nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒02‒22
128 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Bringing Financial Stability into Monetary Policy By Eric Leeper; James Nason
  2. Financial frictions and the volatility of monetary policy in a DSGE model By Anh Nguyen
  3. The Macroeconomic Impact of Unconventional Monetary Policy Shocks By Tillmann, Peter; Meinusch, Annette
  4. Business Confidence and Macroeconomic Dynamics in a Nonlinear Two-Country Framework with Aggregate Opinion Dynamics By Matthieu Charpe; Carl Chiarella; Peter Flaschel; Christian R. Proaño
  5. The Macroeconomic Effects of Government Spending Under Fiscal Foresight By Charl Jooste; Ruthira Naraidoo
  6. Optimal monetary policy, asset purchases, and credit market frictions By Schabert, Andreas
  7. Dynamics of Monetary-Fiscal Interaction under Learning By Hollmayr, Josef; Matthes, Christian
  8. Credit-Driven Investment, Heterogeneous Labor Markets and Macroeconomic Dynamics By Matthieu Charpe; Peter Flaschel; Hans-Martin Krolzig; Christian Proaño; Willi Semmler; Daniele Tavani
  9. The Chicago Plan Revisited By Kumhof, Michael; Benes, Jaromir
  10. Analysis of Monetary Policy Responses after Financial Market Crises in a Continuous Time New Keynesian Model By Niehof, Britta; Hayo, Bernd
  11. The agent-based solow growth model with endogenous business cycles By Stolzenburg, Ulrich
  12. TFP and the Transmission of Shocks By Rüth, Sebastian; Mayer, Eric; Scharler, Johann
  13. Designing a Simple Loss Function for the Fed: Does the Dual Mandate Make Sense? By Debortoli, Davide; Kim, Jinill; Lindé, Jesper; Nunes, Ricardo
  14. Fiscal Policy Stance Reaction to the Financial/Economic Crisis in the EMU: The Case of Slovenia By Mencinger, Jernej; Aristovnik, Aleksander
  15. Monetary Policy with Diverse Private Expectations By Mordecai Kurz; Maurizio Motolese; Giulia Piccillo; Howei Wu
  16. Subprime borrowers, securitization and the transmission of business cycles By Grodecka, Anna
  17. Does the foreign interest rate matter for monetary policy? Evidence from nonlinear Taylor rules By Belke, Ansgar; Beckmann, Joscha; Dreger, Christian
  18. Bubbles and Crowding-in of Capital via a Savings Glut By Hillebrand, Marten; Kikuchi, Tomoo; Sakuragawa, Masaya
  19. Optimal Monetary Policy with Learning by Doing By Chris Redl
  20. How Large Is the Stress from the Common Monetary Policy in the Euro Area? By Quint, Dominic
  21. Getting into GEAR: German and the Rest of Euro Area Fiscal Policy During the Crisis By Stähler, Nikolai; Gadatsch, Niklas; Hauzenberger, Klemens
  22. Collateral, liquidity and debt sustainability By Niemann, Stefan; Pichler, Paul
  23. Relative Prices and Inflation Stabilisation By Kosuke Aoki
  24. Small fiscal multipliers do not justify austerity: a macroeconomic accounting analysis of public debt-to-gdp dynamics By Garbellini, Nadia
  25. Does austerity pay off? By Born, Benjamin; Müller, Gernot; Pfeifer, Johannes
  26. A money-based indicator for deflation risk By Colavecchio, Roberta; Amisano, Gianni; Fagan, Gabriel
  27. Analysis of Various Shocks within the High-Frequency Versions of the Baseline New-Keynesian Model By Sacht, Stephen
  28. Layoff Taxes, Unemployment Insurance, and Business Cycle Fluctuations By Steffen Ahrens; Nooshin Nejati; Philipp L. Pfeiffer
  29. Cyclical Asset Returns in the Consumption and Investment Goods Sector By Burkhard Heer, Burkhard; Maußner, Alfred; Süssmuth, Bernd
  30. Asset bubbles and sudden stops in a small open economy By Alberto Martin; Jaume Ventura
  31. Product Scope and Endogenous Fluctuations By Mark Weder
  32. Sectoral effects of monetary policy shock: evidence from India By Singh, Sunny Kumar; Rao, D. Tripati
  33. Downward Real Wage Rigidity and Equal Treatment Wage Contracts: Evidence from Germany By Stüber, Heiko; Snell, Andy
  34. Forecasting in a DSGE Model with Banking Intermediation: Evidence from the US By Roberta Cardani; Alessia Paccagnini; Stefania Villa
  35. Heterogeneous Expectations, Optimal Monetary Policy, and the Merit of Policy Inertia By Gasteiger, Emanuel
  36. The International Transmission of Credit Bubbles: Theory and Policy By Martin, Alberto; Ventura, Jaume
  37. Robots Are Us: Some Economics of Human Replacement By Seth G. Benzell; Laurence J. Kotlikoff; Guillermo LaGarda; Jeffrey D. Sachs
  38. Debt Overhang and Monetary Policy By James Bullard; Jacek Suda; Aarti Singh; Costas Azariadis
  39. Optimal currency area and business cycle synchronization across U.S. states. By Aguiar-Conraria, Luis; Brinca, Pedro; Gudjonsson, Haukur; Soares, Joana
