|
on Macroeconomics |
|
Issue of 2015‒02‒05
111 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | OCDE |
| Abstract: | L’amélioration de la performance d’un pays dans l’enquête PISA n’est liée ni à sa situation géographique, ni à son niveau de richesse nationale, ni à sa culture. Dans la plupart des cas, les pays qui ont enregistré une amélioration marquée de leur performance dans l’enquête PISA – à savoir l’Allemagne, le Brésil, la Grèce, l’Italie, le Mexique, la Tunisie et la Turquie – sont ceux qui sont parvenus à réduire leur pourcentage d’élèves peu performants. Même au fil du temps, l’excellence et l’équité ne constituent pas deux objectifs incompatibles, comme en attestent les progrès observés en Allemagne, en Italie, au Mexique, en Tunisie et en Turquie. |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:oec:edudde:47-fr&r=mac |
| By: | Nagamachi, Kohei |
| Abstract: | Resorting to the method proposed by Matsuyama (2013), this paper develops a static equi- librium model of a system of cities in which ex ante identical locations specialize in stages of production different in the degree of dependence on routine and nonroutine local services sec- tors, the latter of which is tied to an agglomeration force due to monopolistic competition a ́ la Dixit and Stiglitz (1977). The model is simple in that the system is summarized by a second-order differential equation, which has a unique non-degenerate city size distribution with the comove- ment of income, population, factor prices, and urban diversity as observed for the U.S. cities. Two examples of use of the model are then illustrated: analyses of welfare gain from functional specialization and optimal income redistribution, the latter of which provides an important impli- cation of an increasing importance of interactive activities in a modern developed economy for income redistribution. Although extending the model makes the model analytically intractable, it is still characterized by a differential equation easily solved with a numerical method and thus useful for further analyses. |
| Keywords: | functional specialization, system of cities, optimal income redistribution policy |
| JEL: | F12 R12 R13 |
| Date: | 2015–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61497&r=mac |
| By: | García-León, David |
| Abstract: | Some recent papers by Dell et al. (2009) and Dell et al. (2012) (DJO) relating weather and economic outcomes, have delivered meaningful messages with clear implications to the effects of a changing climate. In a nutshell, the authors claim that a 1°C increase in global average temperatures would harm both the level and growth capacities of relatively poor countries, leaving rich countries basically unaffected. In this study, we make use of a detailed weather and economic dataset covering the main regions of the five largest economies in the Euro area in an attempt to refute the previous affirmation. In particular, we find in our sample that global warming affects, although in a modest manner, all regions within well-developed countries in the long-term (level effect). As in DJO, the level effect in poor regions is exacerbated. The latter regions also suffer from a slight negative short-term effect (growth effect). We claim also that the larger short-time response of these regions to a climate shock is partially adapted in the long-run. |
| Keywords: | economic growth, weather, Ricardian analysis, developed economies, climate change, adaptation, NUTS |
| JEL: | O1 O4 Q51 Q54 Q59 R11 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61529&r=mac |
| By: | Stamos, Iraklis; Salanova Grau, Josep Maria; Mitsakis, Evangelos |
| Abstract: | Within the framework of this paper, the existence of a Macroscopic Fundamental Diagram (MFD) for the city of Thessaloniki is discussed, obtained through a traffic simulation software. Initial findings show that there is a well-defined MFD, which is a property of a network, as it is not influenced by changes in travel demand. The MFD can be used as tool for managing traffic at real-time and for improving accessibility in an area, through pricing strategies and entrance points control based on the accumulation of vehicles. |
| Keywords: | Macroscopic Fundamental Diagram Traffic Simulation Traffic Flow Traffic Density |
| JEL: | R41 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61538&r=mac |
| By: | Mitsakis, Evangelos; Stamos, Iraklis; Basbas, Socrates; Aggelakis, Miron; Aifadopoulou, Georgia |
| Abstract: | This paper aims at the estimation of road traffic induced environmental pollutants for the city of Thessaloniki, based on travel time detections of a point-to-point detection system. The hourly and daily pollutant emissions (NOx, CO, HC) and fuel consumption (FC) were estimated based on the COPERT model and include hot emissions of passengers’ cars circulating in high hierarchy links of the transport network. The system detections (travel time) were correlated based on each path’s length, in order to determine the average vehicle speed per analyzed time interval, which was the main determinant for calculating traffic induced emissions. The paper concludes with a sensitivity analysis based on link capacity and the prevailing traffic flow characteristics for optimally determining the vehicle speed and flow that minimize environmental pollutants. |
| Keywords: | traffic induced pollutants point-to-point detection system environmental modeling |
| JEL: | R40 R41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61543&r=mac |
| By: | Iordanopoulos, Panagiotis; Mitsakis, Evangelos; Rijavec, Robert; Hausmann, Alexander; Kernstock, Wolfgang |
| Abstract: | Transport integration in South East Europe (SEE) is a fundamental pre-requisite for regional cohesion and development. Intelligent Transport Systems (ITS) applications can play an important role in transport infrastructure management and traveler information provision throughout the SEE area. This paper presents the results of study focused on the identification and description of the requirements for interoperable ITS for integrated traffic management and ITS deployment. The key outcome of the study is the identification of the requirements for interoperable ITS along regional, national an urban transport networks. |
| Keywords: | Intelligent transport systems ITS directive Interoperability |
| JEL: | R40 R42 R48 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61568&r=mac |
| By: | Ngotran, Duong; Ngo, Tien |
| Abstract: | We build a model for emerging economies where households could search goods through two retail platforms: the legal organized (supermarket) and the informal unorganized (mom-and-pop store). We highlight the role of the retail sector as a special two-sided platform in goods market. A positive shock on the productivity of supermarket pulls both consumers (demand) and firms (supply) to make transactions there. This effect is amplified through the interaction between demand and supply, motivating manufacturing firms to become formal to supply goods through this channel. We do the quantitative exercise for the Indian economy; a 1 percent increase in the productivity of organized retailers leads to an increase in the aggregate productivity of 0.3 percent, 80 percent of which is contributed indirectly by the shift in the manufacturing sector. |
| Keywords: | Retail sector; Two-sided Platform; Manufacturing sector; Informal firms; India; Tax |
| JEL: | E6 O4 O41 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61590&r=mac |
| By: | Maxim Bichuch; Agostino Capponi; Stephan Sturm |
| Abstract: | We develop a novel framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no-arbitrage arguments, we derive the nonlinear backward stochastic differential equations (BSDEs) associated with the replicating portfolios of long and short positions in the claim. This leads to the definition of buyer's and seller's XVA which in turn identify a no-arbitrage interval. When borrowing and lending rates coincide we provide a fully explicit expression for the uniquely determined price of XVA, expressed as a percentage of the price of the traded claim, and for the corresponding replication strategies. This extends the result of Piterbarg by incorporating the effect of premature contract termination due to default risk of the trader and of his counterparty. |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1501.05893&r=mac |
| By: | Matteo Iacoviello (Federal Reserve Board) |
| Abstract: | We describe how to adapt a first-order perturbation approach and apply it in a piecewise fashion to handle occasionally binding constraints in dynamic models. Our examples include a real business cycle model with a constraint on the level of investment, a New Keynesian model subject to the zero lower bound on nominal interest rates, and a model of optimal consumption choice in the presence of liquidity constraints. In each case, we compare the piecewise linear perturbation solution with a high-quality numerical solution that can be taken to be virtually exact. The piecewise linear perturbation method can adequately capture key properties of the models we consider. A key advantage of this method is its applicability to models with a large number of state variables. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:801&r=mac |
| By: | Stijn Van Nieuwerburgh (NYU Stern School of Business); Hanno Lustig (Anderson School of Business); Bryan Kelly (University of Chicago); Bernard Herskovic (New York University) |
| Abstract: | We show that firms' idiosyncratic volatility in returns and cash flows obeys a strong factor structure. We find that the stocks of firms with large, negative common idiosyncratic volatility (CIV) factor betas earn high average returns. The CIV beta quintile spread is 6.4% per year. To explain this spread, we develop a heterogeneous investor model with incomplete markets in which the idiosyncratic volatility of investor consumption growth inherits the factor structure of firm cash flow growth. In our model, the CIV factor is a priced state variable, because an increase in volatility represents a worsening of the investment opportunity set for the average investor. The calibrated model is able to match the high degree of comovement in idiosyncratic volatilities, the CIV beta spread, along with a host of asset price moments. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:810&r=mac |
| By: | Temel Taskin (Central Bank of the Republic of Turkey); Bulent Guler (Indiana University - Bloomington); Yavuz Arslan (The Central Bank of the Republic of Turkey) |
| Abstract: | In this paper, we incorporate a price search decision into a life cycle model and differentiate consumption from expenditure. Consumers with low wealth and bad income shocks search more for cheaper prices and pay less, which makes their consumption higher than in a model without search option. A plausibly calibrated version of our model predicts that the cross-sectional variance of consumption is about 17% smaller than the cross-sectional variance of expenditure throughout the life cycle. Price search has an alternative productive activity role for lower-income people to increase their consumption levels. We discuss other implications of price search over the life cycle as well. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:819&r=mac |
| By: | Leonardo Melosi (Federal Reserve Bank of Chicago) |
| Abstract: | We develop a DSGE model in which the policy rate signals to price setters the central bank's view about macroeconomic developments. The model is estimated with likelihood methods on a U.S. data set that includes the Survey of Professional Forecasters as a measure of price setters' inflation expectations. The estimated model with signaling effects delivers large and persistent real effects of monetary disturbances, even though the average duration of price contracts is fairly short. While the signaling effects do not substantially alter the transmission of technology shocks, they bring about deflationary pressures in the aftermath of positive demand shocks. In the 1970s, the Federal Reserve's disinflation policy, which was characterized by gradual increases in the policy rate, was counterproductive because it ended up signaling inflationary shocks. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:830&r=mac |
| By: | Peter Rupert (University of California, Santa Barbara); Giulio Zanella (University of Bologna); Marek Kapicka (University of California Santa Barbara) |
| Abstract: | Property crime is today more widespread in Europe than in the United States, while the opposite was true during the 1970s and 1980s. In this paper we study the determinants of crime in a dynamic general equilibrium model with uninsured idiosyncratic shocks. We focus on Germany, and compute the contribution of various factors to the total change. We find that the most important factor explaining the reversal are changes in the probability of apprehension and prison duration for the United States, and demographic changes for Germany. Changes in labor tax rates and transfers are unimportant for the United States. For Germany they have non-negligible effects, but they go in opposite directions and tend to offset each other. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:847&r=mac |
| By: | Rui Li (University of Massachusetts Boston); Dana Kiku (University of Ilinois); Hengjie Ai (University of Minnesota) |
| Abstract: | We present a general equilibrium-mechanism design model with two-sided limited commitment that accounts for the observed heterogeneity in firms’ investment, payout and CEO-compensation policies. In the model, shareholders cannot commit to holding negative net present value projects, and managers cannot commit to compensation plans that yield life-time utility lower than their outside options. Firms operate identical constant return to scale technologies with i.i.d. productivity growth. Consistent with the data, the model endogenously generates a power law in firm size and a power law in CEO compensation. We also show that the model is able to quantitatively explain the observed negative relationship between firms' investment rates and size, the positive relationship between firms' size and their dividend and CEO payout, as well as variation of firms' investment and payout policies across both size and age. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:855&r=mac |
| By: | Yiqing Xing (Stanford University); Anqi Li (Washington University in St. Louis) |
| Abstract: | We use firm's endogenous contractual response to help implement the constrained first best through a simple yet powerful progressive labor income tax system. In our model, workers privately experience both a persistent ability shock and many transient productivity shocks during their life cycles. The optimal tax system is anonymous and time-invariant, but it achieves two goals. First, it directly redistributes the life-cycle income across workers of different ability types. Second, it indirectly induces firms to insure workers against transient shocks with efficiency wage contracts. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:866&r=mac |
| By: | Ariel Zetlin-Jones (Carnegie Mellon University) |
| Abstract: | We analyze the optimal capital structure and investment strategy of banks and other financial institutions. We develop conditions under which banks optimally choose a fragile capital structure that is subject to runs. We show that when bank depositors have limited ability to commit to long-term lending arrangements, they strictly prefer to lend to banks using short-term debt rather than with long-term debt or equity. We argue that when there are multiple banks, the same limited commitment of depositors leads them to prefer a financial system in which banks pursue correlated, risky investments as opposed to one in which banks pursue independent, less risky investments. The optimal financial system features occasional crises in which all banks are subject to ex-post inefficient liquidations, and in this sense, financial crises are efficient. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:880&r=mac |
