emergency relief costs and rehabilitation and reconstruction expenses are opening a balance of payments gap in 2014.
    Keywords: Rapid Credit Facility;External shocks;Economic growth;Budget deficits;Fiscal policy;Fiscal reforms;Economic indicators;Debt sustainability analysis;Staff Reports;Letters of Intent;Rapid Financing Instrument;Press releases;St. Vincent and the Grenadines;
    Date: 2014–12–23
  50. By: Maurice Obstfeld
    Abstract: This paper evaluates the capacity of emerging market economies (EMEs) to moderate the domestic impact of global financial and monetary forces through their own monetary policies. Those EMEs that are able to exploit a flexible exchange rate are far better positioned than those that devote monetary policy to fixing the rate - a reflection of the classical monetary policy trilemma. However, exchange rate changes alone do not insulate economies from foreign financial and monetary shocks. While potentially a potent source of economic benefits, financial globalisation does have a downside for economic management. It worsens the trade-offs monetary policy faces in navigating among multiple domestic objectives. This drawback of globalisation raises the marginal value of additional tools of macroeconomic and financial policy. Unfortunately, the availability of such tools is constrained by a financial policy trilemma that is distinct from the monetary trilemma. This second trilemma posits the incompatibility of national responsibility for financial policy, international financial integration and financial stability.
    Keywords: policy trilemma, financial stability, financial globalisation, international policy transmission
    Date: 2015–01
  51. By: Hur, Seok-Kyun (Chung-Ang University)
    Abstract: This paper assesses the effects of fiscal policy on both equity and growth, specifically whether it is possible to design fiscal spending so that it enhances equity without sacrificing economic growth and vice versa. A cross-country panel vector autoregression (PVAR) using the World Development Indicators confirms the growth effects of individual fiscal spending items as anticipated whereas distributional effects were either temporarily positive or negligible for most fiscal items. However, compared with Organisation for Economic Co-operation and Development members, spending on public health and public education appeared to alleviate income inequality significantly in the Asian Development Bank members. This implies that fiscal expenditure policies may contribute more to inclusive growth in developing economies than in advanced ones.
    Keywords: Gini coefficient; government spending; inclusive growth; Panel Vector Autoregression
    JEL: E62 H50
    Date: 2014–11–01
  52. By: International Monetary Fund. African Dept.
    Abstract: EXECUTIVE SUMMARY Article IV issues. The government is committed to implementing the “Plan Sénégal Emergent” (PSE), which contains valid diagnostics and policies to boost growth and accelerate poverty reduction. GDP growth is projected to rise from less than 4 percent in recent years to 4.5 percent in 2014. Inflation remains low. Growth can potentially reach 7 percent by 2019 if PSE- related reforms are consistently and rapidly implemented. The authorities believe this growth rate will be achieved two years earlier. The impact of Ebola on growth will be limited in 2014 but can become substantial in 2015 should the epidemic spread in the region. Fiscal stance. The fiscal outlook has improved owing to stronger revenue performance and expenditure control, and the overall deficit is expected to fall to about 5 percent of GDP in 2014. The 2015 budget targets a further reduction in the deficit to 4.7 percent of GDP, less ambitious than the 4.0 percent of GDP recommended by staff. However, the authorities expect to limit the deficit close to the level recommended by staff by holding back appropriations for new public investment projects until feasibility studies are ready. Staff and authorities agreed that Ebola-related shocks could add 0.3 percent of GDP to the deficit in 2015. The authorities remain committed to bringing the fiscal deficit in line with the WAEMU target of 3 percent of GDP in the medium term. Structural reforms. The PSE offers an achievable development strategy, including the right mix of private investment to be crowded in by public investment in both human capital and infrastructure. However, unlocking private investment, including FDI, requires speeding up reforms to the business climate and improving public sector governance. Frontloading public investment without implementing the necessary structural reforms may jeopardize fiscal targets and debt sustainability while failing to raise growth from its sub-par trend. Program implementation. Performance under the PSI-supported program has been satisfactory with end-June 2014 program targets met except for a minor breach of the non- concessional borrowing ceiling due to weak debt management. This borrowing does not materially affect debt sustainability, and debt management weaknesses are being addressed. Staff recommends completion of the eighth PSI review and proposes a waiver of nonobservance of the assessment criterion on non-concessional borrowing.
  53. By: Martin S. Feldstein
    Abstract: All of the attempts to end the euro crisis and to return the Eurozone countries to healthy growth rates of income and employment have failed. The options that are currently being discussed are not likely to be more successful. If there is a politically feasible way out of the crisis, it will be through revenue neutral fiscal incentives adopted by the individual Eurozone countries. I describe some of these fiscal options after reviewing the history of failed attempts and the options that are currently on the table.
    JEL: E5 E6 H2
    Date: 2015–01
  54. By: Andrzej Jedruchniewicz (SGGW, Poland)
    Abstract: Inwestycje s¹ wa¿nym Ÿród³em rozwoju przedsiêbiorstw i gospodarki. Zale¿¹ one od wielu czynników. Wed³ug wiêkszoœci g³ównych szkó³ ekonomicznych istotnym czynnikiem wp³ywaj¹cym na poziom i dynamikê nak³adów inwestycyjnych jest polityka monetarna. G³ównym celem opracowania jest zbadanie wp³ywu polityki pieniê¿nej Narodowego Banku Polskiego na dynamikê oraz strukturê inwestycji w Polsce. Ze wzglêdu na realistyczn¹ teoriê kapita³u zmiany inwestycji by³y ocenia-ne w g³ównej mierze z punktu widzenia szko³y austriackiej. Metody badawcze, które zastosowano w opracowaniu to dedukcja oraz wskaŸniki statystyczne. W la-tach 2006-2013 w polskiej gospodarce wystêpowa³a umiarkowana zale¿noœæ li-niowa miêdzy stop¹ referencyjn¹ a dynamik¹ inwestycji. Zmiany w polityce pie-niê¿nej prowadzi³y do nieproporcjonalnej dynamiki produkcji ró¿nych dóbr za-równo w okresach lepszej jak i gorszej koniunktury. Zmiennoœæ nak³adów inwe-stycyjnych by³a zdecydowanie wiêksza ni¿ produkcji dóbr konsumpcyjnych. Równie¿ bardziej dynamicznie zmienia³y siê inwestycje w bran¿ach na pocz¹t-kowych etapach struktury produkcji, ni¿ w sektorach znajduj¹cych siê najbli¿ej konsumenta. Wyniki badañ potwierdzaj¹ teoriê szko³y austriackiej.
    Keywords: polityka pieniê¿na, stopa procentowa, dynamika inwestycji, struktura inwestycji
    JEL: E31 E32 E52
    Date: 2014–12
  55. By: Knut Are Aastveit (Norges Bank (Central Bank of Norway)); Francesco Ravazzolo (Norges Bank (Central Bank of Norway) and BI Norwegian Business School); Herman K. van Dijk (Erasmus University Rotterdam, VU University Amsterdam and Tinbergen Institute,)
    Abstract: We introduce a Combined Density Nowcasting (CDN) approach to Dynamic Factor Models (DFM) that in a coherent way accounts for time-varying uncertainty of several model and data features in order to provide more accurate and complete density nowcasts. The combination weights are latent random variables that depend on past nowcasting performance and other learning mechanisms. The combined density scheme is incorporated in a Bayesian Sequential Monte Carlo method which re-balances the set of nowcasted densities in each period using updated information on the time-varying weights. Experiments with simulated data show that CDN works particularly well in a situation of early data releases with relatively large data uncertainty and model incompleteness. Empirical results, based on US real-time data of 120 leading indicators, indicate that CDN gives more accurate density nowcasts of US GDP growth than a model selection strategy and other combination strategies throughout the quarter with relatively large gains for the two rst months of the quarter. CDN also provides informative signals on model incompleteness during recent recessions. Focusing on the tails, CDN delivers probabilities of negative growth, that provide good signals for calling recessions and ending economic slumps in real time.
    Keywords: Density forecast combination, Survey forecast, Bayesian filtering; Sequential Monte Carlo Nowcasting; Real-time data
    JEL: C11 C13 C32 C53 E37
    Date: 2014–12–04
  56. By: Pablo Guerron-Quintana (Federal Reserve Bank of Philadelphia)
    Abstract: We study the impact that the liquidity crunch in 2008-2009 had on the U.S. economy's growth trend. To this end, we propose a model featuring endogenous productivity a la Romer and a liquidity friction a la Kiyotaki-Moore. A key finding in our study is that liquidity declined around the Lehman Brothers' demise, which led to the severe contraction in the economy. This liquidity shock was a tail event. Improving conditions in financial markets were crucial in the subsequent recovery. Had conditions remained at their worst level in 2008, output would have been 20 percent below its actual level in 2011.