  40. Global Sunspots and Asset Prices in a Monetary Economy By Farmer, Roger E A
  41. Policy Paradoxes in the New-Keynesian Model By Michael Kiley
  42. Fluctuations of the Real Exchange Rate, Real Interest Rates, and the Dynamics of the Price of Gold in a Small Open Economy By Rohloff, Sebastian; Pierdzioch, Christian; Risse, Marian
  43. Government Forecasts of Budget Balances Under Asymmetric By Rülke, Jan-Christoph; Pierdzioch, Christian
  44. Corporate Cash Hoarding Decomposed into Liquidity and Risk Motives By Mazelis, Falk
  45. Asset Pricing without Garbage By Kroencke, Tim Alexander
  46. Designing a Simple Loss Function for the Fed: Does the Dual Mandate Make Sense? By Ricardo Nunes; Jinill Kim; Jesper Linde; Davide Debortoli
  47. Can demography affect inflation and monetary policy? By Mikael Juselius; Előd Takáts
  48. Inflation Targeting, Price-Level Targeting, the Zero Lower Bound, and Indeterminacy By Steve Ambler; Jean-Paul Lam
  49. Decomposing Risk in Dynamic Stochastic General Equilibrium By Lan, Hong; Meyer-Gohde, Alexander
  50. A Wavelet Approach to Synchronization of Output Cycles By Esser, Andreas
  51. The Fiscal Multiplier and Economic Policy Analysis in the United States: Working Paper 2015-02 By Felix Reichling; Charles Whalen
  52. Ambiguity and the historical equity premium. By Fabrice Collard; Sujoy Mukerji; Kevin Sheppard; Jean-Marc Tallon
  53. Optimum Currency Areas, Real and Nominal Convergence in the European Union By João Sousa Andrade; António Portugal Duarte
  54. Revisiting the Narrative Approach of Estimating Fiscal Multipliers By Hebous, Shafik; Zimmermann, Tom
  55. Time Use During The Great Recession: Comment. By Anil Alpman; François Gardes
  56. The franc shock and Swiss GDP: How long does it take to start feeling the pain? By Boriss Siliverstovs
  57. Monetary policy, bank bailouts and the sovereign-bank risk nexus in the euro area By Rieth, Malte; Fratzscher, Marcel
  58. Are You a Lehman, Brother? Interbank Uncertainty in a DSGE Model By Grimme, Christian; Siemsen, Thomas
  59. Price Competition in an Inflationary Environment By Dürsch, Peter; Eife, Thomas
  60. How risky is college investment? By Hendricks, Lutz; Leukhina, Oksana
  61. Overaccumulation, Public Debt, and the Importance of Land By Homburg, Stefan
  62. Pacific Economic Monitor (July 2014) By Asian Development Bank (ADB); ; ;
  63. Interest Rates and Structural Shocks in European Transition Economies By Mirdala, Rajmund
  64. Ireland: Second Post-Program Monitoring Discussions; Staff Report; and Press Release By International Monetary Fund. European Dept.
  65. Forecasting German key macroeconomic variables using large dataset methods By Pirschel, Inske; Wolters, Maik
  66. Debt-driven growth? Wealth, distribution and demand in OECD countries By Stockhammer, Engelbert; Wildauer, Rafael
  67. Bubbles and Monetary Policy: To Burst or not to Burst? By Philipp König; David Pothier
  68. Optimal Income Taxation with Asset Accumulation By Köhne, Sebastian; Abraham, Arpad; Pavoni, Nicola
  69. Optimal Income Taxation: Mirrlees Meets Ramsey By Heathcote, Jonathan; Tsujiyama, Hitoshi
  70. A Feasible Unemployment-Based Shock Absorber for the Euro Area By Brandolini, Andrea; Carta, Francesca; D'Amuri, Francesco
  71. Finding SPF Percentiles Closest to Greenbook By Tae-Hwy Lee; Yiyao Wang
  72. A New Data Set of Quarterly Total Factor Productivity in the Canadian Business Sector By Shutao Cao; Sharon Kozicki
  73. How are firms affected by exchange rate shocks? Evidence from survey based impulse responses By Dirk Drechsel; Heiner Mikosch; Samad Sarferaz; Matthias Bannert
  74. News Shocks in Open Economies: Evidence from Giant Oil Discoveries By Rabah Arezki; Valerie A. Ramey; Liugang Sheng
  75. A Model of Mortgage Losses and its Applications for Macroprudential Instruments By Hott, Christian
  76. Nowcasting Scottish GDP growth By Grant Allan; Gary Koop; Stuart McIntyre; Paul Smith
  77. Seven Principles for Managing Resource Wealth By Samuel Wills
  78. Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Jobseekers By Hall, Robert E.; Schulhofer-Wohl, Sam
  79. Going from a low to a high employment equilibrium By Marc Lavoie; Eckhard Hein
  80. Taxes, Natural Resource Endowment, and the Supply of Labor: New Evidence By Razzak, Weshah; Laabas, Belkacem
  81. MIDAS regressions with time-varying parameters: An application to corporate bond spreads and GDP in the Euro area By Schumacher, Christian
  82. The use of key indicators to assess Latin America’s long-term economic performance By Garry, Stefanie; Villarreal, Francisco G.