| By: | Alejandro Justiniano; Giorgio E. Primiceri; Andrea Tambalotti |
| Abstract: | The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust. |
| JEL: | E32 E44 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20874&r=mac |
| By: | Christopher Phelan; Aldo Rustichini |
| Abstract: | Inherent in the definition of Pareto efficiency is the idea that, in dynamic environments, an individual is indexed by the history of events up to his birth (rather than, as usual, the date of birth). Here, we explore the implications of this natural formulation. The set of Pareto efficient allocations that is consistent with this view is potentially larger than those considered so far in the literature. We show that the set of allocations is strictly larger because we do not require individuals to have insurance motives of the Harsanyi-Rawls type regarding risks on their own type realization. We do, however, maintain the insurance motives of parents toward their children. Even in our more general framework, efficiency criteria impose substantial restrictions on the set of allocations. Interestingly, the restrictions are of a new nature. Our different, more natural view has some important policy implications. The first is that some policy criteria (for example, the progressive nature of taxes) cannot be defended on efficiency grounds, once the Harsanyi-Rawlsian insurance criterion is rejected as being normatively unsound. Second, we show that the condition of imposing no taxes of any kind, coupled with each agent owning his own production, results in a Pareto efficient allocation. |
| JEL: | D6 E24 H21 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20883&r=mac |
| By: | Jens Boysen-Hogrefe; Nils Jannsen; Carsten-Patrick Meier |
| Abstract: | We investigate whether recoveries following normal recessions differ from recoveries following recessions that are associated with either banking crises or housing crises. Using a parametric panel framework that allows for a bounce-back in the level of output during the recovery, we find that normal recessions are followed by strong recoveries in advanced economies. This bounce-back is absent following recessions associated with banking crises and housing crises. Consequently, the permanent output losses of recessions associated with banking crises and housing crises are considerably larger than those of normal recessions |
| Keywords: | Business cycle; recovery; banking crisis; housing crisis |
| JEL: | E32 C33 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1984&r=mac |
| By: | Andolfatto, David (Federal Reserve Bank of St. Louis); Williamson, Stephen D. (Federal Reserve Bank of St. Louis) |
| Abstract: | We construct a model in which all consolidated government debt is used in transactions, with money being more widely acceptable. When asset market constraints bind, the model can deliver low real interest rates and positive rates of inflation at the zero lower bound. Optimal monetary policy in the face of a financial crisis shock implies a positive nominal interest rate. The model reveals some novel perils of Taylor rules. |
| JEL: | E4 E5 |
| Date: | 2015–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2015-002&r=mac |
| By: | Toma, Mircea |
| Abstract: | The introduction or elimination, increase or decrease of taxes and contributions, theoretical and practical, can not ignore the direct and / or underlying effects (collateral) on chain: Financial institutions - Suppliers of inputs - Agricultural producers - En-gross traders - Processing industry - En-detail traders - Consumer - State Budget. Solutions require transparency, solidarity, equity, social justice in the distribution of efforts and usufruct(profit) for the whole chain participants in achieving useful goods and services to human society. A particularly aspect has VAT with effect from 1 July 1993, as a Romanian fiscal system compatible with EU procedures. By the additions and changes to VAT management procedures for agricultural activities (exemption from VAT of individual producers, the reverse charge in the production of cereals and technical crops, reducing the quota of VAT collected on chain at 9% for bread), fiscal inequity was created between farmers according to the legal status of the organization and operation, between sectors of agricultural production, but also to the users of agricultural production. The most disadvantaged are those of 3,859,000 individual farmers, family farms and associations without legal status, that use 7.45 million ha (56% of the total utilized agricultural of 13,306,000 ha). The study conclusion is the need of adapting VAT management procedures to the realities of Romanian agriculture by recognizing VAT on inputs used for agricultural production by individual producers, legal unorganized, valorised at the economic agents. By the recommended measures the individual producers' incomes grow by about 13-15% (300- 500 lei / ha wheat equivalent) without affecting the cost of raw materials to users of agricultural production, even if it increases the financial effort for its purchase. There are eliminated the discrimination between sectors of agricultural production (crop, livestock, horticulture, wine and fruit growing, fish, etc.), there are created conditions for the consolidation of farms and unblocking the association process and the formation of producer groups and/or agricultural cooperatives and a better use of financial resources and grants. It increases the efficiency and contribution of agriculture to the state budget revenues. Those 3,859,000 of individual producers (individual businesses, family farms, associations) legal unorganized, and the 31 thousand companies with legal personality for the 5.856 million ha(44%) of operation. (RGA-2010) beneficiate the measures proposed. Agricultural production is included in the fiscal system, the receipts and payments are fluidized and reduce the pressure for VAT refunds from the state budget (about 108 million. Lei / year for the wheat used for bread). It reduces the phenomenon of unfair competition and tax evasion area, bureaucracy, abuse and corruption. Fees, taxes and contributions should not be treated as simple budgetary resources, but also as effective tools of orientation farmers, and not only, through the level, mechanisms, procedures of charging and taxing that the state institutions can promote for the stabilization and improvement production and supply of agricultural services as part of a functioning market economy. |
| Keywords: | VAT, reverse charge, exemption, reduced VAT rate, VAT collection; tax evasion, farms, farmers, financial resources, efficiency, economic crisis, budget revenues |
| JEL: | E62 Q12 Q18 |
| Date: | 2014–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61642&r=mac |
| By: | Cristina Checherita-Westphal; Alexander Klemm; Paul Viefers |
| Abstract: | This paper considers the impact of changes in the payment discipline of governments on the private sector. We argue that increased delays in public payments can affect private sector liquidity and profits and hence ultimately economic growth. We test this prediction empirically for European Union countries using two complementary approaches. First, we use annual panel data, including a newly constructed proxy for government arrears. We find that payment delays and to some extent estimated arrears lead to a higher likelihood of bankruptcy, lower profits, and lower economic growth. However, while this approach allows a broad set of variables to be included, it restricts the number of time periods. We therefore complement it with a Bayesian VAR approach on quarterly data for selected countries faced with significant payment delays. We again find that the likelihood of bankruptcies rises when governments increase the average payment period. |
| Keywords: | Payments arrears;Government expenditures;European Union;Private sector;Liquidity;Regression analysis;Public payment delays, government arrears, government spending |
| Date: | 2015–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/13&r=mac |
| By: | Baerg, Nicole Rae; Lowe, Will |
| Abstract: | Scholars often use Federal Open Market Committee (FOMC) votes to estimate the preferences of central bankers. However, rarely do committee members on the FOMC cast dissenting votes. This article demonstrates the usefulness of using what central bankers say in FOMC meetings rather than how they vote to better measure central bank preferences. Using automated text analysis tools and scaling methods, we develop a new measure of central bank preferences on the FOMC leading up to the financial crisis (2005 - 2008). |
| Keywords: | Central Banking, Federal Reserve Bank, Monetary Policy, Ideal Point Estimation, Textual Analysis |
| JEL: | E52 E58 |
| Date: | 2015–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61534&r=mac |
| By: | Marija Trachtenberg; Michael Parsonage; Geoff Shepherd; Jed Boardman |
| Abstract: | Peer support workers - people with their own lived experience of mental illness - provide mutually supportive relationships in secondary mental health services. Increasing numbers are being employed, both in this country and elsewhere. But good quality evidence on the effectiveness of this form of service delivery is in short supply and even less is known about its cost-effectiveness. This paper makes a first attempt at assessing whether peer support provides value for money, looking specifically at whether peer support workers can reduce psychiatric inpatient bed use. Because of the very high cost of inpatient care, the savings that result from even small changes in bed use may be sufficient to outweigh the costs of employing peer workers. |
| JEL: | E6 |
| Date: | 2013–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60793&r=mac |
| By: | Ryota Nakatani (Bank of Japan) |
| Abstract: | Is there any factor that is not analyzed in the literature but is important for preventing currency crises? What kind of shock is important as a trigger of a currency crisis? Given the same shock, how does the impact of a currency crisis differ across countries depending on the degree of each country’s structural vulnerability? To answer these questions, this paper analyzes currency crises both theoretically and empirically. In the theoretical part, I argue that exports are an important factor to prevent currency crises that has not been frequently analyzed in the existing theoretical literature. Using the third generation model of currency crises, I derive a simple and intuitive formula that captures an economy’s structural vulnerability characterized by the elasticity of exports and repayments for foreign currency denominated debt. I graphically show that the possibility of currency crisis equilibrium depends on this structural vulnerability. In the empirical part, I use unbalanced panel data comprising 51 emerging countries from 1980 to 2011. The results obtained here are consistent with the prediction of the theoretical models. First, I found that monetary tightening by the central banks can have a significant effect on exchange rates. Second, I found that both productivity shocks in the real sector and shocks to a country’s risk premium in the financial markets affect exchange rate dynamics, while productivity shocks appeared more quantitatively important during the Asian currency crisis. Finally, the structural vulnerability of the country plays a statistically significant role for propagating the effects of the shock. |
| Keywords: | Currency Crisis; Foreign Currency Debt; Exports; Productivity Shock; Risk Premium; Monetary Policy; Elasticity |
| JEL: | E22 E4 E5 F1 F3 F4 G15 G2 O43 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:043&r=mac |
| By: | Adam Hayes (Department of Economics, New School for Social Research) |
| Abstract: | This paper aims to identify the likely source(s) of value that cryptocurrencies exhibit in the marketplace using cross sectional empirical data examining 66 of the most used such 'coins'. A regression model was estimated that points to three main drivers of cryptocurrency value: the aggregate computational power employed in mining for units of the cryptocurrency; the rate of unit production; and the cryptologic algorithm used for the protocol. Bitcoin-denominated relative prices were used, avoiding much of the price volatility associated with the dollar price of Bitcoin. The resulting model can be used so better understand the drivers of value observed in cryptocurrencies. These findings may also have implications in understanding other assets such as commodity forms of money. |
| Keywords: | Bitcoin, cryptocurrencies, altcoins, asset pricing, money, payment systems, currency exchanges, quantitative analysis |
| JEL: | C3 C51 E42 E47 G12 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1406&r=mac |
| By: | Ivan Mendieta-Muñoz |
| Abstract: | The present paper studies the interaction between short-run fluctuations and economic growth by presenting empirical evidence of the impact of business cycle fluctuations on the rate of growth consistent with a constant unemployment rate in 13 Latin American and 18 OECD countries during the period 1981-2011. The results of both parametric (OLS and a panel estimator that allows for parameter heterogeneity and cross section dependence) and non-parametric (a penalized regression spline estimator) econometric techniques show that this measure of potential output experiences positive (negative) changes in periods of high (low) growth in the majority of countries, and, hence, that business cycles fluctuations have statistically significant effects on potential output. However, in contrast to the sample of OECD countries, less than half of the sample of Latin American countries experience statistically significant changes of this measure of potential output in periods of low growth. |
| Keywords: | growth and cycles; potential rate of growth; rate of growth consistent with a constant unemployment rate |
| JEL: | E32 O40 O51 O54 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1417&r=mac |
| By: | Fabrizio Carmignani |
| Keywords: | fiscal multiplier, SVAR, Australia, GFC |
| JEL: | E63 C32 C54 E62 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:gri:epaper:economics:201408&r=mac |
| By: | Aaberge, Rolf (SSB); Liu, Kai (Dept. of Economics, Norwegian School of Economics and Business Administration); Zhu, Yu (University of Dundee) |
| Abstract: | Despite macroeconomic evidence pointing to a negative aggregate consumption response due to political uncertainty, few papers have used microeconomic panel data to analyze how households adjust their consumption after an uncertainty shock. We study household savings and expenditure adjustment from an unexpected, large-scale and rapidly evolving political shock that occurred largely in May 1989 in Beijing, China. Using monthly micro panel data, we present evidence that a surge in political uncertainty resulted in significant temporary increases in savings among urban households in China. Households responded mainly by reducing semi-durable expenditure and frequency of major durable adjustment. The uncertainty effect is more pronounced among older, wealthier, and more socially advantaged households. We interpret our findings using existing models of precautionary behavior. By focusing on time variation in uncertainty, our identification strategy avoids many of the potential problems in empirical studies of precautionary savings such as self-selection and life-cycle effects. |