    Date: 2014
  57. By: Peter Klenow (Stanford University); Ben Malin (Federal Reserve Bank of Minneapolis); Mark Bils (U. of Rochester)
    Abstract: Employment and hours appear far more cyclical than dictated by the behavior of productivity and consumption. This puzzle has been labeled "the labor wedge" - a cyclical wedge between the marginal product of labor and the marginal rate of substitution. The wedge can be broken into a product market wedge (price markup) and a labor market wedge (wage markup). Based on the wages of employees, the literature has attributed the wedge almost entirely to labor market distortions (see, e.g., Gali, Gertler, Lopez-Salido (2007) or Karabarbounis (2013)). Because employee wages may be smoothed versions of the true cyclical price of labor, however, we instead decompose the labor wedge using data on intermediate inputs, work-in-process inventories, and the self-employed. We find that price markup movements are just as important as wage markup movements -- including in the Great Recession and its aftermath. Thus, sticky prices and other forms of countercyclical price markups deserve a central place in business cycle research, alongside sticky wages and matching frictions.
    Date: 2014
  58. By: Anella Munro; Benjamin Wong (Reserve Bank of New Zealand)
    Abstract: Fluctuations in the margins banks paid (over risk-free interest rates) on their funding costs have been a significant factor since the financial crisis of 2008/09. This paper uses a model to analyse the response of New Zealand’s monetary policy to such fluctuations since 1993, On average, the 90 day bill rate moved seven times as much as the initial shock to funding cost margins.
    Date: 2014–12
  59. By: Marta Gómez-Puig (Department of Economic Theory - Universitat de Barcelona); Manish K. Singh (Department of Economic Theory, Universitat de Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: This study attempts to identify and trace inter-linkages between sovereign and banking risk in the euro area. To this end, we use an indicator of banking risk in each country based on the Contingent Claim Analysis literature, and 10-year government yield spreads over Germany as a measure of sovereign risk. We apply a dynamic approach to testing for Granger causality between the two measures of risk in 10 euro area countries, allowing us to check for contagion in the form of a significant and abrupt increase in short-run causal linkages. The empirical results indicate that episodes of contagion vary considerably in both directions over time and within the different EMU countries. Significantly, we find that causal linkages tend to strengthen particularly at the time of major financial crises. The empirical evidence suggests the presence of contagion, mainly from banks to sovereigns.
    Keywords: sovereign debt crisis, banking crisis, Granger-causality, time-varying approach, “distance-to-default”, euro area.
    JEL: C22 E44 G01 G13 G21
    Date: 2015–01
  60. By: Megersa, Kelbesa; Cassimon, Danny
    Abstract: The paper investigates whether differences in public sector management quality affect the link between public debt and economic growth in developing countries. For this purpose, we primarily use World Bank’s institutional indices of public sector management (PSM). Using PSM thresholds, we split our panel into country clusters and make comparisons. Our linear baseline regressions reveal a significant negative relationship between public debt and growth. The various robustness exercises that we perform also confirm these results. When we dissect our dataset into ‘weak’ and ‘strong’ county clusters using public sector management scores, however, we find different results. While public debt still displayed a negative relationship with growth in countries with ‘weak’ public sector management quality, it generally displayed a positive relationship in the latter group. The tests for non-linearity shows evidence of an ‘inverse-U’ shape relationship between public debt and economic growth. However, we fail to see a similar significant relationship on country clusters that account for PSM quality. Yet, countries with well managed public sectors demonstrate a higher public debt sustainability threshold.
    Keywords: public debt, economic growth, public sector management, developing countries
    JEL: E62 F34 H63 H83 O11
    Date: 2014–12
  61. By: Barrera, Carlos (Banco Central de Reserva del Perú)
    Abstract: El presente estudio contrasta la hipótesis de una relación no lineal entre la inflación y el crecimiento de la actividad económica del Perú con datos que cubren el periodo enero 1993 - junio 2012. Se usa una familia de modelos dicotómicos que enfatizan la relación entre las fases de aceleración y desaceleración presentes en los ciclos de ambas variables. Se estiman modelos logit uni-ecuacionales auto-regresivos así como modelos probit bi-ecuacionales estáticos y auto-regresivos. Los resultados sugieren la existencia de una relación estocástica entre los ciclos discretos de inflación y actividad económica.
    Keywords: modelos de series de tiempo, regresión discreta, modelos logit, construcción y evaluación de modelos, predicción, fl uctuaciones en los negocios
    JEL: C22 C25 C51 C52 C53 E32
    Date: 2014–12
  62. By: Brousseau, Vincent (European Central Bank); Nikolaou, Kleopatra (Board of Governors of the Federal Reserve System (U.S.)); Pill, Huw (Goldman Sachs)
    Abstract: We quantify the effect of refinancing risk on euro area money market spreads, a major factor driving spreads during the financing crisis. With the advent of the crisis, market participants' perception of their ability to refinance over a given period of time changed radically. As a result, borrowers preferred to obtain funding for longer tenors and lenders were willing to provide funding for shorter tenors. This discrepancy resulted in a need to refinance more frequently in order to borrow over a given horizon, thus increasing refinancing risk. We measure refinancing risk by quantifying the sensitivity of the spread to the refinancing frequency. In order to do so we introduce a model to price EURIBOR-based money market spreads vis-à-vis the overnight index swap. We adopt a methodology akin to a factor model in which the parameters determining the spreads are the intensity of the crisis, its expected half-life, and the sensitivity of spreads to the refinancing frequency. Results suggest that refinancing risk affects the spread significantly across time, albeit in a largely varying manner. Central bank interventions have reduced the spreads as well as the effect of refinancing risk on them.
    Keywords: Financial crisis; liquidity risk; money market spread; money markets; refinancing risk
    JEL: E58 G12 G21
    Date: 2014–11–19
  63. By: Niebel, Thomas
    Abstract: This paper analyzes the impact of information and communication technologies (ICT) on economic growth in developing, emerging and developed countries. It is based on a sample of 59 countries for the period 1995 to 2010. Various panel data regressions confirm the positive relationship between ICT capital and GDP growth. The regressions for the subsamples of developing, emerging and developed countries do not reveal statistically significant differences of the output elasticity of ICT between these three country groups.
    Keywords: ICT,Economic Growth
    JEL: E22 J24 O47
    Date: 2014
  64. By: George Provopoulos (Bank of Greece)
    Abstract: This paper describes the origins of the Greek financial crisis and discusses the progress that Greece has made in adjusting its economy. The main causes of the crisis were the large and growing external and fiscal imbalances. The primary factors accounting for the growing current-account deficit were declines in competitiveness and in public-sector saving. Moreover, prior to the outbreak of the crisis, the Greek banking sector had sound fundamentals. Also, in contrast to the situation in other countries, in Greece the sovereign crisis led to a banking crisis. The paper then (i) takes stock of the considerable progress that Greece has made in addressing its external and fiscal imbalances, and (ii) describes the strategy developed by Bank of Greece to transform the banking system. It is shown that implementation of the Bank’s strategy has led to a major restructuring of the banking system, allowing it to become efficient and competitive. These improvements are leading to a positive assessment of the future prospects of the Greek economy by the financial markets.
    Keywords: Greek sovereign debt crisis; fiscal adjustment; external adjustment; banking sector reform
    JEL: E4 E58 F3 G15
    Date: 2013–07
  65. By: Lang, Michael; Schröder, Michael
    Abstract: This paper examines the treatment of sovereign debt exposure within the Basel framework and measures the impact of bank regulation on the demand of Monetary Financial Institutions (MFI) for marketable sovereign debt. Our results suggest that bank regulation has a significant positive impact on MFI demand for domestic government securities. The results are representative for the MFI in the euro zone. They remain highly robust and significant after controlling for other influential factors and potential endogeneity.
    Keywords: Monetary Financial Institutions,Financial sector regulation,Sovereign bond holdings,Investment incentives
    JEL: G11 G21 G28
    Date: 2014
  66. By: Etienne Lalé
    Abstract: This paper studies the secular employment experience of older workers on both sides of the Atlantic, using a common framework to characterize changes in the macro-economy. We embed Ljungqvist and Sargent (1998, 2008)’s turbulence story into a general equilibrium environment with an operative labor supply margin. The model can jointly explain (i) the fall in (male) labor force participation in the United States, (ii) the similar but more pronounced decline in Europe along with rising unemployment rates and (iii) the concentration of these adverse employment outcomes on older workers. We use this framework to discuss the labor market effects of early retirement benefits. These benefits generate significant incentives to retire earlier, which in turn raises tax pressure and discourages job creation. We find that these effects are more pronounced in a turbulent economic environment, and especially so under stringent employment protection legislation.