  83. The Norwegian productivity puzzle – not so puzzling after all? By Thomas von Brasch
  84. The Labor Market Effects of Skill-biased Technological Change in Malaysia By Mohamed Ali Marouani; Björn Nilsson
  85. The financial economics of sovereign asset value: functional perspectives and market outcomes By Posch, Peter N; Bowden, Roger J; Kalteier, Eva-Maria
  86. Model Pooling and Changes in the Informational Content of Predictors: an Empirical Investigation for the Euro Area By Tim Schwarzmüller
  87. Canada: Selected Issues By International Monetary Fund. Western Hemisphere Dept.
  88. Capire la deflazione By Enrico Colombatto
  89. Transitional Dynamics and Long-Run Optimal Taxation under Incomplete Markets By Omer Acikgoz
  90. The Impact of Arab Spring on Hiring and Separation Rates in the Tunisian Labour Market By Haouas, Ilham; Heshmati, Almas
  91. Schwache Unternehmensinvestitionen in Deutschland? Diagnose und Therapie By Bardt, Hubertus; Grömling, Michael; Hüther, Michael
  92. Transcript of a hearing before members of the House of Lords (UK) in Frankfurt on genuine economic and monetary union and its implication for the UK By Issing, Otmar; Krahnen, Jan Pieter
  93. The Greek saga: competing explanations of the Greek crisis By Mavroudeas, Stavros D.
  94. Nowcasting Scottish GDP Growth By Grant Allan; Gary Koop; Stuart McIntyre; Paul Smith
  95. The fungibility of health aid reconsidered By Nicolas Van de Sijpe
  96. Montenegro: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Montenegro By International Monetary Fund. European Dept.
  97. A Dynamic North-South Model of Demand-Induced Product Cycles By Foellmi, Reto; Hanslin, Sandra; Kohler, Andreas
  98. What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks By Simon Mongey; Gianluca Violante; Alessandro Gavazza
  99. A DMP Model of Intercity Trade By Yannis M. Ioannides
  100. Small sample performance of indirect inference on DSGE models By Le, Vo Phuong Mai; Meenagh, David; Minford, Patrick; Wickens, Michael R.
  101. Elasticity of Substitution between Clean and Dirty Energy Inputs - A Macroeconomic Perspective By Saam, Marianne; Papageorgiou, Chris; Schulte, Patrick
  102. Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model By Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
  103. Modeling Growth, Distribution, and the Environment in a Stock-Flow Consistent Framework By Asjad Naqvi
  104. The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule By Beckmann, Joscha; Belke, Ansgar; Dreger, Christian
  105. The Challenge of Restoring Debt Sustainability in a Deep Economic Recession: The case of Greece By Theodore,Panagiotidis;Panagiotis,Printzis
  106. On the role of the ECB's collateral framework in preventing fire sales By Podlich, Natalia
  107. Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies By Ambrogio Cesa-Bianchi; Luis Felipe Cespedes; Alessandro Rebucci
  108. Economic Shocs and Internal Migration By Joan Monras
  109. Absence Of Interbank Loan Market And Banking Short-Term Liquidity Management Mechanisms: The Most Pressing Problems Of The Islamic Finance Model By Magomet Yandiev
  110. Stock Market Volatility and Learning By Adam, Klaus; Marcet, Albert; Nicolini, Juan Pablo
  111. Does Money Impede Convergence? By John D Hey; Daniela Di Cagno
  112. The Budget and Economic Outlook: 2015 to 2025 By Congressional Budget Office
  113. Essentials of Constructive Heterodoxy: Aggregate Demand By Kakarot-Handtke, Egmont
  114. Fraudulent Income Overstatement on Mortgage Applications during the Credit Expansion of 2002 to 2005 By Atif R. Mian; Amir Sufi
  115. Regional aspects of aggregate profitability dynamics in Italy By Silvia Domeneghetti; Andrea Vaona
  116. Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages By Andy Feng; Georg Graetz
  117. Liquidity and growth: the role of counter-cyclical interest rates By Philippe Aghion; Emmanuel Farhi; Enisse Kharroubi
  118. Selection, Trade, and Employment: the Strategic Use of Subsidies By Hassan Molana; Catia Montagna
  119. A Network View on Interbank Market Freezes By Silvia Gabrieli and Co-Pierre Georg
  120. L’économie politique de la finance et de la production: cas des pays de la Tunisie, du Maroc et de la Mauritanie By ziadi, Azza
  121. Stock-Flow Dynamic Projection By LI, XI HAO; Gallegati, Mauro
  122. Factor based identification-robust inference in IV regressions By Kapetanios, George; Khalaf, Lynda; Marcellino, Massimiliano
  123. How well do we understand sovereign debt crisis? Evidence from Latin America By Ludwig, Maximilian
  124. A Detailed Analysis of Productivity Trends in the Canadian Forest Products Sector By Ricardo de Avillez
  125. Technology and the Changing Family: A Unified Model of Marriage, Divorce, Educational Attainment and Married Female Labor-Force Participation By Greenwood, Jeremy; Guner, Nezih; Kocharkov, Georgi; Santos, Cezar
  126. Collaborative Research and Rate of Interests By Chatterjee, Rittwik; Chattopadhyay, Srobonti
  127. When Trade Leads to Inefficient Public Good Provision: a Tax competition model. By Emmanuelle Taugourdeau; Abderrahmane Ziad
  128. Input-output-based genuine value added and genuine productivity in China's industrial sectors (1995-2010) By Gao, Yuning; Zheng, Yunfeng; Hu, Angang; Meng, Bo

  1. By: Eric Leeper (Indiana University); James Nason (North Carolina State University)
    Keywords: Financial frictions, incomplete markets, crises, new Keynesian, natural rate, monetary transmission mechanism
    JEL: E3 E4 E5 E6 G2 N12
    Date: 2014–11
  2. By: Anh Nguyen
    Abstract: The paper investigates the impacts of the volatility of monetary policy on the economy in a DSGE model with financial frictions a la Bernanke, Gertler, and Gilchrist (1999). The model is estimated by the particle filter maximum likelihood estimator for the U.S. economy. Our results first show that a positive monetary volatility shock causes a contraction in economic activity: output, consumption, investment, hours, and real wages fall. Second, we argue that financial frictions amplify the effects of the shock via the financial accelerator mechanism. Third, we document that the size of the effects of the shock is relatively small mostly because of the counteracting response of monetary policy to the shock. Therefore, the impacts would be substantial if monetary policy was restrained to respond to changes in current conditions in the economy.