| Keywords: | China; household savings; political uncertainty. |
| JEL: | D91 E21 J30 |
| Date: | 2014–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2014_034&r=mac |
| By: | Mele, Antonio (University of Surrey); Molnar, Krisztina (Dept. of Economics, Norwegian School of Economics and Business Administration); Santoro, Sergio (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 confi dence, 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. |
| Keywords: | Price level stabilization; expectations. |
| JEL: | C62 D83 D84 E52 |
| Date: | 2014–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2015_001&r=mac |
| By: | Alberto Galasso; Mark Schankerman; Carlos J. Serrano |
| Abstract: | We study how the market for innovation affects enforcement of patent rights. We show that patent transactions arising from comparative advantages in commercialization increase litigation, but trades driven by advantages in patent enforcement reduce it. Using data on trade and litigation of individually owned patents in the United States, we exploit variation in capital gains tax rates across states as an instrument to identify the causal effect of trade on litigation. We find that taxes strongly affect patent transactions, and that trade reduces litigation on average, but the impact is heterogeneous. Patents with larger potential gains from trade are more likely to change ownership, and the impact depends critically on transaction characteristics. |
| JEL: | L81 E6 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:51080&r=mac |
| By: | Ajay Aggarwal; Richard Sullivan |
| Abstract: | Context:- In high income countries the costs of delivering high quality equitable care are outstripping present budgets. This article reviews the affordability of cancer care in these countries with particular reference to the United Kingdom (U.K.). The question remains as to whether patients should contribute to their cancer treatment through the introduction of user charges, and whether such payments can be assimilated without undermining efficiency and equity of health care access. Methods:- In our review we analyse the drivers of increased cancer care utilisation, the current policies designed to control rising costs, and the potential impact of introducing patient user charges. The article also explores whether our understanding of behavioural economics could be used to create “nudge” policies that drive rational health care consumption. Findings:- The costs of cancer care in the U.K. are increasing at an unprecedented rate, driven by demographic changes, innovation (radiotherapy, drugs and imaging) and consumerism within health care. Budgets are tightly constrained and health technology assessments designed to ensure coverage of high value interventions have come under significant public and political scrutiny. User charges potentially provide a framework to “nudge” patients from low value care of limited effectiveness towards high value cost effective treatment, thereby increasing overall efficiency. However supply side controls are equally relevant with greater focus on physician test ordering, and improving the quality of doctor–patient communication, especially when discussing treatment options towards the end of life. Conclusions:- Fiscal sustainability of health care financing remains a key public policy concern. Attempts at ensuring coverage of cost effective treatments have been continuously challenged and without new policies, sustainability trade-offs may be necessary with potential rationing of high value treatments. User charges provide a potential means of sustaining spending proportional to the projected rise in number of cancer cases, whilst embracing technological innovations which could potentially improve outcomes. |
| Keywords: | user charges; cancer care; nudge policies; affordability |
| JEL: | E6 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:55297&r=mac |
| By: | Eddie Gerba |
| Abstract: | Following recent studies by the Bank of England that the low financial market confidence and low expectations about private sector profits over the next three years has lead to unusually low price-to-book ratios, we incorporate a stock market mechanism in a general equilibrium framework. More specifically, we introduce an endogenous wedge between market and book value of capital, and make investment a function of it in a standard financial accelerator model. The price wedge is driven by an information set containing expectations about the future state of the economy. The result is that the impulse responses to exogenous disturbances are on average two to three times more volatile than in the benchmark financial accelerator model. More- over, the model improves the matching of firm variables and financial rates to US data compared to the standard financial accelerator model. We also derive a model based quadratic loss function and measure the extent to which monetary policy can feed a bubble by further loosening the credit market frictions that entrepreneurs face. A policy that explicitly targets stock market developments can be shown to improve welfare in terms of minimizing the consumption losses of consumers, even when we account for incomplete information of central bankers regarding the current state of the economy. |
| Keywords: | asset price cycles; financial friction model; monetary policy; asset price targeting |
| JEL: | E44 E52 G32 |
| Date: | 2013–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56396&r=mac |
| By: | Eddie Gerba |
| Abstract: | We establish a set of US stylized facts on prices, quantities and balance sheets, assess the consistency of the current generation of financial DSGE models to these, and provide guidance on the challenges ahead. We mainly find four aspects which future financial friction models should take into account. The first is the profound shift in household financing structure, both on the asset and liability side, which has meant that they have been left vulnerable. Second, the balance sheet of firms has become increasingly leveraged and coupled with more volatile and procyclical equity prices has meant that the balance sheet of firms has become increasingly procyclical and volatile since the 1990’s. The current generation of FA models do capture some aspects of this but produce excessively smooth results. Third, it would be of interest for policy makers to find the optimal level/percentage of foreign ownership of the Federal debt at which the debt portfolio is diversified, but the future government budget constraint and its stabilisation capacity is not put in danger by over-exposure to international shocks. Lastly, models might be extended to include a regime-switching mechanism and explore the effects on model dynamics and model stability when the economy goes from a low volatility-low correlation state to a high volatility-high correlation state. A wider implication of our findings is that accumulation of stocks might alter agents risk preferences, production technologies, or beliefs to such a degree that the optimization problem that those agents face has transformed over time. The economy is effectively in a different state of nature, and agents may face different constraints. Future macroeconomic models need to take a different strategy to modeling the long-run ratios, since these have increased over the long-run, and this has had an effect on both the frequency and the amplitude of the business cycles. |
| Keywords: | balance sheet; financial market; credit; business cycle; financial friction models; future challenges |
| JEL: | C68 E3 E44 E51 |
| Date: | 2014–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56407&r=mac |
| By: | Corinne Schweizer; Manuel Puppis; Matthias Künzler; Samuel Studer |
| Abstract: | As advertising revenues shift to non-journalistic platforms, news organizations face financial difficulties. To safeguard pluralism and editorial competition, alternative funding sources should be considered. Policymakers can support private media organizations with mechanisms such as tax relief or even direct subsidies to specific media companies. Such support need not compromise media independence if safeguards such as statutory eligibility criteria are in place. Given convergence, support for private media should also be extended to online media. |
| JEL: | L91 L96 E6 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56427&r=mac |
| By: | Mohan Bijapur |
| Abstract: | This paper provides new insights into the relationship between the supply of credit and the macroeconomy. We present evidence that credit shocks constitute shocks to aggregate supply in that they have a permanent effect on output and cause inflation to rise in the short term. Our results also suggest that the effects on aggregate supply have grown stronger in recent decades. |
| Keywords: | financial crisis; potential output; inflation; credit crunch |
| JEL: | E31 E32 |
| Date: | 2013–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56620&r=mac |
| By: | Ilya Zheludev; Robert Smith; Tomaso Aste |
| Abstract: | Social media analytics is showing promise for the prediction of financial markets. However, the true value of such data for trading is unclear due to a lack of consensus on which instruments can be predicted and how. Current approaches are based on the evaluation of message volumes and are typically assessed via retrospective (ex-post facto) evaluation of trading strategy returns. In this paper, we present instead a sentiment analysis methodology to quantify and statistically validate which assets could qualify for trading from social media analytics in an ex-ante configuration. We use sentiment analysis techniques and Information Theory measures to demonstrate that social media message sentiment can contain statistically-significant ex-ante information on the future prices of the S&P500 index and a limited set of stocks, in excess of what is achievable using solely message volumes. |
| JEL: | N0 E6 |
| Date: | 2014–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:57376&r=mac |
| By: | Domenico Giannone; Francesca Monti; Lucrezia Reichlin |
| Abstract: | This paper shows how and when it is possible to obtain a mapping from a quarterly DSGE model to amonthly specification thatmaintains the same economic restrictions and has real coefficients. We use this technique to derive the monthly counterpart of the Gali et al (2011) model. We then augment it with auxiliary macro indicators which, because of their timeliness, can be used to obtain a now-cast of the structural model. We show empirical results for the quarterly growth rate of GDP, the monthly unemployment rate and the welfare relevant output gap defined in Gali, Smets andWouters (2011). Results show that the augmented monthly model does best for now-casting. |
| Keywords: | DSGE models; forecasting; temporal aggregation; mixed frequency data; large datasets |
| JEL: | C33 C53 E30 |
| Date: | 2014–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:57998&r=mac |
| By: | Samuel Wills |
| Abstract: | This paper studies how monetary policy should respond to news about an oil discovery, using a workhorse New Keynesian model. Good news about future production can create a recession today under exchange rate pegs and a simple Taylor rule, as seen in practice. This is explained by forward-looking inflation. Recession is avoided by a Taylor rule that accommodates changes in the natural level of output, which closely approximates optimal policy. Central banks have an incentive to exploit oil revenues by appreciating the terms of trade, creating “Dutch disease” and a deflationary bias which is overcome by committing to future policy. |
| Keywords: | natural resources; oil; optimal monetary policy; small open economy; news shock |
| JEL: | E52 E62 F41 O13 Q30 Q33 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58104&r=mac |
| By: | Saleem A. Bahaj |
| Abstract: | What are the macroeconomic implications of changes in sovereign risk premia? In this paper, I use a novel identification strategy coupled with a new dataset for the Euro Area to answer this question. I show that exogenous innovations in sovereign risk premia were an important driver of the economic dynamics of crisis-hit countries, explaining 30-50% of the forecast error of unemployment. I also shed light on the mechanisms through which this occurs. Fluctuations in sovereign risk premia explain 20-40% of the variance of private borrowing costs. Increases in sovereign risk result in substantial capital flight, external adjustment and import compression. In contrast, governments appear not to increase their primary balances in response to increases in sovereign risk. Identifying these causal effects involves isolating a source of fluctuations in sovereign borrowing costs exogenous to the economy in question. I address this problem by relying upon the transmission of country-specific events during the crisis in Europe to the sovereign risk premia in the remainder of the union. I construct a new dataset of critical events in foreign crisis-hit countries and I measure the impact of these events on yields in the economy of interest at an intraday frequency. An aggregation of foreign events serve as a proxy variable for structural innovations to the yield to identify shocks in a proxy SVAR. I extend this methodology into a Bayesian setting to allow for flexible panel assumptions. A counterfactual analysis is used to remove the impact of foreign events from the bond yields of crisis hit countries: I find that 40-60% of the trough-to-peak moves in bond yields in crisis-hit countries are explained by foreign events, thereby suggesting that the crisis was not purely a function of weak local economic conditions. |
| Keywords: | high frequency identification; narrative identification; contagion; Bayesian VARs; proxy SVARs; panel VAR |
| JEL: | E44 E65 F42 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58110&r=mac |
| By: | Philip King; Stephen Millard |
| Abstract: | In the wake of the financial crisis output fell dramatically while inflation remained above its target and productivity collapsed relative to its previous trend. The fall in productivity relative to trend was particularly pronounced within the service sector, and then most particularly in certain subsectors such as ‘Professional, Scientific and Technical Activities’. Given the weight of services in the economy – 75% in GDP and 50% in the CPI – it would seem that understanding how this sector works is crucial if we are to understand how the economy as a whole responds to shocks. But our standard macroeconomic models are not well suited to analysing this sector. In this paper, we try to address these deficiencies by modelling better the service sector and then examine the implications of trying to take certain features of the service sector into account. In order to do this, we first embarked on a series of structured visits to a set of firms that span the service sector. The motivation for doing this was that we could use our findings from these visits to get a better feel for how service-sector firms operate and, so, to be able to construct a model of a ‘typical’ service-sector firm. We then build a model taking into account what we learned from the visits and examined the effects of demand shocks within the model. We find that the model can explain some of the qualitative movements in productivity seen in response to the financial crisis. |
| Keywords: | service sector; intangible investment |
| JEL: | D21 D24 E22 E23 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58234&r=mac |
| By: | Carlo Menon; Guido de Blasio |