    Keywords: Job-Search, Turbulence, European Unemployment, Labor Force Participation.
    JEL: E24 J21 J64
    Date: 2015–01
  67. By: Laura Puglisi
    Abstract: In recent years, the concept of a fiscal devaluation has been advocated as fiscal policy alternative to nominal exchange rate devaluations for peripheral deficit countries in the euro area to regain competitiveness. This paper investigates if countries in the euro area implemented fiscal devaluations in the aftermath of the economic and financial crisis and if so, how these reforms are expected to affect their competitiveness positions. Despite much discussion, no country has yet undertaken a substantial fiscal devaluation. Some (targeted) reductions in social security contributions were introduced, mainly to create job incentives, while consumption taxes (VAT) were increased – in some cases substantially – mainly for consolidation purposes. Although countries could benefit from a fiscal devaluation, their feasibility is politically constraint and effects are likely to be small in magnitude relative to the size of economic problems. Overall, fiscal devaluations cannot be a substitute for deep structural reforms that are urgently needed to address the underlying weaknesses of European economies.
    Keywords: Taxation; European Union; Euro Area; tax policy; fiscal devaluation; VAT; social security contributions; political economy; cost competitiveness
    JEL: F10 H24 H87
    Date: 2014–10
  68. By: Malgorzata Olszak (University of Warsaw, Faculty of Management); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland); Sylwia Roszkowska (Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland); Iwona Kowalska (University of Warsaw, Faculty of Management)
    Abstract: This paper aims to find out what is the impact of bank capital ratios on loan supply in the EU and what factors explain potential diversity of this impact. Applying Blundell and Bond (1998) two step GMM estimator, we show that, in the EU context, the role of capital ratio for loan growth is stronger than previous literature has found for other countries. Our study sheds some light on whether procyclicality of loan loss provisions and income smoothing with loan loss provisions contribute to procyclical impact of capital ratio on loan growth. We document that loan growth of banks that have more procyclical loan loss provisions and that engage less in income smoothing is more sensitive to capital ratios. This sensitivity is slightly increased in this sample of banks during contractions. Moreover, more restrictive regulations and more stringent official supervision reduce the magnitude of effect of capital ratio on bank lending. Taken together, our results suggest that capital ratios are important determinant of lending in EU large banks.
    Keywords: loan supply, capital crunch, procyclicality of loan loss provisions, income smoothing, bank regulation, bank supervision
    JEL: E32 G21 G28 G32
    Date: 2014–12
  69. By: Tianxi Wang
    Abstract: This paper considers the efficiency of money creation by banks and the principles of the central bank issuance to improve over it. The ability to issue deposit liability as a means of payment enlarges banks lending capacities and subjects them to fiercer competition. In curcumstances where banks issue too much money, interest-rate policy may help. In circumstances of a credit crunch, quantitative- easing policy helps, under which the central bank lends its issues to all banks. These issues are unbacked by taxation and purely nominal. The optimal quantity of the central bank's lending is unique and implements the first-best allocation.
    Date: 2014–10–23
  70. By: Yankov, Vladimir (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: To attract retail time deposits, over 7,000 FDIC insured U.S. commercial banks publicly post their yield offers. I document an economically sizable and highly pro-cyclical cross-sectional dispersion in these yield offers during the period 1997 - 2011. Banks adjusted their yields rigidly and asymmetrically with median duration of 7 weeks in response to increasing or constant Fed Funds rate target regimes and 3 weeks during regimes of decreasing Fed Fund rate target. I investigate to what extent information (search) costs on the part of the investors in this market can explain the observed pricing behavior. I build and estimate an asset pricing model with heterogeneous search cost investors. A large fraction of high information cost uninformed investors and the exit of low information cost informed investors rationalizes the observed price dispersion. I further qualitatively match the asymmetric yield rigidity within the framework of costly consumer search without the need to impose menu costs or other restrictions on the banks' repricing behavior.
    Keywords: Consumer search; deposit rates; interest rate pass-through; price rigidity
    JEL: D83 D91 G12 G21
    Date: 2014–08–02
  71. By: Christopher Sims (Princeton University); Marco Del Negro (Federal Reserve Bank of New York)
    Abstract: A central bank whose assets and liabilities are both nominal cannot produce a uniquely determined price level, no matter what policies it adopts, unless it is backed by a treasury with the power to tax. If it is so backed, the backing need not be visible in equilibrium; it can be a commitment by the treasury to act in circumstances that do not occur in equilibrium, and the action required in those circumstances need not be large. A central bank, though, can require fiscal transfers on the equilibrium path even when fiscal backing makes the price level unique. The likelihood of its needing such transfers increases when its balance sheet expands and when the duration of its assets diverges from that of its interest-bearing liabilities. The need for such transfers also depends on the strictness of its control of inflation and on the nature of demand for its non-interest bearing liabilities. A model calibrated to the current situation of the US Federal Reserve System suggests that the need for transfers is unlikely to arise, even if the Fed’s net worth at market value temporarily becomes negative.
    Date: 2014
  72. By: Michał Brzeziński (Faculty of Economic Sciences, University of Warsaw)
    Abstract: This paper is a follow-up to Marrero and Rodríguez (2012), who estimated the inequality of opportunity (IO) in Europe in 2005. We use the EU-SILC 2005 and 2011 databases to compare the IO in 23 European countries before and after the Great Recession. The parametric procedure of Ferreira and Gignoux (2011) is used to measure IO. Results show that between 2004 and 2010 both absolute and relative IO increased in Belgium and Slovakia, while decreased in Portugal and Lithuania. In addition, relative IO rose in Austria, Hungary and Greece.
    Keywords: Inequality of opportunity, Great Recession, EU-SILC, circumstances, Europe
    JEL: D63 E24 O15 O52
    Date: 2015
  73. By: Camille Cornand; Rodolphe Dos Santos Ferreira
    Abstract: In Keynes’ beauty contest, agents have to choose actions in accordance with an expected fundamental value and with the conventional value expected to be set by the market. In doing so, agents respond to a fundamental and to a coordination motive respectively, the prevalence of either motive being set exogenously. Our contribution is to consider whether agents favor the fundamental or the coordination motive as the result of a strategic choice that generates a strong strategic complementarity of agents’ actions. We show that the coordination motive tends to prevail over the fundamental one, which yields a disconnection of activity away from the fundamental. A valuation game and a competition game are provided as illustrations of this general Framework.
    Keywords: beauty contest, financial markets, indeterminacy, oligopolistic competition, strategic complementarities.
    JEL: D84 E12 E44 L13
    Date: 2015
  74. By: Ojo, Marianne
    Abstract: The Business Indicator approach has been identified by the Basel Committee as the most suitable replacement for the Gross Income approach, since it addresses most of the Gross Income’s weaknesses, as well as possesses certain attributes which were highlighted to have been at the heart of the recent Financial Crisis. It had been highlighted by the Committee that weaknesses of the simpler approaches to operational risk, were attributed and generated principally from the use of Gross Income (GI) as a proxy indicator for operational risk exposure. This paper highlights rationales for revisions to the present framework of approaches to operational risk and why adjustments to the simpler approaches have become necessary. Further, as well as accentuating on why issues relating to calibration and adequate focus on Pillar III of Basel II, namely, market discipline, continue to dominate and feature as areas in need of greater attention, the paper also seeks to demonstrate why Pillar III may be that area which requires greater focus - where matters relating to goals of consistency, comparability and simplicity are involved. As well as consolidating on why gaps still persist in relation to disclosure requirements relating to operational risks, the paper will, more importantly, propose means of mitigating such gaps.
    Keywords: operational risk; standardised approaches; market discipline; calibration; off-balance sheet exposures; comparability; consistency
    JEL: E3 E32 E60 G2 K2
    Date: 2015–01–06
  75. By: Lahura, Erick (Banco Central de Reserva del Perú); Vega, Marco (Banco Central de Reserva del Perú)
    Abstract: We explore the causal effect of stock market development on real economic activity in Peru. Based on the predictions of a simple growth model, we estimate vector autoregressive models and identify stock market shocks by imposing long-run restrictions in the dynamic response of real output per capita. Using annual time series data for the period 1965-2013, we find that stock market shocks have had a short-run causal effect on real GDP per capita only after 1991, a result that is consistent with standard Granger causality tests; however, the contribution of stock market shocks to output growth dynamics have been small. Thus, policy actions aimed at further developing the Peruvian stock market may have a positive impact on the dynamics of economic growth.