    Keywords: DSGE models, financial accelerator, Taylor rule, monetary policy, stochastic volatility, particle filter, higher-order approximations, policy uncertainty
    JEL: E32 E44 E52 C13
    Date: 2015
  3. By: Tillmann, Peter; Meinusch, Annette
    Abstract: With the Federal Funds rate approaching the zero lower bound, the U.S. Federal Reserve adopted a range of unconventional monetary policy measures known as Quantitative Easing (QE). Quantifying the impact QE has on the real economy, however, is not straightforward as standard tools such as VAR models cannot easily be applied. In this paper we use the Qual VAR model (Dueker, 2005) to combine binary information about QE announcements with an otherwise standard monetary policy VAR. The model filters an unobservable propensity to QE out of the observable data and delivers impulse responses to a QE shocks. In contrast to other empirical approaches, QE is endogenously depending on the business cycle, can easily be studied in terms of unexpected policy shocks and its dynamic effects can be compared to a conventional monetary easing. We show that QE shocks have a large impact on real and nominal interest rates and financial conditions and a smaller impact on real activity.
    JEL: E32 E44 E52
    Date: 2014
  4. By: Matthieu Charpe (International Labor Organization); Carl Chiarella (University of Technology Sydney); Peter Flaschel (Bielefeld University); Christian R. Proaño (Department of Economics, New School for Social Research)
    Abstract: The main objective of the present paper is to investigate explicitly the role of the state of confidence for the macroeconomic dynamics of two interacting economies using the opinion dy- namics approach by Weidlich and Haag (1983) and Lux (1995). Particularly, the overall state of confidence in the world (two-country) economy plays not only for the dynamics of the nominal ex- change rate but also for the dynamics of the real economy through the determination of aggregate investment. This novel feature allows us to consider far richer international macroeconomic inter- actions than most standard models. Further, it features wage-price dynamics that interact with output and employment fluctuations – leading to a Goodwin (1967)-type of distributive cycle –, as well as debt dynamics due to a credit-financed investment behavior. The resulting framework is both advanced as well as flexible enough to generate various types of persistent fluctuations, and also complex dynamics.
    Keywords: Macroeconomic (In-)Stability, Business Cycles, Opinion Dynamics, FX Markets
    JEL: E12 E24 E31 E52
    Date: 2014–08
  5. By: Charl Jooste (Department of Economics, University of Pretoria); Ruthira Naraidoo (Department of Economics, University of Pretoria)
    Abstract: Consumption and output responses to fiscal shocks are studied in a model with fiscal foresight. Fiscal foresight reduces both output multipliers and consumption. However, key features such as sticky wages, credit constrained households and elastic labour supply, are able to generate both sizeable output multipliers and positive consumption - in effect preserving key Keynesian effects. This model fits a developing economy like South Africa well since it is able to capture transparent communication of government as well as control for credit constrained consumption and sticky wages.
    Keywords: General equilibrium, fiscal spending, foresight
    JEL: E12 E32 E62 H30 H31
    Date: 2015–02
  6. By: Schabert, Andreas
    Abstract: We examine how borrowing constraints affect monetary transmission and the trade-off of a welfare maximizing central bank. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as borrowing is constrained by available collateral, while the distortion is amplified under higher nominal interest rates. We show that the central bank cannot implement first best and that optimal monetary policy mainly aims at stabilizing prices. We further demonstrate that central bank purchases of loans can alleviate the borrowing constraint and enhance social welfare.
    JEL: E44 E52 E32
    Date: 2014
  7. By: Hollmayr, Josef; Matthes, Christian
    Abstract: The interaction between monetary and fiscal policy and the associated uncertainty about this interaction have been put on center stage by the recent financial crisis and the associated recession. In our model agents learn about both fiscal and monetary policy rules via the Kalman Filter. In particular, we study how an economy populated with agents acting as econometricians reacts to discrete changes in the actual policy rules.
    JEL: E32 D83 E62
    Date: 2014
  8. By: Matthieu Charpe (International Labor Organization); Peter Flaschel (Bielefeld University); Hans-Martin Krolzig (Kent University); Christian Proaño (Department of Economics, New School for Social Research); Willi Semmler (Department of Economics, New School for Social Research); Daniele Tavani (Colorado State University)
    Abstract: In this paper we set up a baseline, but nevertheless advanced and complete model rep-resenting detailed goods market dynamics, heterogeneous labor markets, dual and cross-dual wage-price adjustment processes, as well as counter-cyclical government policies. The cyclical movements of output generates, through Okun's law, employment variations in the heterogeneous labor market. The core of the resulting Keynesian macrodynamics is however given by credit-financed investment behavior and loan-rate setting by credit suppliers. The framework is constructed in such way that simplied, lower dimensional versions of the model can be obtained by setting parameters describing specific feedback effects from one sector to another equal to zero. Starting from such low dimensional sub-dynamics, we show the local stability of the full 7D model through a "cascade of stable matrices" approach if the feedback chains are sufficiently tranquil in their trans-mission mechanisms. However, local stability is the point of departure for the numerical investigation of local explosiveness and the forces that can bound such a behavior.
    Keywords: Macroeconomic (In-)Stability, Segmented Labor Markets,Business Cycles, Fiscal and Monetary Policy Rules
    JEL: E12 E24 E31 E52
    Date: 2013–03
  9. By: Kumhof, Michael; Benes, Jaromir
    Abstract: At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.