| Abstract: | The paper investigates the effect of local economic conditions on crime. The study focuses on Italy’s local labor markets and analyzes the short-term response of crime to the severe slump of 2007-2009. It shows that the downturn led to a significant increase in economic-related offenses that do not require particular criminal skills or tools (namely, thefts); on the other hand, for offenses for which specific skills and criminal experience are essential (say, robberies) the impact of the crisis was negative. The results also suggest that: i) labor market institutions (i.e. wage supplementary schemes and pro-worker contractual arrangements) had a role in slowing down the effect of the economy on crime; ii) the link between the downturn and crime was weaker in areas where the presence of organized crime is relatively more intensive. |
| Keywords: | crime; economic crises; Italy |
| JEL: | E32 K14 K42 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58314&r=mac |
| By: | Angus Armstrong; Monique Ebell |
| JEL: | E6 |
| Date: | 2013–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58368&r=mac |
| By: | Nicholas Bloom; Paul Romer; Stephen Terry; John Van Reenen |
| Abstract: | In a general equilibrium product-cycle model, lower trade barriers in-crease Southern purchasing power, which lifts long-run growth by increasing the profit from innovation. In the short run, factors of production must be reallocated inside firms, which lowers the opportunity cost of innovation, generating an additional “trapped factor” effect. Starting from a baseline OECD growth rate of 2% we find that trade integration with low-wage countries in the decade around China’s WTO accession could have increased long-run growth to 2.4%. There is an additional short-run trapped factors effect, raising growth to 2.7%. China accounts for about half of these growth increases. |
| Keywords: | Innovation; trade; China; endogenous growth |
| JEL: | C23 D8 D92 E22 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60272&r=mac |
| By: | Andreas Georgiadis; Alan Manning |
| Abstract: | The first contribution of this paper is to use UK monthly firm-level data to show that there is a large amount of transitory volatility in firm-level average earnings from month to month. We conclude that this cannot all be explained away as the consequence of measurement error, composition effects or variation in remunerated hours i.e. we suggest this volatility is real. The second contribution of the paper is to argue that this volatility cannot be interpreted as high flexibility in the shadow cost of labour to employers because of sizeable frictions in the labour market. Indeed we point out that it is the existence of frictions that allow the volatility to exist. Consequently we argue that this volatility would be expected to have only small allocational consequences and that measures of base wages are more useful in drawing conclusions about wage flexibility. |
| Keywords: | Wages; wage flexibility |
| JEL: | E24 J30 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60443&r=mac |
| By: | Edward P. Lazear; Kathryn L. Shaw; Christopher Stanton |
| Abstract: | Why did productivity rise during recent recessions? One possibility is that average worker quality increased. A second is that each incumbent worker produced more. The second effect is termed “making do with less.” Using data from 2006 to 2010 on individual worker productivity from a large firm, these effects can be measured and separated. For this firm, most of the gain in productivity during the recession was a result of increased effort. Additionally, the increase in effort is correlated with the increase in the local unemployment rate, presumably reflecting the costs of losing a job. |
| Keywords: | Recession; productivity; sorting |
| JEL: | D20 E32 L22 M50 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60617&r=mac |
| By: | Mark Setterfield (Department of Economics, New School for Social Research); Yun K. Kim (Department of Economics, University of Massachusetts, Boston); Jeremy Rees (Department of Economics, Trinity College) |
| Abstract: | We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance. A standard Kaleckian growth model is modified to incorporate working households who borrow to finance consumption that is determined, in part, by the desire to emulate the consumption patterns of more affluent households. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of income inequality. When compared to previous contributions to the literature, our results show that the way in which debtor households service their debt has both quantitative and qualitative effects on the economy’s macrodynamics. |
| Keywords: | Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth |
| JEL: | E12 E44 O41 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1404&r=mac |
| By: | Yuelin Liu (School of Economics, Australian School of Business, the University of New South Wales) |
| Abstract: | This paper develops a New Keynesian model with search frictions in which generated frictional unemployment is consistent with the time series of involuntary unemployment collected by the U.S. Bureau of Labor Statistics. Thus, it can shed light on the relevant impact of labor market frictions and policy interventions on the observed unemployment about which policy makers and the public are concerned. The data-consistent unemployment is achieved in the model via introduction of partial consumption insurance and an endogenous labor force participation channel. In particular, I find that allowing for endogenous labor force participation greatly improves the model fit for U.S. data. It appears that the price markup shock and matching efficiency shock are the two key driving forces of unemployment fluctuations. Monetary policy that stabilizes the participation gap can be welfare improving. |
| Keywords: | New Keynesian DSGE, Involuntary unemployment, Endogenous labor force participation, Search and matching, Bayesian inference |
| JEL: | C11 E24 E31 E32 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2014-41&r=mac |
| By: | Smith, Andrew Lee (Federal Reserve Bank of Kansas City); Keating, John W.; Kelly, Logan J.; Valcarcel, Victor J. |
| Abstract: | In late 2008, deteriorating economic conditions led the Federal Reserve to lower the federal funds rate to near zero and inject massive liquidity into the financial system through novel facilities. The combination of conventional and unconventional measures complicates the challenging task of characterizing the effects of monetary policy. We develop a novel method of identifying these effects that maintains the classic assumptions that a central bank reacts to output and the price level contemporaneously and may only affect these variables with a lag. A New-Keynesian DSGE model augmented with a representative financial structure motivates our empirical specification. The equilibrium model provides theoretical support for our choice of different series to replace variables that were popular in models of monetary policy but became problematic in the aftermath of the 2008 financial crisis. One of our most important innovations is to utilize the Divisia M4 index of money as the policy indicator variable. The model is bolstered by its ability to produce plausible responses to a monetary policy shock in samples that include or exclude the recent crisis period. |
| Keywords: | Monetary policy rules; Dynamic Stochastic General Equilibrium (DSGE) models; money; output puzzle; price puzzle; liquidity puzzle; financial crisis; Divisia; Identification assumptions; Structural Vector Autoregressions (SVARs) |
| JEL: | E3 E4 E5 |
| Date: | 2014–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp14-11&r=mac |
| By: | Emanuele Bacchiocchi (University of Milano); Efrem Castelnuovo (University of Padova); Luca Fanelli (University of Bologna) |
| Abstract: | We employ a novel identification scheme to quantify the macroeconomic effects of monetary policy shocks in the United States. The identification of the shocks is achieved by exploiting the instabilities in the contemporaneous coefficients of the structural VAR (SVAR) and in the covariance matrix of the reduced-form residuals. Different volatility regimes can be associated with different transmission mechanisms of the identified structural shocks. We formally test and reject the stability of our impulse responses estimated with post-WWII U.S. data by working with a break in macroeconomic volatilities occurred in the mid-1980s. We show that the impulse responses obtained with our non-recursive identification scheme are quite similar to those conditional on a standard Cholesky-SVARs estimated with pre-1984 data. In contrast, recursive vs. non-recursive identification schemes return substantially different macroeconomic reactions conditional on Great Moderation data, in particular as for inflation and a long-term interest rate. Using our non-recursive SVARs as auxiliary models to estimate a small-scale new-Keynesian model of the business cycle with an impulse response function matching approach, we show that the instabilities in the estimated VAR impulse responses are informative as for the calibration of some key-structural parameters. |
| Keywords: | structural break, recursive and non-recursive VARs, identification, monetary policy shocks, impulse responses. |
| JEL: | C32 C50 E52 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0181&r=mac |
| By: | Giovanni Pellegrino (University of Verona) |
| Abstract: | This paper investigates the interaction between uncertainty and monetary policy by estimating a non-linear VAR with US post-WWII data. The uncertainty indicator is treated both as an endogenous variable in the VAR and as the transition indicator discriminating "high" vs. "low" uncertainty states. The impact of monetary policy shocks in different phases of the "uncertainty cycle" is assessed via the computation of Generalized Impulse Response Functions. Monetary policy shocks are found to be less effective when uncertainty is high, with the peak reactions of a battery of real variables being about two-thirds milder than those conditional on an initially low level of uncertainty. The framework is then put at work to investigate the effects of uncertainty shocks in the presence of the Zero Lower Bound. The "drop and rebound" response of real variables to uncertainty shocks documented by Bloom (2009) is found to be present only if the policy rate is a long way from its ZLB. Conversely, an uncertainty shock occurring when the economy is near the ZLB triggers longer-lasting recessions and does not lead to any significant ÒreboundÓ. |
| Keywords: | Monetary policy shocks, Uncertainty shocks, non-linear Structural VAR, Interacted-VAR, Generalized impulse responses, Zero Lower Bound. |
| JEL: | C32 E32 E52 E61 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0184&r=mac |
| By: | Giovanni Caggiano (University of Padova); Efrem Castelnuovo (University of Padova); Gabriela Nodari (University of Verona) |
| Abstract: | We employ a nonlinear VAR to document the asymmetric reaction of real economic activity to uncertainty shocks. An uncertainty shock occurring in recessions triggers an abrupt and deep drop followed by a quick rebound and a temporary overshoot. The same shock hitting in expansions induces a milder slowdown, a longer-lasting recovery, and no overshoot. The employment of linear models is shown to offer a distorted picture of the timing and the severity of heightened uncertainty. Monetary policy responds quite aggressively during bad times, and more mildly during booms. Counterfactual simulations point to monetary policy ineffectiveness during the first months after the shock, especially in recessions, and to policy effectiveness in the medium-term, especially during expansions. This holds true considering as policy tools both the federal funds rate and a long-term interest rate. Our results call for microfounded models admitting nonlinear effects of uncertainty shocks. |
| Keywords: | Uncertainty shocks, nonlinear Smooth Transition Vector AutoRegressions, Generalized Impulse Response Functions, systematic monetary policy, forward guidance. |
| JEL: | C32 E32 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0188&r=mac |
| By: | Carlson, Murray; Chapman, David A.; Kaniel, Ron; Yan, Hong |
| Abstract: | We use a general equilibrium model as a laboratory for generating predictable excess returns and for assessing the properties of the estimated consumption/portfolio rules, under both the empirical and the true dynamics of excess returns. The advantage of this approach, relative to the existing literature, is that the equilibrium model delineates the precise nature of the risk/return trade-off within an optimizing setting that endogenizes return predictability. In the experiments that we consider, the estimation issues are so severe that simple unconditional consumption and portfolio rules actually outperform (in a utility cost sense) both simple and bias-corrected empirical estimates of conditionally optimal policies. |
| Keywords: | consumption; equilibrium; excess returns; hedging; predictable |
| JEL: | E21 G11 G12 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10328&r=mac |
| By: | Ngai, Liwa Rachel; Sheedy, Kevin D. |
| Abstract: | Using data on house sales and inventories of unsold houses, this paper shows that changes in sales volume are largely explained by changes in the frequency at which houses are put up for sale rather than changes in the length of time taken to sell them. Thus the decision to move house is key to understanding the volume of sales. This paper builds a model where homeowners chose when to move house, which can be seen as an investment in housing match quality. Since moving house is an investment with upfront costs and potentially long-lasting benefits, the model predicts that the aggregate moving rate depends on macroeconomic variables such as interest rates. The endogeneity of moving also means that those who move come from the bottom of the existing match quality distribution, which gives rise to a cleansing effect and leads to overshooting of housing-market variables. |
| Keywords: | endogenous moving; housing market; match quality investment; search and matching |
| JEL: | D83 E22 R21 R31 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10346&r=mac |
| By: | Cukierman, Alex |
| Abstract: | This paper documents a dramatic post-Lehman slowdown in the rate of growth of US banking credit and in net new bond issues in spite of a huge accumulation of banks’ reserves at the Fed. Appealing to results in a theoretical background paper the credit arrest in the immediate aftermath of Lehman’s collapse is explained in terms of a short term shift in banks’ and bond holders portofolios due to an increase in bailout uncertainty triggered by the Lehman event. The strong persistence of this phenomenon is explained in terms of a more persistent increased probabilistic awareness to low bailout probabilities (or, equivalently an increase in uncertainty aversion) within a multiple priors framework. This point of view explains why, in spite of a huge expansion of the monetary base, inflation has been so low since Lehman’s collapse. Since the Lehman’s event cumulative base money in the US expanded at a rate similar to the cumulative rate of increase of base money through more than half of the post WWI German hyperinflation. During the six years between September 2008 and September 2014 cumulative inflation in the US has been a bit over twelve percent while the cumulative rate of inflation following the same base money expansion in Germany led to a twenty four-fold cumulative increase in the price level. An important reason for this dramatic difference is that in the US today the Fed’s high powered monetary expansion is not translated into credit and new purchases. By contrast in post WWI Germany the monetary expansion was immediately used by government to purchase goods and services. This comparison has important implications for the timing and dosage of exit strategies. In particular it implies that mopping up of liquidity should be directly related to future accelerations in banking credit and in net new bond issues. |