    Keywords: Stock market development, output growth, VAR, long-run restrictions
    JEL: E23 G1
    Date: 2014–12
  76. By: Gianni Toniolo; Eugene N. White
    Abstract: We investigate the origins and growth of the Financial Stability Mandate (FSM) to examine why bank supervisors, inside and outside of central banks succeeded or failed to meet their FSM. Three issues inform this study: (1) what drives changes in the FSM, (2) whether supervision should be conducted within the central bank or in independent agencies and (3) whether supervision should be rules- or discretion/principles-based. As histories of bank supervision are few, we focus on the history of six countries where there is sufficient information, three in Europe (England, France, and Italy) and three in the New World (U.S., Canada, and Colombia) to highlight the essential developments in the FSM. While there was a common evolutionary path, the development of FSM in each individual country was determined by how quickly each adapted to changes in the technology of the means of payment and their political economy, including their disposition towards competitive markets and openness to the world economy.
    JEL: E58 G21 N1 N2
    Date: 2015–01
  77. By: Mathieu Taschereau-Dumouchel (University of Pennsylvania - Wharton); Edouard Schaal (New York University)
    Abstract: Abstract We propose a model of coordination failures for business cycles in which agents learn to coordinate over time. The economy features an aggregate demand externality that leads to multiple equilibria under complete information. Under incomplete information, a group of informed agents receive private signals about the fundamentals of the economy, while a group of uninformed agents only observe past public realizations of aggregate demand. The economy takes a long time to recover from recessions because their coordination capital is destroyed: agents lose their ability to coordinate on the good outcome. In a recovery, informed agents wait for the uninformed to take action before resuming production, while uninformed agents infer the level of the fundamental by observing the endogenously low level of demand. As a result, uninformed agents keep pessimistic beliefs about the fundamental for an extended period of time and downturns become very protracted. The equilibrium is inefficient and we characterize optimal policy interventions.
    Date: 2014
  78. By: Arkadiusz Borowiec (Poznan University of Technology, Poland)
    Abstract: In today's market economy factors concerning knowledge, new technologies and innovative solutions are essential for economic development. However, the Polish economy, despite its high innovation potential compared to other European Union countries, is characterized by a very low level of innovativeness. Implementing this potential is conditioned with an appropriate economic policy of the state and ra-tional approach to its resources and legal solutions. One of the possibilities of such an action is the use of public procurement instrument through which it is possible to more effectively create demand for innovative products and services. As shown by literature studies, the achievements of the subject literature associated with the creation of demand for innovations by public administration in Poland have been very modest. This gap is recognized the article and it attempts to build a model for assessing the innovativeness of these units. Network thinking methodology was used to build the model. As a result, after the identification of factors affecting the conduct of an innovative public procurement, a network of links was established between them and examined in terms of type, intensity and duration of exposure. Building a model according to the methodology, the opinions of experts have been used along with long-term observations conducted in the course of participation in all kinds of conferences and trainings. The model was also subjected to validation in two selected units.
    Keywords: Macroeconomic Policy, Policy Making, Innovations, Public procurement
    JEL: E1 E6
    Date: 2014–12
  79. By: Leonardo Gambacorta; Anamaria Illes; Marco Jacopo Lombardi
    Abstract: Central banks of major advanced economies have maintained a very accommodative monetary policy stance in the last few years. However, concerns have surfaced that the transmission of low policy rates to lending rates has been weaker than in the past. Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? To answer this question, we first estimate standard cointegrating equations linking policy and lending rates for non-financial firms in Italy, Spain, United Kingdom and United States. We then test for structural change in the cointegration parameters, reporting strong evidence of a break after Lehman Brothers' default. Such structural break is due to a strong increase in the mark-up between the lending rate and the policy rate that standard models assume constant in the long run. The structural shift is explained by compounding the lending rate equation with measures of risk.
    Keywords: monetary policy, lending rates, cointegration, global financial crisis
    Date: 2014–12
  80. By: Auboin, Marc; Blengini, Isabella
    Abstract: Trade finance, particularly in the form of short-term, self-liquidating letters of credit and the like, has received relatively favourable treatment regarding capital adequacy and liquidity under Basel III, the new international prudential framework. However, concerns have been expressed over the potential "unintended consequences" of applying the newly created leverage ratio to these instruments, notably for developing countries' trade. This paper offers a relatively simple model approach showing the conditions under which the initially proposed 100% leverage tax on non-leveraged activities such as letters of credit would reduce their natural attractiveness relative to higher-risk, less collateralized assets, which may stand in the balance sheet of banks. Under these conditions, the model shows that leverage ratio may nullify in part the effect of the low capital ratio that is commensurate to the low risk of such instruments. The decision by the Basel committee on 12 January 2014 to reduce the leverage ratio seems to be justified by the analytical framework developed in this paper.
    Keywords: trade financing,cooperation with international financial institutions,prudential supervision and trade
    JEL: E44 F13 F34 F36 O19 G21 G32
    Date: 2014
  81. By: François Geerolf; Thomas Grjebine
    Abstract: We investigate the causal effect of house price movements on unemployment dynamics. Using a dataset of 34 countries over the last 40 years, we show the large and significant impact of house prices on unemployment fluctuations using property taxes as an instrument for house prices. A 10% (instrumented) appreciation in house prices yields to a 3.4% decrease in the unemployment rate. These results are very robust to the inclusion of the variables commonly used to explain unemployment rate developments. If house prices directly impact employment in construction, job volatility in this sector resulting in large employment fluctuations, they impact also total employment through their effects on non-residential investment and consumption, two determinants of labour demand. Housing booms have a specific effect on employment in the tradable sector as they lead to real exchange rate appreciations that affect manufacturing activity.
    Keywords: Unemployment;House Prices
    JEL: J60 E29 R32
    Date: 2014–12
  82. By: Sunanda Sen; Zico DasGupta
    Abstract: Financialization creates space for the financial sector in economies, and in doing so helps to raise the share of financial assets in the portfolios held by market participants. Largely driven by deregulation, the process works to make financial assets relatively attractive as compared to other assets, by offering both better returns and potential capital gains. Both the trend toward a more financialized economy and the expected returns on financial investments have provided incentives to corporate managers to invest larger sums in financial assets, resulting in growth of the share of financial assets relative to other assets held in portfolios. Assets held in the financial sector, however, failed to generate asset growth for the corporates. The need to obtain resources by borrowing in order to meet current liabilities reflects a pattern of Ponzi finance on their part. This paper traces the above pattern in corporate holdings of assets and its implications, with emphasis on the Indian economy.
    Keywords: Corporate Investments; Financialization; Ponzi Finance; Speculation
    JEL: E44 G32 L21
    Date: 2015–01
  83. By: King, Thomas B. (Federal Reserve Bank of Chicago); Lewis, Kurt F. (Board of Governors of the Federal Reserve System)
    Abstract: We use matched, bank-level panel data on Libor submissions and credit default swaps to decompose bank-funding spreads at several maturities into components reflecting counterparty credit risk and funding-market liquidity. To account for the possibility that banks may strategically misreport their funding rates in the Libor survey, we nest our decomposition within a model of the costs and benefits of lying. We find that Libor spreads typically consist mostly of a liquidity premium and that this premium declined at short maturities following Federal Reserve interventions in bank funding markets. At longer maturities, credit risk explains much of the time variation in Libor, reflecting in part fluctuations in the degree to which default risk is priced in the interbank market. Our results are consistent with banks both under- and over-reporting their funding costs during the crisis but suggest that the incidence of this behavior may have subsequently declined.
    Keywords: LIBOR; liquidity; credit risk; misreporting
    JEL: E43 E58 G21
    Date: 2014–11–13
  84. By: Laetitia Chaix (University of Nice Sophia Antipolis, France; GREDEG CNRS); Dominique Torre (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: This paper analyzes the capacity of mobile-payment solutions to improve financial inclusion in developing countries. It elaborates from rural East African countries experiences where mobile payment services have developed rapidly. With a simple dynamic model which rationalizes traders' adoption process of distant mobile payment services, we analyze the role of telephonic operators in financial inclusion. We point out the interest of a diversified supply of m-payment services, including simplified solutions proposed by operators alone, in complement of more advanced services involving financial partners. We explain how such a diversified supply, including a ‘frugal’ innovative component, can be more efficient to improve financial inclusion than the only elaborated solutions provided cooperatively by operators and banks cooperatively.