    JEL: E44 E52 G21
    Date: 2014
  10. By: Niehof, Britta; Hayo, Bernd
    Abstract: We develop a dynamic stochastic full equilibrium New Keynesian model of two open economies based on stochastic differential equations to analyse the interdependence between monetary policy and financial markets in the context of the recent financial crisis. The effect of bubbles on stock and housing markets and their transmission to the domestic real economy and the contagious effects on foreign markets are studied. We simulate adjustment paths for the economies under two monetary policy rules: an open-economy Taylor rule and a modified Taylor rule, which takes into account stabilisation of financial markets as a monetary policy objective. We find that for the price of a strong hike in inflation a severe economic recession can be avoided under the modified rule. Using Bayesian estimation techniques, we calibrate the model to the case of the United States and Canada and find that the resulting
    JEL: C02 E44 F41
    Date: 2014
  11. By: Stolzenburg, Ulrich
    Abstract: This article describes a simulated monetary macro model with different types of interacting agents. As such, it is assigned to the field of agent-based computational economics (ACE), where agents become virtual objects in a computer simulation. The ACE model core with labor market and goods market interaction between households and firms is adopted from Lengnick (2013), whereas production technology and technological progress of firms are adopted from the neoclassical Solow (1956) model. Nominal interest rates are set in accordance with the Taylor (1993) principle, characterized by strong responses of monetary policy to deviations from inflation target. Although inflation desirably follows lagged output in a pro-cyclical manner, the dynamic system allows for long-run stability of inflation rates. Firms on aggregate level endogenously generate waves of higher and lower investment. A recurrent cyclical movement of aggregate economic activity, in particular demand, employment and inflation, is transmitted from these waves of investment activity. Cyclical patterns of boom and bust emerge with a frequency of approximately seven years just like Juglar-type cycles. Moreover, the model generates a short-run Phillips-curve relationship, long-run neutrality of monetary policy and business cycle patterns similar to the Goodwin (1967) model. Fiscal stabilization policy is shown to dampen macroeconomic fluctuations, thus allowing for a higher level of average employment. Calibration of model parameters is conducted to generate realistic orders of magnitude of important macroeconomic proportions. The newly developed model is a combination of ideas from different economic perspectives and contributes to macroeconomic model-building under the paradigm of agent-based computational economics.
    Keywords: Agent-Based Computational Economics,Demand-Led Economic Growth,Solow-Swan,Monetary Policy,Phillips Curve,Stabilization Policy
    Date: 2015
  12. By: Rüth, Sebastian; Mayer, Eric; Scharler, Johann
    Abstract: We show that TFP reacts counter-cyclically to macroeconomic shocks, which we identify by imposing sign restrictions. Counterfactual simulations, based on a New Keynesian DSGE model, show that firms manage to employ labor more efficiently during downturns, which leads to a muted drop in the output gap as long as the recession is not deep enough to make the zero lower bound on the nominal interest rate binding. If the economy hits the zero lower bound, the reductions in both, employment and output gap, are stronger when we allow TFP to depend on the state of the business cycle.
    JEL: E32 E40 E50
    Date: 2014
  13. By: Debortoli, Davide; Kim, Jinill; Lindé, Jesper; Nunes, Ricardo
    Abstract: Yes, it makes a lot of sense. Using the Smets and Wouters (2007) model of the U.S. economy, we find that the role of the output gap should be equal to or even more important than that of inflation when designing a simple loss function to represent household welfare. Moreover, we document that a loss function with nominal wage inflation and the hours gap provides an even better approximation of the true welfare function than a standard objective based on inflation and the output gap. Our results hold up when we introduce interest rate smoothing in the simple mandate to capture the observed gradualism in policy behavior and to ensure that the probability of the federal funds rate hitting the zero lower bound is negligible.
    Keywords: central banks' objectives; household welfare; linear-quadratic approximation; monetary policy design; simple loss function; Smets-Wouters model
    JEL: C32 E58 E61
    Date: 2015–02
  14. By: Mencinger, Jernej; Aristovnik, Aleksander
    Abstract: The article evaluates the current economic crisis’ impact on changes in the adoption of fiscal policy measures for 16 euro-area countries in the 2004–2012 period and compares those changes with fiscal policy measures introduced in Slovenia. In general, the results suggest that the adopted fiscal policy measures in most euro-area countries were more expansionary in the period before the current economic crisis started. The evaluation of the fiscal stance in Slovenia suggests expansionary and pro-cyclical fiscal behaviour during the 2005–2008 period, whereas the response of the fiscal authorities in Slovenia in 2011 and 2012 due to fiscal consolidation was more restrictive and pro-cyclical. Finally, we emphasize that inconsistent fiscal policy without structural reforms also being carried out may lead to a further deterioration of the fiscal position and macroeconomic situation of euro-area countries, including during a period of cyclical recovery.