| Keywords: | US banks’ reserves; US credit; US monetary policy since financial crisis |
| JEL: | E51 E52 E58 G1 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10349&r=mac |
| By: | Justiniano, Alejandro; Primiceri, Giorgio E; Tambalotti, Andrea |
| Abstract: | The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust. |
| Keywords: | collateral constraints; house prices; housing and credit boom; leverage restrictions |
| JEL: | E32 E44 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10358&r=mac |
| By: | Mankart, Jochen; Michaelides, Alexander; Pagratis, Spyros |
| Abstract: | We estimate the structural parameters of a quantitative banking model featuring maturity transformation and endogenous failures in the presence of undiversifiable background risk and regulatory constraints. Pervasive balance sheet cross-sectional heterogeneity can be rationalized with idiosyncratic shocks and differential access to wholesale funding markets. Moreover, loans are highly procyclical, bank failures strongly countercyclical and increasing in leverage. Tightening capital requirements increases precautionary equity but results in higher failures because equity rises proportionately less than the capital ratio requirement change. The endogenous fall in the expected return on equity lowers the incentive to further increase precautionary equity. |
| Keywords: | bank failures; bank leverage; capital requirements; uninsurable risks |
| JEL: | E32 E44 G21 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10299&r=mac |
| By: | Jordà, Òscar; Schularick, Moritz; Taylor, Alan M. |
| Abstract: | Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection methods to demonstrate that loose monetary conditions lead to booms in real estate lending and house prices bubbles; these, in turn, materially heighten the risk of financial crises. Both effects have become stronger in the postwar era. |
| Keywords: | credit; financial crises; house prices; instrumental variables; leverage; local projections; monetary policy |
| JEL: | C14 C38 E32 E37 E42 E44 E51 E52 F41 G01 G21 N10 N20 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10305&r=mac |
| By: | Fratto, Chiara; Uhlig, Harald |
| Abstract: | Why was there no deflation and what accounts for inflation after 2008? We use the prominent pre-crisis Smets-Wouters (2007) model to address this question. We find that due to price markup shocks alone inflation would have been 1%higher than observed and 0.5% higher that the long-run average. Their standard deviation is similar to its pre-crisis level. Price markup shocks were also responsible for the slow recovery of employment, though not for the initial drop. Monetary policy shocks predict an inflation rate 0.5% below average. Government expenditure innovations do not contribute much either to inflation or to employment dynamics |
| JEL: | E31 E32 E52 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10306&r=mac |
| By: | Konstantinos Angelopoulos; Wei Jiang; James Malley |
| Abstract: | This paper evaluates the effects of policy interventions on sectoral labour markets and the aggregate economy in a business cycle model with search and matching frictions. We extend the canonical model by including capital-skill complementarity in production, labour markets with skilled and unskilled workers and on-the-job-learning (OJL) within and across skill types. We first find that, the model does a good job at matching the cyclical properties of sectoral employment and the wage-skill premium. We next find that vacancy subsidies for skilled and unskilled jobs lead to output multipliers which are greater than unity with OJL and less than unity without OJL. In contrast, the positive output effects from cutting skilled and unskilled income taxes are close to zero. Finally, we find that the sectoral and aggregate effects of vacancy subsidies do not depend on whether they are financed via public debt or distorting taxes. |
| Keywords: | fiscal multipliers; sectoral labour markets; search and matching |
| JEL: | E24 E32 J63 J64 J68 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1502&r=mac |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | The core problem of economics is that the representative economist never managed to keep political and theoretical economics properly apart. The mixture is toxic indeed. As Joan Robinson said about what parades as economics: Scrap the lot and start again. Yet, the question then arises where to start. To solve the Starting Problem - first formulated by J. S. Mill - is the all-dominant initial step of a paradigm shift. The most urgent task of a constructive Heterodoxy is to rethink pivotal concepts like market, Say's Law, profit, etcetera. The reconstruction of the theoretical superstructure from scratch is an absolute methodological necessity. |
| Keywords: | new framework of concepts; structure-centric; Law of Supply and Demand; market clearing; budget balancing; full employment; indifference |
| JEL: | B59 E10 |
| Date: | 2015–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61670&r=mac |
| By: | Mark C. Greeman (Loughborough University); Ben Groom (LSE); Ekaterini Panopoulou (Kent Business School, University of Kent); Theologos Pantelidis (Department of Economics, University of Macedonia) |
| Abstract: | Uncertain and persistent real interest rates underpin one argument for using a declin- ing term structure of social discount rates in the Expected Net Present Value (ENPV) framework. Despite being controversial, this approach has in uenced both the Inter-Agency Working Group on Cost-Benefit Analysis and the UK government's guidelines on discount- ing. We first clarify the theoretical basis of the ENPV approach. Then, rather than following previous work which used a single series of real U.S. Treasury bond returns, we treat nominal interest rates and inflation as cointegrated series and estimate the empirical term structure of discount rates via the `Fisher Effect'. This nests previous empirical models and is more flexible. It also addresses an irregularity in previous work which used data on nominal in- terest rates until 1950, and real interest rates thereafter. As we show, the real and nominal data have very different time series properties. This paper therefore provides a robust- ness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting. The policy implications are discussed in the context of the Social Cost of Carbon, nuclear decommissioning and public health. |
| Keywords: | Social Discounting, Declining Discount Rates, Fisher Effect, Real and Nominal Interest Rates, Social Cost of Carbon. |
| JEL: | Q48 C13 C53 E43 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2015_01&r=mac |
| By: | Plakandaras, Vasilios (Democritus University of Thrace, Department of Economics); Gogas, Periklis (Democritus University of Thrace, Department of Economics); Gupta, Rangan (University of Pretoria, Department of Economics); Papadimitriou, Theophilos (Democritus University of Thrace, Department of Economics) |
| Abstract: | In this paper we evaluate inflation persistence in the U.S. using long range monthly and annual data. The importance of inflation persistence is crucial to policy authorities and market participants, since the level of inflation persistence provides an indication on the susceptibility of the economy to exogenous shocks. Departing from classic econometric approaches found in the relevant literature, we evaluate inflation persistence through the nonparametric Hurst exponent within both a global and a rolling window framework. Moreover, we expand our analysis to detect the potential existence of chaos in the data generating process, in order to enhance the robustness of our conclusions. Overall, we find that inflation persistence is high from 1775 to 2013 for the annual dataset and from February 1876 to May 2014 in monthly frequency, respectively. Especially from the monthly dataset, the rolling window approach allows us to derive that inflation persistence has reached to historically high levels in the post Bretton Woods period and remained there ever since. |
| Keywords: | Inflation; Persistence; Hurst exponent; Detrended Fluctuation Analysis; Lyapunov exponent |
| JEL: | C14 E31 E60 |
| Date: | 2015–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:duthrp:2014_012&r=mac |
| By: | Badasen Polina (The Central Bank of the Russian Federation); Kartaev Philipp (Department of Economics, Lomonosov Moscow State University); Khazanov Alexey (The Central Bank of the Russian Federation) |
| Abstract: | In this paper we analyze the effect of ruble exchange rate dynamics on economic activity in Russia. We consider the dynamics of both total production and the distinct industries’ output. We apply the SVAR-X approach and analyze the most recent Russian data. We show that the devaluation of Rus-sian currency has positive impact on export-oriented industries, on industries, oriented both on ex-ports and internal demand, and on industries with low share of imports in costs. The negative im-pact is observed only in the construction industry. The ruble devaluation has no significant impact on the economic activity indicators in other industries including the key industries and the industrial production index. |
| Keywords: | exchange rate, output, SVAR models |
| JEL: | C32 E52 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:upa:wpaper:0014&r=mac |
| By: | D'Elia, Enrico; Morettini, Lucio |
| Abstract: | The paper investigates investment decisions by using a new source of data, that is the OBI annual survey on firms. The main focus of our analysis mainly is the influence of credit market conditions on investment decisions and we find that the main obstacle to the investment is the level of guarantees that bank demand to grant loans. This element was a constant among all our results, it is relevant for realized investment and for planned ones. All these elements suggest without doubt that the requested guarantees is the most important obstacle in the relationship between firms and banks. An exception to this situation is represented by investments in innovation: guarantees and other elements related to the credit market have no influence on investment decisions suggesting that if the investment project aims at an improvement of firms’ productivity, banks are less hesitant to grant the necessary funding. About economic situation, we found that investments are mainly connected to economic cycle and only a small number of firms invest in order to contrast present economic difficulties. Other interesting results were found for external factors: while for firms the proximity of efficient financial and R&D structures is always important, the tax system plays a role only on future and not defined programs. For firms that have already decided to invest, the proximity of factors that can give them an adequate financial and technical support is more important. |
| Keywords: | Firms, Investment, Business cycle, Innovation |
| JEL: | D22 E22 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61511&r=mac |
| By: | Alessandra Fogli; Fabrizio Perri |
| Abstract: | Does macroeconomic volatility/uncertainty affects accumulation of net foreign assets? In OECD economies over the period 1970-2012, changes in country specific aggregate volatility are, after controlling for a wide array of factors, significantly positively associated with net foreign asset position. An increase in volatility (measured as the standard deviation of GDP growth) of 0.5% over period of 10 years is associated with an increase in the net foreign assets of around 8% of GDP. A standard open economy model with time varying aggregate uncertainty can quantitatively account for this relationship. The key mechanism is precautionary motive: more uncertainty induces residents to save more, and higher savings are in part channeled into foreign assets. We conclude that both data and theory suggest uncertainty/volatility is an important determinant of the medium/long run evolution of external imbalances in developed countries. |
| JEL: | F32 F34 F41 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20872&r=mac |
| By: | Marcus Hagedorn; Iourii Manovskii; Kurt Mitman |
| Abstract: | We measure the effect of unemployment benefit duration on employment. We exploit the variation induced by the decision of Congress in December 2013 not to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized. |
| JEL: | E24 J63 J64 J65 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20884&r=mac |
| By: | Sebastian Edwards |
| Abstract: | I analyze whether countries with flexible exchange rates are able to pursue an independent monetary policy, as suggested by traditional theory. I use data for three Latin American countries with flexible exchange rates, inflation targeting, and capital mobility – Chile, Colombia and Mexico – to investigate the extent to which Federal Reserve actions are translated into local central banks’ policy rates. The results indicate that there is significant “policy contagion,” and that these countries tend to “import” Fed policies. The degree of monetary policy independence is lower than what traditional models suggest. |
| JEL: | E5 E52 E58 F30 F31 F32 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20893&r=mac |
| By: | Pedro Rossi |
| Abstract: | No debate recente sobre o modelo de crescimento brasileiro, a rigidez do tripé macroeconômico (metas de inflação, meta fiscal primária e regime de câmbio flutuante) foi apontada como responsável pela redução do crescimento econômico brasileiro e como um obstáculo ao seu desenvolvimento. No entanto, ao longo do tempo o regime macro provou ser flexível e foi objeto de alterações na forma de gestão das políticas dentro do mesmo quadro institucional, especialmente após a crise de 2008. Nesse contexto, o presente artigo tem como objetivo discutir a relação entre essa tríade de política macroeconômica e uma estratégia econômica para a economia brasileira com ênfase no desenvolvimento social. A questão de fundo é se a institucionalidade macroeconômica atual, herdada de uma perspectiva (neo)liberal do funcionamento da economia, é compatível com o aprofundamento do desenvolvimento orientado para o social, que depende de um forte papel do Estado, da distribuição de renda e da ampliação da infraestrutura social. In the recent debate on the Brazilian growth model, the accuracy of the economic tripod (inflation targeting, primary fiscal target and floating exchange rate regimes) was pointed out as being responsible for the lowering of Brazilian economic growth and as a hindrance to its development. However, over time the macro regime has proved to be flexible and allowed changes in the form of management of policies, within the same institutional framework, especially after the 2008 crisis. Within this context, the present chapter aims to discuss the relationships between these macroeconomic policy fronts and a social oriented development strategy for the Brazilian economy. The background question is if the actual macroeconomic regime, inherited from an orthodox perspective, is compatible with the deepening of a social oriented development, which depends on a strong role of the State, income distribution and expansion of social infrastructure. |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipe:ipetds:2029&r=mac |
| By: | Alberto Petrucci (Department of Economics and Finance, LUISS Guido Carli University) |