    Keywords: Mobile-payment services, Financial inclusion, Developing countries, Switching costs, Frugal innovations
    JEL: E42 O33
    Date: 2015–01
  85. By: Soldatos, Gerasimos T.
    Abstract: The idea is that the three Abrahamic religions, Judaism-Christianity-Islam, all predispose microeconomics-wise for a social-welfare liberal state safeguarding against the violation of efficiency (not to waste resources and goods), equity (fair wealth distribution), and envy-freeness prefer own modus vivendi relative to neighbor’s) through voluntary action. Macroeconomics-wise, all of them are comfortably compatible with managing the overall economy in line with the four rules of the non-Monetarist Chicago School of Thought given that none of them approves profitable lending: No open-market-operations, cyclically-balanced-budget, k-percent money-growth, and zero-bank-money or full-reserve rules. A Rousseauesque social contract complementing the Lockean one is claimed to be the only état des choses compatible with all three Abrahamic religions.
    Keywords: Abrahamic religions, Efficiency-equity-envy-freeness, Democracy, non-Monetarist Chicago School of Thought
    JEL: A12 A13 Z12
    Date: 2015
  86. By: Sensoy, Ahmet; Hacihasanoglu, Erk; Rostom, Ahmed
    Abstract: This paper focuses on developments in the European Economic and Monetary Union sovereign debt markets in the past decade. The ?rst part analyzes the integration and segmentation structure of the bond markets of the Economic and Monetary Union before and after the sovereign debt crisis, by introducing the novel concept of correlation-based stable networks. Accordingly, a fair integration is observed between the bond markets during the pre-crisis period. However, a strict segmentation emerges, separating the members struggling with debt problems and the ones with relatively strong ?scal performances during the sovereign debt turmoil. The segmentation structure is clearly visualized, revealing the potential paths for crisis and recovery transmission in the future. In the second part, the paper comments on the recent decreasing trend in Economic and Monetary Union member bond yields and their increasing degree of co-movement. Accordingly, the paper argues that these changes do not depend on the ?scal performances of the member countries, but depend on the illusion of quality that appeared with the Fed (U.S. Federal Reserve) tapering signals in early 2013.
    Keywords: Debt Markets,Emerging Markets,Currencies and Exchange Rates,Financial Intermediation,Deposit Insurance
    Date: 2015–01–01
  87. By: Christopher M. Meissner
    Abstract: Bimetallism disappeared as a monetary regime in the 1870s. Flandreau (1996) clearly demonstrates that French bimetallism would have been able to withstand the German de-monetization of silver. Could it have withstood if many other countries in the world moved to the gold standard following in the footsteps of Bismarck? The answer is no. By 1875 bimetallism would have been unviable, and the US return to convertibility in 1879 would have made it impossible to sustain true bimetallism. It is difficult to understand the end of the bimetallic strategy as the outcome of a repeated game between rational actors. Rather, it would appear that very few actors had a good model of how the international monetary system worked in practice as of 1873. An attempt to resuscitate bimetallism, with France and the US both bimetallic at the mint ratio of 15.5 to one, would have been tenuous. No wonder then that there were few countries enthusiastic about reviving bimetallism at the International Monetary Conference of 1878. A similar lack of cooperation risks sending the European Monetary Union-as currently constituted-the way of bimetallism.
    JEL: E42 N10 N40
    Date: 2015–01
  88. By: Sérgio Wulff Gobetti
    Abstract: Este texto tem por objetivo contribuir com o debate sobre possíveis mudanças no regime fiscal brasileiro à luz das experiências recentes da União Europeia (UE) e do Reino Unido no que diz respeito a regras fiscais. As evidências internacionais indicam, segundo o Monitor fiscal do Fundo Monetário Internacional (FMI) de 2012, que se está mundialmente diante de uma nova geração de regras fiscais, mais flexíveis que as prevalecentes, para fazer frente às surpresas do ciclo econômico, mas também mais efetivas e comprometidas com a sustentabilidade de médio e longo prazo da política fiscal. No Brasil, contudo, continua-se preso a um modelo de política fiscal que apresenta claros sinais de desgaste e obsolescência, no qual a flexibilidade tem sido buscada por meio de artifícios contábeis e discricionariedade em vez de um novo paradigma institucional que amplie a transparência e credibilidade. A proposta central do texto é que o Brasil caminhe para a adoção de metas fiscais baseadas no conceito de resultado estrutural ajustado ao ciclo econômico, a exemplo da UE e do Reino Unido. This paper aims to contribute to the debate on possible changes in the Brazilian tax system in the light of recent experience of the European Union (EU) and the United Kingdom, with regard to tax rules. International evidence indicates, according to the International Monetary Fund (IMF) Fiscal Monitor in 2012, we are world facing a new generation of tax rules, more flexible than the prevailing, to meet the surprises of the economic cycle, but also more effective and committed to the sustainability of medium and long-term fiscal policy. In Brazil, however, we still be attached to a fiscal policy model that shows clear signs of wear and obsolescence, in which flexibility has been sought through accounting gimmicks and discretion rather than a new institutional paradigm that increases transparency and credibility. The central proposal of the text is that Brazil walk to adopt fiscal targets based on the concept of structural result adjusted to the economic cycle, such as the EU and the UK.
    Date: 2014–12
  89. By: Horacio Sapriza (Board of Governors); Emircan Yurdagul (Washington University in Saint Louis); Juan Sanchez (Federal Reserve Bank of St. Louis)
    Abstract: This paper provides a new framework to study the term structure of interest rate spreads and the maturity composition of sovereign bonds. As observed in the literature, sovereign interest rate spreads increase during crises, with short term interest rate spreads rising more than long term spreads. The inversion of the yield curve is accompanied by lower debt issuance and a shortening of the maturity structure. In addition, sovereign debt restructurings may lead to a non-monotonic term structure of interest rate spreads, as evidenced during the recent sovereign debt crisis in Greece, when the yield curve developed a humped shape. To properly capture the observed variation of expected sovereign debt collection at different horizons and thus account for the dynamics in the maturity of debt issuances and its co-movement with the level of spreads across maturities found in the data, this paper introduces a new quantitative dynamic model of the term structure of interest rate spreads of government defaultable debt under incomplete markets.
    Date: 2014
  90. By: Hall, Viv; Thomson, Peter; McKelvie, Stuart
    Abstract: We present new empirical evidence on trend robustness and end-point issues, utilising the macroeconomic data set investigated in McKelvie and Hall (2012). We consider the relative merits of non-robust Hodrick-Prescott (HP) and robust loess (LOcal regrESSion) trend filtering methods, and assess the sensitivity of HP1600 stylised facts to (i) the considerable “supply shock” deviations from trend associated with New Zealand’s 1992 power crisis, and (ii) an alternative HP100 specification and the loess approach. On end-point issues, we assess value-added from the use of seven-point triangular moving average and HP1600 filters, relative to insights from a 21-quarter uniform moving average filter.
    Keywords: Trend robustness, End-point issues, Growth cycle analysis;, Stylised business cycle facts, New Zealand,
    Date: 2015
  91. By: Bhavani, T.A. (Institute of Economic Growth); Bhanumurthy, N.R. (National Institute of Public Finance and Policy)
    Abstract: This paper attempts to study financial access of unorganized manufacturing enterprises in India given their importance to the economy and the fact that finance has been the main constraint on their growth. We approach financial access from the macroeconomic growth perspective and hence focus on the availability of financial resources for the purpose of productive investment. Financial access is analysed at two distinct levels: 1) enterprises availing loan from the formal financial system; and 2) adequacy of loan from the formal financial sources in taking care of productive investment undertaken. The latter is measured as financial resource gap i.e. the proportion of productive investment not financed by the formal financial sources. Firm-level characteristics such as scale of operation, technology, performance, owned assets, ownership, education of owner, enterprise type, maintenance of accounts records and registration with government agencies, are considered as possible factors influencing financial access of enterprises. With the help of NSS unit level data and using Probit and Tobit, the results suggest that the unorganized manufacturing enterprises have limited financial access and large financial resource gap. Scale of operation, proportion of owned assets, enterprise type and ownership type, maintenance of accounts and registration with the government agencies found to have significant impact on the financial access of enterprises. Regarding financial resource gap, scale of operation, capital intensity, proportion of owned assets, education, maintenance of accounts and registration with government agencies turned out to be statistically significant factors.