    Keywords: fiscal stance, economic crisis, cyclical adjusted balance, output gap, EMU, Slovenia
    JEL: E60 E62
    Date: 2014–12
  15. By: Mordecai Kurz; Maurizio Motolese (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Giulia Piccillo; Howei Wu
    Abstract: We study the impact of diverse beliefs on conduct of monetary policy. Individual belief is modeled by a state variable that defines an individual’s perceived laws of motion. We use a New Keynesian Model that is solved with a quadratic approximation hence individual decisions are quadratic functions. Aggregation renders the belief distribution an aggregate state variable. Although the model has standard technology and policy shocks, diverse expectations change materially standard results about a smooth trade-off between inflation volatility and output volatility. Our main results are summed up as follows: (i) The policy space contains a curve of singularity which is a collection of policy parameters that divides the space into two sub-regions. Some trade-off between output and inflation volatilities exists within each region and some across regions. (ii) The singularity causes volatility of variables to be non monotone in policy parameters. Policymakers cannot assume a more aggressive policy will change outcomes in a predictable manner. (iii) When beliefs are diverse a central bank must also consider the volatility of individual consumption and the related volatility of financial markets. We show aggressive anti-inflation policy increases consumption volatility and aggressive output stabilization policy entails rising inflation volatility. Efficient central bank policy must therefore be moderate. (iv) High optimism about the future typically lowers aggregate output and increases inflation. This “stagflation” effect is stronger the stickier prices are. Policy response is muted since the effects of higher inflation and lower output on interest rates partially cancel each other. Effective policy requires targeting exuberance directly or its effects in asset markets. Central banks already do so with short term interventions. (v) The observed high serial correlation of 0.80 in policy shocks contributes greatly to market volatility and we show that a reduction in persistence of central bank’s deviations from a fixed rule will contribute to stability. (vi) Belief dispersion is measured by cross sectional standard deviation of individual beliefs. An increased belief diversity is found to make policy coordination harder and results in lower aggregate output and lower rate of inflation. Bank policy can lower belief dispersion by being more transparent.
    Keywords: New Keynesian Model; heterogenous beliefs; market state of belief; Rational Beliefs; monetary policy rule
    JEL: C53 D8 D84 E27 E42 E52 G12 G14
  16. By: Grodecka, Anna
    Abstract: One of the roots of the recent global financial crisis has been seen in the design of subprime mortgage contract leading to high sensitivity of such type of loans to house price changes. The market of subprime loans, especially in the last years preceding the crisis, has been highly financed by securitization. The paper investigates how borrowers with subprime characteristics influence the transmission mechanism of business cycles in the economy and whether the securitization of subprime loans has a positive effect on the economy. The formal setup is a DSGE model with different types of borrowers and banks acting as financial intermediaries, in which households and entrepreneurs borrow against housing collateral. The economy is subject to four shocks: monetary, inflationary, preference and technology. It is shown that alone the existence of subprime borrowers does not make the economy more responsive to different shocks at the aggregate level (it has only redistributional effects) and that under certain circumstances the securitization of subprime loans (in form of residential mortgage backed securities) may lead to amplification of the business cycles.
    JEL: E32 E44 G21
    Date: 2014
  17. By: Belke, Ansgar; Beckmann, Joscha; Dreger, Christian
    Abstract: Abstract. Deviations of policy interest rates from the levels implied by the Taylor rule have been persistent after the turn of the century even before the financial crisis. These deviations could be due to lower real interest rates, as stated by the savings glut hypothesis as well as the apparent success of monetary policy in combating inflation. Alternatively, they might reflect the omission of relevant variables in the standard rule, such as international dependencies in the interest rate setting of central banks. By using a smooth transition regression approach for three major central banks, this paper provides evidence for nonlinear threshold dynamics. In fact, the foreign interest rate is well-suited to improve standard Taylor-Rules.
    JEL: E43 E52 E42
    Date: 2014
  18. By: Hillebrand, Marten; Kikuchi, Tomoo; Sakuragawa, Masaya
    Abstract: This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the extensive margin. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path after bubbles are injected.
    JEL: E21 E32 E44
    Date: 2014
  19. By: Chris Redl
    Abstract: I study the implications of learning by doing in production for optimal monetary policy using a basic New Keynesian model. Learning-by-doing is modeled as a stock of skills that accumulates based on past employment. The presence of this learning-by-doing externality breaks the ’divine coincidence’ result, that by stabilising inflation the output gap will automatically be closed, for a variety of shocks that are important in explaining the buseiness cycle. In this context, the policy maker must consider the impact on future productivity of any trade-off between output and inflation today. The appropriate inflation-output trade off is between inflation today and the present value of deviations in the output gap. The approach to optimal monetary policy follows Woodford (2010) permitting a study of variations in key parameters and steady states which is uncommon in the literature that relies on a quadratic approximation to the utility function. Exploiting this variation I find that learning induces a small increase in the importance of the output gap under a cost-push shock for the (more realistic case) of a distorted steady state. The welfare costs of business cycles are shown to be significantly larger even under the optimal policy.
    Keywords: Monetary policy, Labor Productivity, Inflation
    JEL: E52 J24 E31
    Date: 2015
  20. By: Quint, Dominic
    Abstract: The ECB's one size monetary policy is unlikely to fit all euro area members, which raises a discussion about how much monetary policy stress this causes at the national level. We measure monetary policy stress as the difference between actual ECB interest rates and Taylor-rule implied optimal rates at the member state level. Optimal rates explicitly take into account the natural rate of interest to capture changes in trend growth. We find that monetary policy stress within the euro area has been steadily decreasing prior to the recent financial crisis. Current stress levels are not only lower today than in the late 1990s, they are also in line with what is commonly observed among U.S. states or pre-euro German L nder.
    JEL: E58 E52 C22
    Date: 2014
  21. By: Stähler, Nikolai; Gadatsch, Niklas; Hauzenberger, Klemens
    Abstract: In this paper, we use the estimated three-region DSGE model GEAR, which pictures Germany, the Euro Area and the Rest of the world and which is used by the Deutsche Bundesbank for policy analysis, to analyze how discretionary fiscal policy in Germany and the rest of EMU affected GDP growth and unemployment during the crisis. Not surprisingly, stimulus programmes positively affected domestic GDP growth rates while consolidation measures had a negative impact. The contribution of fiscal policy on domestic GDP growth was only small, however, amounting to a maximum of 1.6% for Germany and 0.8% for the rest of the Euro Area in terms of annualized quarter-on quarter growth rates. The main driver for the evolution of GDP were rest of the world and risk premia shocks, followed by domestic non-fiscal shocks, amongst them the technology shock being the most important one. Spillovers of fiscal policy shocks are negligibly small, which holds for spillovers of fiscal shocks in Germany to the rest of the Euro Area and vice versa. This latter finding is confirmed by an impulse-response analysis and by calculating the corresponding multipliers. Hence, relating these findings to current discussions, our analysis suggests that domestic fiscal policy has little effects on the other regions' GDP within EMU and can, therefore, contribute only little to solving the imbalances problem.