| Abstract: | This paper studies the optimal inflation rate in a transactions costs model with illegal immigration. Although unauthorized immigrants use domestic money for making transactions and consume in the host country, their welfare does not enter the objective function of the Ramsey planner, because of their unofficial status. In this environment, the Friedman rule is nonoptimal, when only an income tax is available, as the inflation tax makes it possible to collect revenues from illegal immigrants, who are difficult to subject to taxation. When a consumption tax –that illegal immigrants have to pay when buying consumption goods in the host country– is also available, the zero inflation tax prescription is efficient only if the consumption-money ratio of domestic consumers is not greater than the illegal immigrants’ one. |
| Keywords: | Illegal immigration; Transaction costs technology; Optimal inflation tax; Income tax; Consumption tax. |
| JEL: | E62 H22 J22 O41 |
| URL: | http://d.repec.org/n?u=RePEc:lui:celegw:1502&r=mac |
| By: | Heathcote, Jonathan (Federal Reserve Bank of Minneapolis); Tsujiyama, Hitoshi (Goethe University Frankfurt) |
| Abstract: | What structure of income taxation maximizes the social benefits of redistribution while minimizing the social harm associated with distorting the allocation of labor input? Many authors have advocated scrapping the current tax system, which redistributes primarily via marginal tax rates that rise with income, and replacing it with a flat tax system, in which marginal tax rates are constant and redistribution is achieved via non-means-tested transfers. In this paper we compare alternative tax systems in an environment with distinct roles for public and private insurance. We evaluate alternative policies using a social welfare function designed to capture the taste for redistribution reflected in the current tax system. In our preferred specification, moving to the optimal flat tax policy reduces welfare, whereas moving to the optimal fully nonlinear Mirrlees policy generates only tiny welfare gains. These findings suggest that proposals for dramatic tax reform should be viewed with caution. |
| Keywords: | Optimal income taxation; Mirrlees taxation; Ramsey taxation; Tax progressivity; Flat tax; Private insurance; Social welfare functions |
| JEL: | E62 H21 H23 H31 |
| Date: | 2015–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:507&r=mac |
| By: | Vladimir Asriyan |
| Abstract: | Balance sheet recessions result from concentration of macroeconomic risks on the balance sheets of leveraged agents. In this paper, I argue that information dispersion about the future states of the economy combined with trading frictions in financial markets can explain why such concentration of risk may be privately but not socially optimal. I show that borrowers face a tradeoff between the insurance benefits of financing with macro contingent contracts and the illiquidity premia they need to pay creditors for holding such contracts. In aggregate, as borrowers sacrifice contingency in order to provide liquidity, the severity of macroeconomic fluctuations becomes endogenously linked to the magnitudes of information dispersion and trading frictions. In this setting, I study the policy implications of the theory and I find that subsidizing contingencies in private contracts is welfare improving; in particular, policies that solely target borrowers' leverage are sub-optimal. |
| Keywords: | Balance sheet recessions; contingent contracts; liquidity; informational frictions; trading frictions; financial regulation. |
| JEL: | E32 E44 G01 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1463&r=mac |
| By: | Oscar Jorda (Federal Reserve Bank of San Francisco and University of California, Davis); Moritz Schularick (University of Bonn and Centre for Economic Policy Research and Hong Kong Institute for Monetary Research); Alan M. Taylor (University of California, Davis and National Bureau of Economic Research and Centre for Economic Policy Research) |
| Abstract: | Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: countries with fixed exchange regimes often see fluctuations in short-term interest rates unrelated to home economic conditions. We use novel instrumental variable local projection methods to demonstrate that loose monetary conditions lead to booms in real estate lending and house prices bubbles; these, in turn, materially heighten the risk of financial crises. Both effects have become stronger in the postwar era. |
| Keywords: | Financial Crises, Monetary Policy, Leverage, Credit, House Prices, Local Projections, Instrumental Variables |
| JEL: | C14 C38 E32 E37 E42 E44 E51 E52 F41 G01 G21 N10 N20 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:312014&r=mac |
| By: | Mark Setterfield (Department of Economics, New School for Social Research); Shyam Gouri Suresh (Department of Economics, Davidson College) |
| Abstract: | This paper discusses the concept of path dependence in macrodynamics, and identifies practical difficulties associated with building path-dependent macrodynamic models of the sort that Keynesians and Schumpeterians regard as necessary for the successful study of long-term growth and development. It is suggested that multi-agent systems (MAS) analysis can help address these difficulties, and therefore provides a useful tool for advancing path-dependent macrodynamic analysis. An illustrative example is provided in the form of a MAS model of path-dependent aggregate fluctuations. |
| Keywords: | Multi-agent systems, agent based models, path dependence, macrodynamics |
| JEL: | B41 C63 E12 E32 E37 O41 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1405&r=mac |
| By: | Margarida Duarte; Diego Restuccia |
| Abstract: | The relative price of services rises with development. A standard interpretation of this fact is that cross-country productivity differences are larger in manufacturing than in services. The service sector comprises heterogeneous categories. We document that the behavior of relative prices is markedly different across two broad classifications of services: traditional services, such as health and education, feature a rising relative price with development and non-traditional services, such as communication and transportation, feature a falling relative price with income. Using a standard model of structural transformation with an input-output structure, we find that cross-country productivity differences are much larger in non-traditional services (a factor of 106.5-fold between rich and poor countries) than in manufacturing (24.5-fold). Moreover, this relative productivity difference is reduced by more than half when abstracting from intermediate inputs. Development requires an emphasis on solving the productivity problem in non-traditional services in poor countries. |
| Keywords: | Productivity, services, traditional, non-market, structural transformation, input-output structure. |
| JEL: | O1 O4 E0 |
| Date: | 2015–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-530&r=mac |
| By: | Jagjit S. Chadha; Alex Waters |
| Abstract: | We estimate a macro-finance yield curve model for both the nominal and real forward curve for the UK from 1993 to 2008. Our model is able to accommodate a number of key macroeconomic variables and allows us to estimate the instantaneous response of the yield curve and so gauge the impact of Quantitative Easing on forward rates. We find that 10 year nominal interest rates on average are lower by 46 basis points which can largely be explained by three main channels: portfolio balance; liquidity premium and signalling but there is no sizeable impact on real interest rates. |
| Keywords: | Term Structure of Interest Rates; Monetary Policy; Quantitative Easing |
| JEL: | E43 E44 E47 E58 E65 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1418&r=mac |
| By: | Mohn, Klaus (UiS) |
| Abstract: | An important idea behind the Norwegian oil fund mechanism and the fiscal spending rule is to protect the non-oil economy from the adverse effects of excessive spending of resource revenues over the Government budget. A critical assumption in this respect is that public sector saving is not being offset by private sector dis-saving, which is at stake with the hypothesis of Ricardian equivalence. Based on a framework of co-integrating saving rates, this model provides an empirical test of the Ricardian equivalence hypothesis on Norwegian time series data. Although the model rejects the strong-form presence of Ricardian equivalence, results indicate that the Norwegian approach does not fully succeed in separating spending of resource revenues from the accrual of the same revenues. |
| Keywords: | Resource wealth; saving; fiscal policy |
| JEL: | D91 E21 E61 Q33 |
| Date: | 2015–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2015_002&r=mac |
| By: | Brown, James R. (Department of Finance, Iowa State University); Martinsson, Gustav (Institute for Financial Research (SIFR) & Centre of Excellence for Science and Innovation Studies (CESIS)); Petersen, Bruce C. (Department of Economics, Washington University in St. Louis) |
| Abstract: | Information problems and lack of collateral value should make R&D more susceptible to financing frictions than other investments, yet existing evidence on whether financing constraints limit R&D is decidedly mixed, particularly in studies of non-U.S. firms. We study a large sample of European firms and also find little evidence of binding finance constraints when we estimate standard investment-cash flow regressions. However, we find strong evidence that the availability of finance matters for R&D once we directly control for: i) firm efforts to smooth R&D with cash reserves, and ii) firm use of external equity finance. Our study provides a framework for evaluating financing constraints when firms rely extensively on external finance and endogenously manage buffer stocks of liquidity to keep investment smooth, and our findings show that controlling for this smoothing behavior is critical for uncovering the full effect of financing constraints. Our findings also indicate a major role for external equity in financing R&D, highlighting a causal channel through which stock market development and liberalization can promote economic growth by increasing firm-level innovative activity. |
| Keywords: | Financing innovation; R&D financing constraints; Finance and growth; Stock market development; Value of liquidity |
| JEL: | G31 G32 |
| Date: | 2015–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0394&r=mac |
| By: | Marco Cozzi (Queen's University); Giulio Fella (Queen Mary) |
| Abstract: | This paper is a quantitative, equilibrium study of the insurance role of severance pay when workers face displacement risk and markets are incomplete. A key feature of our model is that, in line with an established empirical literature, job displacement entails a persistent fall in earnings upon reemployment due to the loss of job-specific human capital. The model is solved numerically and calibrated to the US economy. In contrast to previous studies that have analyzed severance payments in the absence of persistent earning losses, we find that the welfare gains from the insurance against job displacement afforded by severance pay are sizable. These gains are higher if, as in most OECD countries, severance pay increases with tenure. The result is a consequence of the higher persistence of earnings losses for workers with a larger stock of job-specific human capital at the time of displacement. |
| Keywords: | Severance Payments, Incomplete Markets, Welfare |
| JEL: | E24 D52 D58 J65 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1338&r=mac |
| By: | Xiaohong Chen; Jack Favilukis; Sydney C. Ludvigson |
| Abstract: | This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the unobservable aggregate wealth return. Our empirical results indicate that the estimated relative risk aversion parameter ranges from 17 to 60, with higher values for aggregate consumption than for stockholder consumption, while the estimated elasticity of intertemporal substitution is above 1. In addition, the estimated model-implied aggregate wealth return is found to be weakly correlated with the Center for Research in Security Prices value-weighted stock market return, suggesting that the return to human wealth is negatively correlated with the aggregate stock market return. |
| Keywords: | Consumption based asset pricing; semiparametric estimation; limited stock market participation |
| JEL: | E21 G12 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:37392&r=mac |
| By: | Jesús Fernández-Villaverde; Luis Garicano; Tano J. Santos |
| Abstract: | We study the mechanisms through which the adoption of the Euro delayed, rather than advanced, economic reforms in the Euro zone periphery and led to the deterioration of important institutions in these countries. We show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident. We analyze empirically the interrelation between the financial boom and the reform process in Greece, Spain, Ireland, and Portugal and, by way of contrast, in Germany, a country that did experience a reform process after the creation of the Euro. |
| Keywords: | financial crisis; bubbles; Euro crisis; political economy |
| JEL: | D2 D72 E44 F33 F36 |
| Date: | 2013–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:51255&r=mac |
| By: | Eddie Gerba; Klemens Hauzenberger |
| Abstract: | We contribute to the growing empirical literature on monetary and fiscal interactions by applying a sign restriction identification scheme to a structural TVP-VAR in order to disentangle and evaluate the policy shocks and policy transmissions. This in turn allows us to study the Great Recession in a consistent fashion. Four facts stand out from our findings. We observe significant differences in the endogenous responses to shocks in particular between the Volcker period and the Great Recession, and find that monetary policy reacts more aggressively during Volcker chairmanship and fiscal policy during the Great Recession to stabilize the economy. Second, impulse responses confirm that there is a high degree of interactions between monetary and fiscal policies over time. Third, in the forecast error variance decomposition we find that while government revenues largely influence decisions on government spending, government spending does not influence tax decisions. Fourth and final, our analysis of the fiscal transmission channel reveals that tax cuts, because of their crowding-in effects, are more effective in expanding output than government spending rises, since the tax multiplier is higher and more persistent. In light of the current recession and the zero lower bound of the interest rate, tax cuts can, by providing the right incentives to the private sector, result in high and very persistent growth in output if private agent expectations regarding the length and the financing structure of the fiscal expansion are delicately managed jointly by the two authorities. |
| Keywords: | time varying parameter VAR; sign restrictions; Markov-Chain Monte Carlo; US economic structure; fiscal transmission channel |
| JEL: | C11 C32 C52 E61 E63 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56393&r=mac |
| By: | Eddie Gerba; Waltraud Schelkle |
| Abstract: | The sharp rise in household finance, both in debt and in assets, is one of the striking empirical facts about the US economy of the last two decades. But it is still not clear what caused it. Economists, both mainstream and heterodox, seek an explanation in financial market innovation and liberalization. But it is hard to find systematic evidence for this link. Our paper takes up another line of inquiry. Political economists have started to ask how the restructuring of the welfare state may have affected household finance. We use SVAR analysis to establish whether there is a link between the retrenchment of public social spending and the expansion of tax-‐incentivised private social spending, on the one hand, and household finance variables on the other. More specifically, we ask whether the transformation of the US welfare state over the last 30 years has affected household finances through the channel of debt, leverage, or asset formation. Our findings suggest that the asset channel is empirically the most likely candidate and we point to some welfare state reforms that can support the operation of this channel since the mid-‐1990s |