    Keywords: Financial Access ; Financial resource Gap ; Manufacturing ; Unorganised segment
    JEL: E44 E51 G20
    Date: 2015–01
  92. By: Andrés M. Velasco; Camilo A. Cárdenas Hurtado
    Abstract: This paper presents the construction of a tailor-made Macro Computable General Equilibrium Model for the Colombian economy that satisfies Banco de la República's macroeconomic programming and forecasting interests. Using information on the national accounts divulged by the National Statistics Department (DANE), we set an easily updatable Macro Social Accounting Matrix that serves as a starting point for the model parameters calibration and estimation. Classification JEL: C67, C68, D57, D58
    Date: 2015–01
  93. By: Eisei Ohtaki
    Abstract: This article examines the optimality of the Freidman rule in an overlapping generations model with spatial separation, wherein asymmetric liquidity shocks are observed. Suboptimality of the Freidman rule is shown. Furthermore, when the number of locations is sufficiently large, there is no room for monetary policy to improve social welfare.
  94. By: Chletsos, Michael; Giotis, Georgios P.
    Abstract: The impact of minimum wage on employment has been a field of conflicts among economists in labor economics. This divergence of views usually takes the form of conflicting empirical studies. However, in our research we managed to find only one study on the employment effect of minimum wages during economic recessions using cross-country evidence. In this paper we try to investigate this issue using a sample of 17 OECD countries with data for the period 1985-2008. We also try to account for institutional and other policy related differences that might have an impact on employment other than the minimum wage. Our empirical analysis points a positive effect of minimum wage on employment and labor force participation rate for teenagers, young adults and youth, but negative effect for the prime-aged and those who belong in the age group 55-64 years old. Regarding the economic circle, we find that, generally in economic downturns our initial results for all age groups do not change significantly.
    Keywords: Minimum wage, Employment, Economic downturn, Minimum wage systems, Labor market institutions and policies.
    JEL: E32 J21 J31 J38 J88
    Date: 2015–01–14
  95. By: Mauro Mastrogiacomo; Rob Alessie
    Abstract: Survey data show that many respondents save for retirement in unconventional retirement accounts, such as investments in real estate. In countries where retirement savings are not mandatory for self-employed, representatives of this group often report this as an argument against making retirement savings compulsory. Our study shows that self-employed retirement savings are low and below individually pre-stated saving intentions, even though this group has generally no occupational pension. We also study the relation between the importance of a broad spectrum of saving motives, such as saving for retirement, and saving behavior. We show that finding the retirement motive important does not directly translate in additional retirement savings, both for self-employed and employees. The (median) annuity stream generated by conventional and unconventional accounts from age 67 is small; most savings are residual and are not being put aside for a specific motive.
    Keywords: retirement savings; precautionary savings; factor analysis; saving goals
    JEL: D12 D91 E21
    Date: 2015–01
  96. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: In this paper we test two theories of the determination of the government bond spreads in a monetary union. The first one is based on the efficient market theory. According to this theory, the surging spreads observed from 2010 to the middle of 2012 were the result of deteriorating fundamentals (e.g. domestic government debt, external debt, competitiveness, etc.). The second theory recognizes that collective movements of fear and panic can have dramatic effects on spreads. These movements can drive the spreads away from underlying fundamentals, very much like in the stock markets prices can be gripped by a bubble pushing them far away from underlying fundamentals. The implication of that theory is that while fundamentals cannot be ignored, there is a special role for the central bank that has to provide liquidity in times of market panic, so as to avoid that countries are pushed into a bad equilibrium. We tested these theories and concluded that there is strong evidence for the second theory. The policy implications are that the role of the ECB as lender of last resort in the government bond markets is an important one. The recent attempts by the German Constitutional Court risk undermining this role and by the same token the stability of the Eurozone.
    Date: 2015
  97. By: Eran Yashiv (Tel Aviv University; Centre for Macroeconomics (CFM))
    Abstract: This paper explores how the joint behavior of hiring and investment is governed by the expected present values of capital and of jobs. It uses a model of frictions, which is a combination of a search model of the labor market and a q-type model of the capital market, emphasizing the interaction of capital and labor frictions. Relying on structural estimation of private sector U.S. data, it studies the future determinants of capital and job values and the implications for U.S. labor market developments. Key findings include: (i) complementarity between the hiring and investment processes; (ii) important cross e§ects, of the value of capital on the mean and the volatility of the hiring rate, and vice versa; (iii) future returns are shown to play a dominant role in determining capital and job values; and (iv) U.S. labor market developments, including the outward shift of the Beveridge curve in the Great Recession and its aftermath 2007-2013, can be accounted for by changes in job and capital values.
    Keywords: investment, hiring, present values, frictions, returns, Great Recession
    Date: 2015–01
  98. By: Berg, Ernst; Huffaker, Ray
    Abstract: We investigated causal factors driving German hog-price dynamics with an innovative ‘diagnostic’ modeling approach. Hog-price cycles are conventionally attributed to randomly-generated behavior best modeled stochastically—most recently as randomly-shifting sinusoidal oscillations. Alternatively, we applied nonlinear time series analysis to empirically reconstruct a deterministic hog-price attractor from observed hog prices. Hog prices cycle aperiodically along this attractor as time evolves. The empirically diagnosed attractor indicates that causal factors driving the German hog-price cycle are endogenous to the hog industry itself. We next formulated a structural (explanatory) model of the pork industry to synthesize the empirical hog-price attractor and to determine causal factors generating it. Model simulations demonstrate that low price elasticity of demand contributes to aperiodic price cycling—a well know result—and further reveal two other important causal factors: the irreversibility of investment (caused by high specificity of technology), and the liquidity-driven investment behavior of German farmers.
    Keywords: hog cycle, nonlinear dynamics, chaos, phase space reconstruction, Demand and Price Analysis,
    Date: 2014–08
  99. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: KEY ISSUES Focus: The main themes centered on tackling macroeconomic vulnerabilities and improving the medium-term outlook by achieving an ambitious fiscal adjustment while protecting social spending, creating an environment for higher private sector-led growth, and building a robust financial sector. Main policy issues • A reduction in the fiscal deficit of 3½ percent of GDP is needed over the next three years to place public debt on a sustainable path to maintain access to market financing on favorable terms. This adjustment should be accompanied by well- targeted social spending to protect the most vulnerable and continued progress in lessening inequality. • A broad strategy is also needed to reduce the growing imbalances in the pension system and restore its sustainability for future generations. In this regard, a broad- based dialog across all segments of Salvadoran society is needed to build support for a reform that should include an increase in the retirement age and introduce a progressive taxation of benefits. Steps are also needed to further strengthen public financial management to mitigate key fiscal risks, including by enhancing expenditure monitoring and control (to avoid future spending arrears) and recording contingent fiscal liabilities transparently in the fiscal accounts. • The authorities’ goal of raising potential growth to 3 percent while reducing inequality will require substantial supply-side measures to enhance productivity and competitiveness. These should aim to reduce red-tape, increase access to credit, upgrade infrastructure, provide access to and lower the cost of energy, and diversifying the economy. The FOMILENIO II grant from the U.S. provides a valuable opportunity to catalyze such growth-enhancing reforms. • Banking indicators appear sound, a product of prudent supervision and regulation. Nonetheless, there is scope to further strengthen the institutional underpinnings for financial stability by upgrading the legal framework for bank resolution and by creating an appropriate liquidity safety net for banks.
    Date: 2015–01–12
  100. By: Anna Cudowska-Sojko (, UWB, WEiZ, Ketedra Ekonomii Politycznej, Poland)
    Abstract: Many countries, including Poland, have been struggling with increasing state debt. The economists noted that the global financial crisis of 2008-2009 significantly impacted the level of foreign debt of these countries. The aim of the study is an analyse of Polish foreign debt in recent years as well as the influence of external factors associated with financial crisis on Polish economy.
    Keywords: crisis,state debt
    JEL: H63
    Date: 2014–12
  101. By: Felipe Rezende
    Abstract: The 2007-8 global financial crisis has shown the failure of private finance to efficiently allocate capital to finance real capital development. The resilience and stability of Brazil's financial system has received attention, since it navigated relatively smoothly through the Great Recession and the collapse of the shadow banking system. This raises the question of whether it is possible that the alternative approaches followed by some developing countries might provide an indication of more stable regulatory approaches generally. There has been much discussion about how to support private long-term finance in order to meet Brazil's growing infrastructure and investment needs. One of the essential functions of the financial system is to provide the long-term funding needed for long-lived and expensive capital assets. However, one of the main difficulties of the current private financial system is its failure to provide long-term financing, as the short-termism in Brazil's financial market is a major obstacle to financing long-term assets. In its current form, the National Economic and Social Development Bank (BNDES) is the main source of long-term funding in the country. However, BNDES has been subject to a range of criticisms, such as crowding out private sector bank lending, and it is said to be hampering the development of the local capital market. This paper argues that, rather than following the traditional approach to justify the existence of public banks--and BNDES in particular, based on market failures--finding an effective answer to this question requires a theory of financial instability.