    JEL: E62 E32 H20
    Date: 2014
  22. By: Niemann, Stefan; Pichler, Paul
    Abstract: We study the sustainability of public debt in a closed production economy where a benevolent government chooses fiscal policies, including haircuts on its outstanding debt, in a discretionary manner. Government bonds are held by domestic agents to smooth consumption over time and because they provide collateral and liquidity services. We characterize a recursive equilibrium where public debt amounts to a sizeable fraction of output in steady state and is nevertheless fully serviced by the government. In a calibrated economy, steady state debt amounts to around 84% of output, the government's default threshold is at around 94% of output, and the haircut on outstanding debt at this threshold is around 40%. Both reputational costs of default and contemporaneous costs due to lost collateral and liquidity are essential to generate these empirically plausible predictions.
    JEL: E44 E62 H63
    Date: 2014
  23. By: Kosuke Aoki (Faculty of Economics, University of Tokyo)
    Abstract: When price adjustment is sluggish, inflation is costly in terms of welfare because it distorts various kinds of relative prices. Stabilising aggregate price inflation does not necessarily minimise these costs, but stabilising a well-designed core inflation minimises the cost of relative price fluctuations and thus the cost of inflation.
    Keywords: Relative prices, inflation.
    JEL: E3
    Date: 2015–02
  24. By: Garbellini, Nadia
    Abstract: In the aftermath of a crisis which has now been lasting for more than five years, the debate about the size of fiscal multipliers arouse. Whatever the estimation approach, fiscal multipliers assumed for projections are the result of extrapolations from time series data. The present contribution aims at taking a different perspective, by answering the following question: is it really necessary to know the value of fiscal multipliers to take sensible policy decisions?
    Keywords: Fiscal multipliers, Debt-to-gdp ratio, Consolidation programmes, Eurozone Crisis.
    JEL: E62 H62 O43
    Date: 2014–03
  25. By: Born, Benjamin; Müller, Gernot; Pfeifer, Johannes
    Abstract: Austerity measures are frequently enacted when the sustainability of public finances is in doubt. Such doubts are reflected in high sovereign yield spreads and put further strain on government finances. Is austerity successful in restoring market confidence, bringing about a reduction in yield spreads? We employ a new panel data set which contains sovereign yield spreads for 26 emerging and advanced economies and estimate the effects of cuts of government consumption on yield spreads and economic activity. The conditions under which austerity takes place are crucial. During times of fiscal stress, spreads rise in response to the spending cuts, at least in the short-run. In contrast, austerity pays off, if conditions are more benign.
    Keywords: fiscal policy,austerity,sovereign risk,yield spreads,confidence,panel VAR,local projections
    JEL: E62 E32 E60
    Date: 2014
  26. By: Colavecchio, Roberta; Amisano, Gianni; Fagan, Gabriel
    Abstract: We employ a money-based early warning model in order to analyse the risk of a low inflation regime in the Euro Area, Japan and the US. The model specification allows for three different inflation regimes: "Low", "Medium" and "High" inflation, while state transition probabilities vary over time as a function of monetary variables. Using Bayesian techniques, we estimate the model with data from the mid 1970s up to the present. Our analysis suggests that the risks of a "Low" inflation regime in the Euro Area have been increasing in the course of the last six quarters of the estimation sample; moreover, money growth plays a significant role in the assessment of such risks. Evidence for Japan and the US shows that for both countries the inclusion of an indicator variable does not substantially change the assessment of the risk of a "Low" inflation regime.
    JEL: C11 C53 E31
    Date: 2014
  27. By: Sacht, Stephen
    Abstract: In this paper we analyze a hybrid small-scale New-Keynesian model with an arbitrary frequency of the agents synchronized decision making. We study the impact of various demand and supply shocks on the dynamics of the model variables. We show that the corresponding impulse-response functions of high-frequency versions of the model can qualitatively as well as quantitatively be fairly dissimilar from their quarterly counterparts. This can be explained by the decrease in the effectiveness of monetary policy responses to these shocks and the overall increase of inertia in the model variables. In particular, different kinds of frequency-dependent persistence effects occur, which dampen the pass-through of output gap movements into inflation rate dynamics as the period length decreases. The main conclusion is that DSGE modelling may be more sensitive to its choice of the agents decision interval.
    JEL: C63 C68 E52
    Date: 2014
  28. By: Steffen Ahrens; Nooshin Nejati; Philipp L. Pfeiffer
    Abstract: This paper studies the role of labor market institutions in business cycle fluctuations. We develop a DSGE model with search and matching frictions and incorporate a US unemployment insurance experience rating system. Layoff taxes based on experience rating finance the cost of unemployment benefits and create considerable employment adjustment costs. Our framework helps realign the search and matching model with the empirical properties of its most salient variables. The model reproduces the negative correlation between vacancies and unemployment, i.e., the Beveridge curve. Simulations show that the model generates more cyclical volatility in its key variable - the ratio of job vacancies to unemployment (labor market tightness). Moreover, layoff taxes reduce the excess sensitivity of job destruction found in Krause and Lubik (2007) and strengthen the negative correlation of job creation and job destruction. Thus, the model matches key labor market data while incorporating an important feature of the US labor market
    Keywords: search and matching, experience rating, unemployment insurance, Beveridge curve
    JEL: E24 J64 J65
    Date: 2015–01
  29. By: Burkhard Heer, Burkhard; Maußner, Alfred; Süssmuth, Bernd
    Abstract: We document the empirical fact that asset prices in the consumption-goods and investment-goods sector behave almost identically in the US economy. In order to derive the cyclical behavior of the equity returns in these two sectors, we onsider a standard two-sector real-business cycle model with habit formation and sector-specific adjustment costs of capital. The model is able to replicate the equity premium and the Sharpe values observed empirically. In addition, we are able to match the empirical fact that equity returns in the two sectors are not correlated with output.