| Keywords: | balance sheets; social spending; welfare reforms; financialisation; leverage cycles |
| JEL: | E21 E62 G21 H31 H55 |
| Date: | 2014–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56723&r=mac |
| By: | Martin Knapp; Alison Andrew; David McDaid; Valentina Iemmi; Paul McCrone; A-La Park; Michael Parsonage; Jed Boardman; Geoff Shepherd |
| Abstract: | The health service spent £2.0 billion on services for people with psychosis in 2012/13. Over half (54%) of this total was devoted to inpatient care. This means that spending is currently skewed towards the more expensive parts of the system, at £350 average cost per day for inpatient care compared with £13 average cost per day in community settings. There is a strong business case for investing in the early intervention and community-based interventions proven to generate savings or value-for-money gains through reduced inpatient admission, or through other routes. This report provides the most up-to-date economic evidence to support the business case for investment in effective, recovery-focused services. Drawing on a wide range of data, evidence for the cost-effectiveness of recovery-focused interventions is set out: • Early Detection (ED) services • Early Intervention (EI) teams • Individual Placement and Support (IPS) • Family therapy • Criminal justice liaison and diversion • Physical health promotion, including health behaviours • Supported housing • Crisis Resolution and Home Treatment (CRHT) teams • Crisis houses • Peer support • Self-management • Cognitive Behavioural Therapy (CBT) • Anti-stigma and discrimination campaigns • Personal Budgets (PBs) • Welfare advice Many of these interventions are shown to be cost-effective, in some cases due to the role they play inpreventing or delaying relapse, or reducing the need for the most expensive care. Some have much wider benefits related to wider recovery outcomes, such as employment, settled housing and better physical health. There is particularly clear evidence for interventions such as EI teams, IPS for employment, CBT and CRHT teams. However, there is evidence to suggest that all of the above interventions contribute to recovery outcomes, reduced costs and/or better value for money. Illustrative examples of the savings incurred through particular interventions include: • Early Intervention: net savings of £7,972 per person after four years. Over a ten-year period, £15 in costs can be avoided for every £1 invested. • Smoking cessation: £1,255 to gain an extra Quality-Adjusted Life Year (QALY), which lies well below the upper threshold of £30,000 recommended by National Institute for Health and Care Excellence (NICE). • Peer support: £4.76 can be gained for every £1 invested. • CBT: Cost per QALY gained of £27,373 for CBT compared to usual care, which is below the upper threshold used by NICE. Local and regional commissioning and pathway development should draw on this evidence, since these interventions are both clinically effective and many will contribute to savings to be reinvested in care. While the scope of this report is primarily at intervention level, the intention is to inform local implementation. |
| JEL: | E6 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:56773&r=mac |
| By: | Martin Knapp; Adelina Comas-Herrera; Raphael Wittenberg; Bo Hu; Derek King; Amritpal Rehill; Bayo Adelaja |
| Abstract: | As the world population continues to age, so will the number of people with dementia continue to rise rapidly. This growing prevalence poses many challenges, including the economic challenge of how societies can ensure that treatment, care and support are provided at an affordable cost, whilst ensuring good quality of life for people with dementia and their families. The aim of this research is to examine the economic consequences of different ways to respond to this challenge. |
| JEL: | E6 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:57568&r=mac |
| By: | James Cloyne |
| Abstract: | The size and sign of the government spending multiplier crucially depends on how the spending is financed and how consumers respond to implied future tax increases. I investigate this issue in an estimated New Keynesian DSGE model with distortionary labor and capital taxes and, importantly, with preferences that allow the wealth effect on labor supply to vary. Specifically I assess whether the model can explain the empirical evidence for the United States and examine the transmission mechanism, for realistic policy rules. I show that the model can match the positive empirical response of key variables including output, consumption and the real wage. I find that the role of the wealth effect on labor supply is small and that while tax rates rise following a spending shock these increases are modest, with debt rising. Deficit financed spending increases are therefore expansionary, but this is due to sticky prices rather than the wealth effect channel. |
| Keywords: | fiscal policy; government spending shocks; spending multiplier; busyness cycles |
| JEL: | E20 E32 E62 H20 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58024&r=mac |
| By: | Amanda Fitzgerald; Ruth Lupton; Ronan Smyth; Polly Vizard |
| Abstract: | Key Points: London local government has taken a 33 per cent real terms cut in service funding from central government between 2009/10 and 2013/14. Councils have been making strenuous efforts to make large savings without cutting front line services, and to protect services for those who need them most. Most savings have come through efficiencies, the sorts of savings which Councils have argued are neither detrimental to, nor noticeable at, the frontline. However, Councils have, reluctantly, had to reduce their own role in the provision of discretionary services. More of these services are being delivered by voluntary and community sector partners, so the landscape of local service provision has seen some change. The need for Councils to pare their own provision back to statutory services, increasingly targeting those most in need, may, ultimately, result in less local variation rather than more. In this the cuts could be running counter to the promotion of the localism agenda. A focus on the most in need, seen in greater targeting of services, could also further fuel rising demand, as lower level need goes unaddressed. Council officers and Members are concerned that the 'limits of efficiency' have been reached, and there is little scope for further large-scale savings without significant effects on frontline services. |
| Keywords: | regions and area inequalities; cities; london; area inequalities; social policy; inner london; outer london; london local government; metropolitan governance |
| JEL: | N0 E6 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58048&r=mac |
| By: | Petr Sedlacek; Vincent Sterk |
| Abstract: | This paper shows that job creation of cohorts of U.S. firms is strongly influenced by aggregate conditions at the time of their entry. Using data from the Business Dynamics Statistics (BDS) we follow cohorts of young firms and document that their employment levels are very persistent and largely driven by the intensive margin (average firm size) rather than the extensive margin (number of firms). To differentiate changes in the composition of startup cohorts from post-entry choices and to evaluate aggregate effects, we estimate a general equilibrium firm dynamics model using BDS data. We find that even for older firms, the aggregate state at birth drives the vast majority of variations in employment across cohorts of the same age. The key force behind this result are fluctuations in the composition of startup cohorts with respect to firms' potential to grow large. At the aggregate level, factors determined at the startup phase account for the large low-frequency fluctuations observed in the employment rate. |
| Keywords: | firm dynamics; heterogeneous agents; maximum likelihood; DSGE |
| JEL: | E32 L11 M13 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58223&r=mac |
| By: | Nicholas Oulton |
| Abstract: | In this paper I argue that the financial crisis is likely to have a long term impact on the level of labour productivity in the UK while leaving the long run growth rate unaffected. Based entirely on pre-crisis data, and using a two-sector growth model, I project the future growth rate of GDP per hour in the market sector to be 2.61% p.a. Based on a cross-country panel analysis of 61 countries over 1950-2010, the permanent reduction in the level of GDP per worker resulting from the crisis could be substantial, about 5½%. The cross-country evidence also suggests that there are permanent effects on employment, implying a possibly even larger hit to the level of GDP per capita of about 9%. |
| Keywords: | productivity; potential output; growth; financial; banking crisis; recession |
| JEL: | E32 H62 J24 O41 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58239&r=mac |
| By: | Silvana Tenreyro; Gregory Thwaites |
| Abstract: | We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding. |
| Keywords: | asymmetric effects of monetary policy; transmission mechanism |
| JEL: | E32 E52 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:58376&r=mac |
| By: | Wouter J. Den Haan; Petr Sedlacek |
| Abstract: | This paper develops a model according to which the costs of business cycles are nontrivial because they reduce the average level of output. The reason is an interaction between job creation costs and an agency problem. The agency problem triggers separations during economic downturns even though both the employer and the worker would be better off if the job was not discontinued, that is, affected jobs have strictly positive surplus values. Similarly, booms make it possible for more jobs to overcome the agency problem. These effects do not offset each other, because business cycles reduce the expected job duration for these jobs. With positive job creation costs, business cycles then reduce the creation of valuable jobs and lower average activity levels. Considering a wide range of parameter values, we find estimates for the cost of business cycles ranging from 2.03% to 12.7% of gross domestic product. |
| Keywords: | agency problem; welfare; permanent job loss |
| JEL: | E24 E32 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:59429&r=mac |
| By: | Martin Knapp; Tom Snell; Andrew Healey; Sacha Guglani; Sara Evans-Lacko; José-Luis Fernández; Howard Meltzer; Tamsin Ford |
| Abstract: | Background:- Policy and practice guidelines emphasize that responses to children and young people with poor mental health should be tailored to needs, but little is known about the impact on costs. We investigated variations in service-related public sector costs for a nationally representative sample of children in Britain, focusing on the impact of mental health problems. Methods:- Analysis of service uses data and associated costs for 2461 children aged 5–15 from the British Child and Adolescent Mental Health Surveys. Multivariate statistical analyses, including two-part models, examined factors potentially associated with interindividual differences in service use related to emotional or behavioural problems and cost. We categorized service use into primary care, specialist mental health services, frontline education, special education and social care. Results:- Marked interindividual variations in utilization and costs were observed. Impairment, reading attainment, child age, gender and ethnicity, maternal age, parental anxiety and depression, social class, family size and functioning were significantly associated with utilization and/or costs. Conclusions:- Unexplained variation in costs could indicate poor targeting, inequality and inefficiency in the way that mental health, education and social care systems respond to emotional and behavioural problems. |
| Keywords: | psychiatric practice; education; social work; economic evaluation |
| JEL: | E6 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60131&r=mac |
| By: | Alexandre B. Cunha; Emanuel Ornelas |
| Abstract: | We consider an economy where competing political parties alternate in office. Due to rent-seeking motives, incumbents have an incentive to set public expenditures above the socially optimum level. Parties cannot commit to future policies, but they can forge a political compromise where each party curbs excessive spending when in office if they expect future governments to do the same. We find that, if the government cannot manipulate state variables, more intense political competition fosters a compromise that yields better outcomes, potentially even the first best. By contrast, if the government can issue debt, vigorous political competition can render a compromise unsustainable and drive the economy to a low-welfare, high-debt, long-run trap. Our analysis thus suggests a legislative trade-off between restricting political competition and constraining the ability of governments to issue debt. |
| Keywords: | Political turnover; efficient policies; public debt |
| JEL: | E61 E62 H30 H63 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60273&r=mac |
| By: | Dennis Novy; Alan M. Taylor |
| Abstract: | We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of international trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate, this response leads to a bigger contraction in international trade flows than in domestic economic activity. We confront the model with newly-compiled monthly aggregate U.S. import data and industrial production data going back to 1962, and also with disaggregated data back to 1989. Our results suggest a tight link between uncertainty and the cyclical behaviour of international trade. |
| Keywords: | Uncertainty shock; trade collapse; inventory; real options; imports; intermediates |
| JEL: | E3 F1 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60280&r=mac |
| By: | Chiara Criscuolo; Peter N. Gal; Carlo Menon |
| Abstract: | Motivated by the on-going interest of policy makers in the sources of job creation, this paper presents results from a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data (i.e. national business registers or similar sources). It demonstrates that among small and medium sized enterprises (SMEs), young firms play a central role in creating jobs, whereas old SMEs tend to destroy jobs. This pattern holds robustly across 17 OECD countries and Brazil, extending recent evidence found in the United States. The paper also shows that young firms are always net job creators throughout the business cycle, even during the financial crisis. During the crisis, entry and post-entry growth by young firms were affected most heavily, although downsizing by old firms was responsible for most job losses. The results also highlight large cross-country differences in the growth potential of young firms, pointing to the role played by national policies in enabling successful firms to create jobs. |
| Keywords: | Business dynamics; employment growth; small businesses; business demography; startups; great recession; job creation and destruction |
| JEL: | D20 E24 L25 L29 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60286&r=mac |
| By: | Michael Amior; Jonathan Halket |