    Keywords: Bond Market; Financial Market; Security Markets; Stabilization
    JEL: E00 E4 E6 G00 G1
    Date: 2015–01
  102. By: Schmid, Günther (WZB - Social Science Research Center Berlin)
    Abstract: This essay first sketches some descriptive material, setting the stage and demonstrating the highly differentiated statistical landscape of various measures for youth unemployment in Europe compared to India and in particular to Germany. Second, it provides a simple but powerful model for the main causes of youth unemployment from which general policy strategies can be derived and illustrated by good practice examples from Europe, in particular Germany. Third, because a large part of the problem is structural, requiring long-term solutions, possible immediate measures to mitigate the severe long-term scar effects for the unemployed youth are briefly reviewed. Large differences of unemployment performance among European countries reveal, for instance, the importance of automatic stabilisers like unemployment insurance in order to counteract the tendency of market economies to put most of the burden of adjustment in times of recession on youth. The fourth and main part, however, is devoted to possible lessons for India from Europe, in particular from countries with low youth unemployment like Austria, Denmark, Germany and the Netherlands. The theoretical framework for these lessons is taken from the concept of Transitional Labour Markets (TLM) which emphasises dual learning systems as an institutional device both for fair intergenerational risk sharing as well as for smooth transitions from school to work.
    Keywords: youth unemployment, education, vocational training, labour market policy, transitional labour markets, risk sharing
    JEL: E24 I24 J64
    Date: 2015–01
  103. By: L. Randall Wray
    Abstract: In this paper, I examine whether Hyman P. Minsky adopted an endogenous money approach in his early work--at the time that he was first developing his financial instability approach. In an earlier piece (Wray 1992), I closely examined Minsky's published writings to support the argument that, from his earliest articles in 1957 to his 1986 book (as well as a handout he wrote in 1987 on "securitization"), he consistently held an endogenous money view. I'll refer briefly to that published work. However, I will devote most of the discussion here to unpublished early manuscripts in the Minsky archive (Minsky 1959, 1960, 1970). These manuscripts demonstrate that in his early career Minsky had already developed a deep understanding of the nature of banking. In some respects, these unpublished pieces are better than his published work from that period (or even later periods) because he had stripped away some institutional details to focus more directly on the fundamentals. It will be clear from what follows that Minsky's approach deviated substantially from the postwar "Keynesian" and "monetarist" viewpoints that started from a "deposit multiplier." The 1970 paper, in particular, delineates how Minsky's approach differs from the "Keynesian" view as presented in mainstream textbooks. Further, Minsky's understanding of banking in those years appears to be much deeper than that displayed three or four decades later by much of the post-Keynesian endogenous-money literature.
    Keywords: Banks; Deposit Multiplier; Endogenous Money; Financial Innovation; Financial Instability Hypothesis; Horizontalists; Minsky; Originate to Distribute; Prudent Banking; Say’s Law; Securitization
    JEL: B3 B50 B52 E2 E4 E5
    Date: 2015–01
  104. By: Xue-Zhong He (Finance Discipline Group, UTS Business School, University of Technology, Sydney); Kai Li (Finance Discipline Group, UTS Business School, University of Technology, Sydney); Youwei Li (Queen's University Belfast)
    Abstract: We develop a continuous-time asset price model to capture the time series momentum documented recently. The underlying stochastic delay differential system facilitates the analysis of effects of different time horizons used by momentum trading. By studying an optimal asset allocation problem, we find that the performance of time series momentum strategy can be significantly improved by combining with market fundamentals and timing opportunity with respect to market trend and volatility. Furthermore, the results also hold for different time horizons, the out-of-sample tests and with short-sale constraints. The outperformance of the optimal strategy is immune to market states, investor sentiment and market volatility.
    Keywords: momentum, reversal; portfolio choice; optimality; pro?tability
    JEL: G12 G14 E32
    Date: 2015–01–01
  105. By: Harold L. Cole; Jeremy Greenwood; Juan M. Sanchez
    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.
    JEL: D92 E13 G24 O11 O16
    Date: 2015–01
  106. By: Bernardo Batiz (Bangor University); Andrew Smith (University of Liverpool)
    Abstract: This paper documents how computer technology modified retail financial markets in Hong Kong in the period from the 1960s to the early 2000s. The forty years after the deployment of Hong KongÕs first computer in 1965, saw a dramatic change in retail banking technology as Hong Kong moved towards being a cashless society. Prior to that pivotal year, none of the colonyÕs banks used computers whilst retail customers accessed their liquid balances via cash and cheques and only during banking hours. Over time, the ways in which people spent money became more diverse and transformed with the advent of technologies such as the ATM, point of purchase debit card terminals, the Octopus chip, and mobile phone payments. One could construct a straightforward narrative arc that links the acquisition of HSBCÕs first computer in 1967 to the proliferation of electronic payment systems in the twenty-first century. Such a narrative, however, would obscure an important discontinuity in the history of retail payment technology. In the early stages of Hong KongÕs transition to the cashless society, the relevant technologies were installed and managed within the boundaries of large financial intuitions such as HSBC. The second episode discussed in this paper is the successful launch of a micro-payments solution called ÒOctopusÓ. Initially designed as a transport payments card, cash balances stored within a smart chip grew outside financial institutions to become the leading payment solution in small value transactions. Over the course of the period covered by this article, the industrial organization of the relevant technologies transformed as the provision of much of the technology for retail payments had been outsourced to non-bank, non-financial institutions. In other words, the industrial organization of the relevant technologies had been transformed. This paper seeks to account for this shift in the organization of payments technology by drawing on literature around the boundaries of the firm as well as the theory of the firm as an epistemic community. It will be suggested that this process of vertical disintegration (i.e., a shift from hierarchy to markets) took place because of changes in the underlying conditions in Hong KongÕs economy.
    Keywords: cashless, computers, contactless payments, HSBC, Octopus, Hong Kong
    JEL: E42 L63 N85 N25
    Date: 2014–08
  107. By: Yutaka Suzuki
    Abstract: We use a Contract Theory framework to analyze the mechanisms of Eurozone Financial Governance, with a focus on centralization vs. decentralization and incentive problems. By constructing a Stackelberg game model with n Ministries of Finance as the first movers, and European Central Bank as the second mover, we show that each government can create growth in its own country (self-benefit) by increasing government spending, but it will increase inflation and the euro value will fall. Since these effects are shared equally by euro countries (cost sharing), there exists an incentive to free-ride on other countries. We then analyze a solution to the free-rider problem through the penalty scheme, and derive a second best solution where a commitment not to renegotiate penalties ex-post is impossible. Lastly, we derive the parameter conditions for optimizing the EU¡¯s current allocation of authority, ¡°divided authority structure,¡± which consists of Monetary Centralization and Fiscal Decentralization. We find that what is effective is ¡°contingency dependent governance¡± based on ¡°relative sovereignty,¡± where there is a division of authority as the basic structure and the main body governs with leading sovereignty depending on the contingency. Length: 38 pages
  108. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: The National Bank of Georgia (NBG) has a broad mandate to safeguard financial stability in Georgia and has applied several measures that can be considered macroprudential. For instance, the NBG adjusted risk weights for foreign-currency (FX) loans to unhedged borrowers in a countercyclical manner in recent years. Going forward, it plans to introduce the Basel III countercyclical capital buffer regime for the banking system in 2015, which will require that it sets or releases the buffer on a regular basis, based on assessments of cyclical risks. Policymakers should consider establishing a full-fledged macroprudential policy framework in line with international best practices. The current framework is too broad to support the effective and transparent use of macroprudential policy going forward. An improved system would involve a revised legal framework to cement the use of a broad range of macroprudential instruments, the establishment of a Financial Stability Committee at the NBG level, and strong accountability and communication practices, including by the publication of regular reports on financial stability. The list of available macroprudential instruments should go beyond risk buffers and allow the NBG to set measures that directly influence the banks’ activities, e.g., through the application of loan-to-value (LTV) or payment-to-income (PTI) caps. The introduction of macroprudential measures for FX-induced credit and liquidity risks have led to a strengthening of banks’ risk buffers. On the asset side, additional risk weights are applied to FX loans to unhedged borrowers, while on the liability side, reserve requirements are higher for FX deposits and other borrowings. Furthermore, banks have to hold more liquidity for nonresident deposits (of which 92 percent are in foreign currency as of end-2013), if those deposits exceed 10 percent of total deposits. Combined with the general liquidity regulation, these measures have increased banks’ capital and liquidity buffers, as shown in the results of the FSAP solvency and liquidity stress tests. The planned introduction of buffer requirements to mitigate cyclical and structural risks is a welcome step. The countercyclical capital buffer and the capital surcharge for systemically important banks are planned to be implemented over the next few years. The capital surcharge for systemically important banks, which would currently apply at least to the three largest banks by total assets, is particularly important in the Georgian context due to the high market concentration in the banking sector.