| Abstract: | Are households more likely to be homeowners when “housing risk” is higher? We show that home-ownership rates and loan-to-value (LTV) ratios at the city level are strongly negatively correlated with local house price volatility. However, causal inference is confounded by house price levels, which are systematically correlated with housing risk in an intuitive way: in cities where the land value is larger relative to the local cost of structures, house prices are higher and more volatile. We disentangle the contributions of high price levels from high volatilities by building a life-cycle model of home-ownership choices. We find that higher price levels can explain most of the lower home-ownership. Higher risk in the model leads to slightly lower home-ownership and LTV ratios in high land value cities. The relationship between LTV and risk is corroborated by LTV's negative correlation with price volatility in the data and highlights the importance of including other means of incomplete insurance in models of home-ownership. |
| Keywords: | home-ownership; housing risk; land share; loan-to-value; life-cycle |
| JEL: | D91 E21 R21 R31 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60635&r=mac |
| By: | Yang Chen (Xi’an Jiaotong - Liverpool University); Juan Carlos Cuestas (University of Sheffield); Paulo José Regis (Xi’an Jiaotong - Liverpool University) |
| Abstract: | Countries in the Asia and Pacific region have shown many macroeconomic similarities such as current account surpluses, exchange rate appreciation, export-oriented economies, growth success, etc. This paper argues that there may be one more macroeconomic feature to add to the list: strong tax convergence. Using data on the statutory corporate tax rate in 15 countries from 1980 to 2014, we identify (i) a significant dynamic tax convergence pattern, and (ii) three tax convergence clubs. The latter consist of the small tax haven economies of Hong Kong and Singapore, the East Asian countries (plus one), and the South and Southeast Asian and Oceania countries. These economies, within groups, have been reducing the tax gaps with their neighbours over time. |
| Keywords: | convergence clubs, tax policy, Asia and Pacific region |
| JEL: | C22 E62 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2015003&r=mac |
| By: | Mark Setterfield (Department of Economics, New School for Social Research) |
| Abstract: | A Kaleckian growth model is modified to incorporate working households who borrow to finance some part of their consumption spending. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of increased income inequality in the US. The results show that the precise manner in which debtor households service their debts has important effects on the economy’s macrodynamics. |
| Keywords: | Consumer debt, emulation, income distribution, Golden Age growth regime, Neoliberal growth regime |
| JEL: | E12 E44 O41 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1403&r=mac |
| By: | Mariano Kulish (School of Economics, Australian School of Business, the University of New South Wales); James Morley (School of Economics, Australian School of Business, the University of New South Wales); Tim Robinson (Melbourne Institute of Applied Economics and Social Research, University of Melbourne) |
| Abstract: | Motivated by the use of forward guidance, we propose a method to estimate DSGE models in which the central bank holds the policy rate fixed for an extended period. Private agents’ beliefs about how long the fixed-rate regime will last influences, among other observable variables, current output, inflation and interest rates of longer maturities. We estimate the shadow policy rate and construct counterfactual scenarios to quantify the severity of the zero lower bound constraint. Using the Smets and Wouters (2007) model, we find that the expected duration of the zero interest rate policy has been around 2 years, that the shadow rate has been around -3 per cent and that the zero lower bound has imposed a significant output loss. |
| Keywords: | zero lower bound, forward guidance |
| JEL: | E52 E58 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2014-32a&r=mac |
| By: | Yuelin Liu (School of Economics, Australian School of Business, the University of New South Wales) |
| Abstract: | How Structural Is Unemployment in the United States? |
| Keywords: | Aggregate matching efficiency, Mismatch, Structural unemployment, Timevarying parameter vector autoregression (TVP-VAR) |
| JEL: | C11 E24 E32 E37 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2014-42&r=mac |
| By: | Liang Wang (University of Hawaii at Manoa) |
| Abstract: | This paper studies the welfare cost of inflation in a frictional monetary economy with endogenous price dispersion, which is generated by sellers posting prices and buyers costly searching for low prices. We identify three channels through which inflation affects welfare. The interaction of real balance channel and price posting channel generates a welfare cost, at 10% annual inflation, equal to 3.23% of steady state consumption; if either channel is shut down, the welfare cost decreases to less than 0.15%. Search channel reduces welfare cost by more than 50%. The aggregate effect of inflation on welfare is nonmonotonic. |
| Keywords: | Nash Bargaining, Competitive Search, Indivisibility, Multiplicity, Uniqueness |
| JEL: | D51 E40 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201429&r=mac |
| By: | Armagan Tuna Aktuna-Gunes (Centre d'Economie de la Sorbonne - Paris School of Economics); François Gardes (Centre d'Economie de la Sorbonne - Paris School of Economics); Christophe Starzec (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | In this article, the size of informal economy is measured by using the full price method proposed by Gardes F. (2014). As an extension of this method, price elasticities are re-estimated by integrating the underreported earning shares both for wage workers and self-employers from cross-sectional data covering 2003-2006 in Turkey. The contribution of this paper is threefold: The size of informal economy is estimated by a statistical matching of the Turkish Family Budget and Time Use surveys through a complete demand system including full prices. Second, more accurate price and income elasticities are estimated by using the monetary incomes from informal activities for an emerging economy such as Turkey. Third, extended full price estimation of demand elasticities allow us to discover for which consumption group households are more likely to engage in informal work. |
| Keywords: | Informal economy, complete demand system, full prices, demand elasticity. |
| JEL: | E26 D1 D12 J22 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:14088&r=mac |
| By: | Juraj Stan?ík (European Commission – JRC - IPTS); Ibrahim Kholilul Rohman (European Commission – JRC - IPTS) |
| Abstract: | The report provides a detailed analysis of the state of public expenditure on Information and Communication Technologies (ICT) Research and Development (R&D) in the European Union (EU). We also provide an interim assessment of the extent to which the Digital Agenda target about doubling public ICT R&D expenditures has been achieved. Furthermore, besides focusing on the EU, we compare these expenditures with public expenditures on ICT R&D in the EU’s main counterpart, the United States of America (US). Our analysis, covering the period 2006-2011, shows that EU ICT R&D public funding has been steadily growing. In 2011, it reached €6.1 billion which represented 6.6% of the whole public R&D funding. Regarding the comparison with the US, we conclude that the US government devotes more ICT R&D funds than all the EU Member States governments together but this gap has been shrinking and during the period 2006-2011 it decreased by 50%. |
| Keywords: | ICT; information and communication technologies; innovation; R&D; NABS; GBAORD; public funding; ICT R&D; EU; the US |
| JEL: | E61 H50 O32 O52 R12 R28 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc92883&r=mac |
| By: | Bauer, Michael D. (Federal Reserve Bank of San Francisco); Rudebusch, Glenn D. (Federal Reserve Bank of San Francisco) |
| Abstract: | Previous macro-finance term structure models (MTSMs) imply that macroeconomic state variables are spanned by (i.e., perfectly correlated with) model-implied bond yields. However, this theoretical implication appears inconsistent with regressions showing that much macroeconomic variation is unspanned and that the unspanned variation helps forecast excess bond returns and future macroeconomic fluctuations. We resolve this contradiction—or “spanning puzzle”—by reconciling spanned MTSMs with the regression evidence, thus salvaging the previous macro-finance literature. Furthermore, we statistically reject “unspanned” MTSMs, which are an alternative resolution of the spanning puzzle, and show that their knife-edge restrictions are economically unimportant for determining term premia. |
| Keywords: | yield curve; term structure models; macro-finance; unspanned macro risks; monetary policy |
| JEL: | E43 E44 E52 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2015-01&r=mac |
| By: | Peng, Yuchao; Yan, Lili |
| Abstract: | This paper builds a banking DSGE model based on endogenous loan to value ratios, taking the different relationship between different types of enterprises and banks into account. Due to the political connections between the bank and enterprises, loan to value ratio for favored enterprises (e.g. state-owned enterprises) is endogenously higher than that for non-favored enterprises (e.g. private enterprises), which is called discriminatory credit constraint in this paper. Compared to non-discriminatory credit constraint, we find that discriminatory credit constraint can further amplify the impact of negative technology shocks on output, and reduce the effectiveness of expansionary monetary policy. Empirical evidence from China industrial firms’ data supports our conclusion. |
| Keywords: | Discriminatory Credit Constraint, Political Connections, Financial Accelerator |
| JEL: | E32 E52 G21 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61439&r=mac |
| By: | Auer, Raphael |
| Abstract: | Import competition from China is pervasive in the sense that for many good categories, the competitive environment that US firms face in these markets is strongly driven by the prices of Chinese imports, and so is their pricing decision. This paper quantifies the effect of the government-controlled appreciation of the Chinese renminbi vis-à-vis the USD from 2005 to 2008 on the prices charged by US domestic producers. In a panel spanning the period from 1994 to 2010 and including up to 519 manufacturing sectors, import price changes of Chinese goods pass into US producer prices at an average rate of 0.7, while import price changes that can be traced back to exchange rate movements of other trade partners only have mild effects on US prices. Further analysis points to the importance of trade integration, variable markups, and demand complementarities on the one side, and to the importance of imported intermediate goods on the other side as drivers of these patterns. Simulations incorporating these microeconomic findings reveal that a substantial revaluation of the renminbi would result in a pronounced increase of aggregate US producer price inflation. |
| Keywords: | China; exchange rate pass-through; inflation; monetary policy; price complementarities |
| JEL: | E31 E37 F11 F12 F14 F15 F16 F40 L16 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10344&r=mac |
| By: | Alesina, Alberto F; Barbiero, Omar; Favero, Carlo A.; Giavazzi, Francesco; Paradisi, Matteo |
| 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. |
| Keywords: | confidence; fiscal adjustment; investment |
| JEL: | C51 C53 E62 H60 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10347&r=mac |
| By: | Canzoneri, Matthew B; Collard, Fabrice; Dellas, Harris; Diba, Behzad |
| Abstract: | The Great Recession, and the fiscal response to it, has revived interest in the size of fiscal multipliers. Standard business cycle models have difficulties generating multipliers greater than one. And they also cannot produce any significant state-dependence in the size of the multipliers over the business cycle. In this paper we employ a variant of the Curdia-Woodford model of costly financial intermediation and show that fiscal multipliers can be strongly state dependent in a countercyclical manner. In particular, a fiscal expansion during a recession may lead to multiplier values exceeding two, while a similar expansion during an economic boom would produce multipliers falling short of unity. This pattern obtains if the spread (the financial friction) is more sensitive to fiscal policy during recessions than during expansions, a feature that is present in the data. Our results are consistent with recent empirical work documenting the state contingency of multipliers. |
| Keywords: | cyclicality; financial frictions; government spending multipliers |
| JEL: | E32 E62 H3 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10353&r=mac |
| By: | Fratzscher, Marcel; Rieth, Malte |
| Abstract: | The paper analyses the empirical relationship between bank risk and sovereign credit risk in the euro area. Using structural VAR with daily financial markets data for 2003-13, the analysis confirms two-way causality between shocks to sovereign risk and bank risk, with the former being overall more important in explaining bank risk, than vice versa. The paper focuses specifically on the impact of non-standard monetary policy measures by the European Central Bank and on the effects of bank bailout policies by national governments. Testing specific hypotheses formulated in the literature, we find that bank bailout policies have reduced solvency risk in the banking sector, but partly at the expense of raising the credit risk of sovereigns. By contrast, monetary policy was in most, but not all cases effective in lowering credit risk among both sovereigns and banks. Finally, we find spillover effects in particular from sovereigns in the euro area periphery to the core countries. |
| Keywords: | bank bailout; banks; credit risk; heteroscedasticity; monetary policy; sovereigns; spillovers |
| JEL: | E52 E60 G10 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10370&r=mac |
| By: | Landier, Augustin; Sraer, David; Thesmar, David |
| Abstract: | We show that banks' cash flow exposure to interest rate risk, or income gap, plays a crucial role in their lending behavior following monetary policy shocks. In a first step, we show that the sensitivity of bank profits to interest rates increases significantly with their income gap, even when banks use interest rate derivatives. In a second step, we show that the income gap also predicts the sensitivity of bank lending to interest rates, both for commercial & industrial loans and for mortgages. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile. We conclude that banks' exposure to interest rate risk is an important determinant of the bank-level intensity of the lending channel. |
| Keywords: | bank lending; interest rate risk; monetary policy |
| JEL: | E44 E52 G21 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10300&r=mac |
| By: | Bacchetta, Philippe; Benhima, Kenza; Poilly, Céline |
| Abstract: | In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash in their production process and where financial shocks are made of both credit and liquidity shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. With a calibrated version of the model, the model yields a negative comovement that is close to the data. |
| Keywords: | financial shocks; liquidity; working capital |
| JEL: | E24 E44 G32 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10309&r=mac |