    Keywords: Financial Sector Assessment Program;Macroprudential Policy;Monetary policy;Banking sector;Georgia;
    Date: 2015–01–08
  109. By: Senay, Acikgöz; Mert, Merter
    Abstract: This study estimates and tests the endogeneity of the natural rate of growth using the balance-of-payments consistent rate of growth (BPCRG) instead of the actual rate of growth. Our approach is also theoretically compatible with the one proposed by Thirlwall (2001). Following this idea, we first calculated the BPCRG and then tested the Thirlwall's Law for the U.S. economy. We then proceeded to test the endogeneity using the BPCRG. Empirical results we obtained support Thirlwall's Law and endogeneity.
    Keywords: economic growth,Thirlwall's Law,the endogeneity of the natural rate of growth,the bounds testing approach,ARDL,FM-OLS
    JEL: O40 E10 E23 C22
    Date: 2015
  110. By: Wignaraja, Ganeshan (Asian Development Bank Institute); Jinjarak, Yothin (Asian Development Bank Institute)
    Abstract: This study examines the relationship between firm characteristics and borrowing from commercial banks by small and medium-sized enterprises (SMEs) in the People's Republic of China (PRC) and five Southeast Asian economies (Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam). Analysis of microdata from enterprise surveys highlights key aspects of SME finance since the global financial crisis, including sources of credit, lender types, and collateral types. First, SMEs typically resort to internal sources rather than external finance (including borrowing from banks) and trade credit. Second, when it comes to external finance, SMEs typically use informal non-bank credit sources more than banks. Third, there is a positive and significant association between bank borrowing and certain characteristics of SMEs, notably financial audits, firm age, and export participation. Fourth, personal assets of SME owners tend to matter more as collateral for SME borrowing from banks than other collateral types. Improving credit guarantee systems, enhancing monitoring and credit scoring by banks, and widening the scope of collateral are possible ways to facilitate increased bank borrowing by SMEs.
    Keywords: credit access; firm-level survey; collateral; credit guarantees; smes
    JEL: D22 E44 F14 L16 O14
    Date: 2015–01–13
  111. By: Croonenbroeck, Carsten; Ambach, Daniel
    Abstract: We investigate the importance of taking the spatial interaction of turbines inside a wind park into account. This article provides two tests that check for wake effects and thus, take spatial interdependence into account. Those effects are suspected to have a negative influence on wind power production. Thereafter, we introduce a new modeling approach that is based on the Generalized Wind Power Prediction Tool (GWPPT) and therefore respects both-sided censoring of the data. Furthermore, the new model takes a Spatial Lag Model (SLM) specification into account and allows for random effects in the panel data. Finally, we provide a short empirical study that compares the forecasting accuracy of our model to the established models WPPT, GWPPT, and the naïve persistence predictor. We show that our new model provides significantly better forecasts than the established models.
    Keywords: Spatial Lag Model,Censored,Regression,Wind Power,Forecasting,Random Effects
    JEL: C31 C34 E27 Q47
    Date: 2014
  112. By: Van Zandweghe, Willem (Federal Reserve Bank of Kansas City); Kurozumi, Takushi (Federal Reserve Bank of Kansas City)
    Abstract: A pitfall of expectational stability (E-stability) analysis can arise in models with multiperiod expectations: if an auxiliary variable is introduced as substitute for an expectational endogenous variable in such a model, this shrinks the region of the model parameters that guarantee E-stability of a fundamental rational expectations equilibrium. Moreover, in the model representation with no auxiliary variable, the same E-stability region as in that with the auxiliary variable is obtained if economic agents are assumed to make multiple forecasts in an inconsistent manner. Therefore, we argue that the introduction of an auxiliary variable as substitute for an expectational endogenous variable in models with multi-period expectations can induce misleading implications that are biased toward E-instability.
    Date: 2014–10–01
  113. By: Damien BROUSSOLLE (LaRGE Research Center, Université de Strasbourg)
    Abstract: A new definition of service has been proposed by Hill (1999) and endorsed by SNA and BOP last updates. The paper studies its consequences for industrial classifications, such as ISIC, and on the respective shares of goods and services producing sectors. The first section reminds the main characteristics of the new definition. The second section scrutinises the list of sectors of ISIC Rev. 4 and 3.1 in order to show within which category (goods or services producing) the headings falls. The major changes concerns what may be called manufacturing services and information goods producing sectors, the former being previously included in goods and the latter in services-producing. The third section proposes a measure of the share of each broad category for EU 27 (2008 - 2011) and France (1995 – 2011). The tertiarisation trend is preserved, even if several significant differences appear with standard presentations. Manufacturing services, when added to services-producing by far supersede Information good, added to goods-producing.
    Keywords: tertiarisation; industrial structures; services
    JEL: L8 E01
    Date: 2014
  114. By: Grazyna Wolska (University of Szczecin, Poland)
    Abstract: Regardless of the fact that economics distinguishes itself from other social sciences by a high level of formal deductive modelling, it is a social science due to the essence of the economic process where a human is subject and object at the same time. In the recent years this issue has been more frequently emphasized by economists in ongoing discussions. In the discussions a good deal of time is devoted to economic models and, mainly, their relations with the socioeconomic reality and coherence of empirical evidence. The article presents a thesis that some mainstream economic theories have not always constituted the background to their practical applications, which led - and still can - to the dogmatic and inflexible use of model solutions for economic phenomena which are difficult to forecast in a non-variant rigid model. The aim is to critically analyse beliefs about usefulness of universal economic models in the economic reality advocated by mainstream economists and to prove that not all economic models have constituted the background to their practical applications.
    Keywords: economic model; economics; economic theories; economy
    JEL: E10
    Date: 2014–12
  115. By: Валентина Михайловна Бондаренко
    Abstract: В статье обосновано, что контуры будущего и настоящего можно понять при использовании авторской разработки – новой методологии познания закономерностей в развитии человеческого сообщества. Она позволила определить, что на всем многовековом протяжении развития человеческого сообщества существуют только две парадигмы развития человеческой системы. Циклы, кризисы, хаос и все негативные явления – естественный продукт второй, опосредованной парадигмы развития. Новая модель жизнеустройства на каждом местном уровне – это в то же время прежняя, первая, парадигма развития, основанная на непосредственной взаимосвязи между производством и потреблением конкретного человека, но на новом высокотехнологическом уровне. Практическая реализация этой модели - это единственно возможное условие перехода к устойчивому бескризисному развитию. <P> The article substantiates the thesis that the outlines of the future and present can be made visible and comprehensible by applying the author’s findings – that is, the new methodology for cognition of regularities in the human community development. This methodology made it possible to define that there have been and are only two paradigms of the human system development in the entire multi-century course of the human community development. Cycles, crises, chaos and all negative phenomena are nothing else but natural products of the second, indirect paradigm of development. The new model of life organization at each local level is at the same time the former, first development paradigm, based on the direct interconnection between production and consumption of specific human beings, but raised onto the new high-tech level. Practical realization of this model is the only feasible precondition for the transition to sustainable and crisis-free development.
    Keywords: systemic crisis, sustainable development, new methodology of cognition, objective, specific human being, time, efficiency criteria, two development paradigms, coordination of interests, new model of life organization.
    JEL: P16 E17 O11
  116. By: Jeroen van den Bergh
    Abstract: The debate on growth versus the environment is usually summarized as optimists believing in limitless growth versus pessimists seeing environmental and resource limits to growth. This opposition defines the main strategies: namely, striving for green growth versus some anti-growth approach. In this paper I argue that we should not feel obliged to choose between these polarized opinions, as there is in fact a third option. I call this the “agrowth” strategy, and it offers a way out of the impasse that characterizes the growth-versus-environment debate. I will define this agrowth strategy, motivate its rationality, and examine its premises, implications, advantages, political feasibility and practical steps. I suggest that an agrowth strategy follows logically from accepting the shortcomings of GDP (per capita) as an indicator of social welfare. It will be graphically shown that both anti-growth and pro-growth goals represent avoidable, unnecessary constraints on our search for human betterment, which lead to lower realizations of social welfare than are in fact feasible. I will further discuss the idea of green agrowth, notably in the context of avoiding dangerous climate change. Finally, a pragmatic approach to selecting alternative macro indicators is proposed.
    Keywords: climate change, degrowth, GDP paradox, green growth, growth debate, macro indicators
    JEL: E6 I13 O4 Q54
    Date: 2015–01

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.