    JEL: E32 G12 C68
    Date: 2014
  30. By: Alberto Martin; Jaume Ventura
    Abstract: We live in a new world economy characterized by financial globalization and historically low interest rates. This paper presents a simple analytical framework that helps us understand how this new world economy works from the perspective of an emerging economy. Financial globalization gives rise to episodes of large capital inflows followed by sudden stops. Low international interest rates give rise to asset bubbles that pop and burst. The analysis provides novel answers to old questions: What are the effects of asset bubbles on capital flows and macroeconomic performance? How do these effects vary in normal times and during sudden stops? How should policymakers manage capital flows in this new environment?
    Keywords: financial globalization, international capital flows, sudden stops, asset bubbles, capital controls.
    JEL: E32 E44 O40
    Date: 2014–09
  31. By: Mark Weder (School of Economics, University of Adelaide)
    Abstract: Recent empirical evidence suggests that product creation is pro-cyclical and it occurs largely within existing firms. Motivated by these findings, the current paper investigates the role of intra-firm product scope choice in a general equilibrium economy with oligopolistic producers. We show that the multi-product nature of firms makes the economy significantly more susceptible to sunspot equilibria. The estimated indeterminate model generates artificial business cycles that closely resemble empirically observed fluctuations.
    Keywords: Indeterminacy, sunspot equilibria, multi-product firms, business cycles, Bayesian estimation.
    JEL: E32
    Date: 2015–02
  32. By: Singh, Sunny Kumar; Rao, D. Tripati
    Abstract: This paper analyzes the effect of monetary policy shock on the aggregate as well as on the sectoral output of Indian economy using reduced form vector auto regression (VAR) model. We find that the impact of a monetary policy shock at the sectoral level is heterogeneous. Sectors such as, mining and quarrying, manufacturing, construction and trade, hotel, transport and communications seems to decline more sharply than aggregate output in response to a monetary tightening. We also augment the basic VAR by including three channels- credit channel, exchange rate channel and asset price channel of the monetary policy, and analyze the sector specific importance of each of the channel. The channels through which monetary policy is transmitted to the real economy are found to be different for every sector. In most of the cases, multiple channels are responsible for the changes in the aggregate and sectoral output to the monetary policy shock. These results clearly indicate the need for a sector specific monetary policy in India.
    Keywords: Monetary transmission mechanism, Sectoral output, VAR, Credit channel, Exchange rate channel, Asset price channel
    JEL: E5
    Date: 2014–07–01
  33. By: Stüber, Heiko; Snell, Andy
    Abstract: Theoretical models of downward real wage rigidity generate asymmetric wage cyclicality with real wages being rigid in "bad" times but upwardly flexible during "good". In this paper we use an administrative panel dataset from Germany to establish that such asymmetries are very salient in Germany. We find that the semi elasticity of real wages with respect to unemployment is very close to zero when unemployment is above its long term average but large and highly significant when below. We also find that equal treatment - where new hires are exposed to the same cyclicality as incumbents - is supported in our data. Equal treatment is a central driver of downwardly rigid wages in many contracting models (e.g., Hall, 2005; Gertler and Trigari, 2009; Snell and Thomas, 2010). We find that an equal treatment model in which wages are smoothed by firms can generate the asymmetric wage cyclicality found in the panel data. The model also can match most of the properties of wages and unemployment. It cannot however match the persistence of the German unemployment rate. We conjecture that extending the model to allow for search frictions and/or adjustment costs may rectify this deficiency.
    JEL: E24 E32 C23
    Date: 2014
  34. By: Roberta Cardani; Alessia Paccagnini; Stefania Villa
    Abstract: This paper examines the forecasting performance of DSGE models with and without banking intermediation for the US economy. Over the forecast period 2001-2013, the model augmented with a banking sector leads to an improvement of point and density forecasts for inflation and the short term interest rate, while the better forecast for output depends on the forecasting horizon/period. To interpret this finding it is crucial to take into account parameters instabilities showed by a recursive-window estimation. Moreover, rolling estimates of point forecasts show that a banking sector helps improving the forecasting performance of output and inflation in the recent period.
    Keywords: Bayesian estimation, Forecasting, Banking sector
    JEL: C11 C13 C32 E37
    Date: 2015–02
  35. By: Gasteiger, Emanuel
    Abstract: The design and analysis of optimal monetary policy is usually guided by the paradigm of homogeneous rational expectations. Instead, we examine the dynamic consequences of implementation strategies, when the actual economy features expectational heterogeneity. Agents have either rational or adaptive expectations. Consequently the central bank's ability to achieve price-stability under heterogeneous expectations depends on its objective and implementation strategy. An expectations-based reaction function, which appropriately conditions on private sector expectations, performs exceptionally well. However, once the objective introduces policy inertia, popular strategies can fail. These results call for new implementation strategies under interest rate stabilization.
    JEL: E52 D84 D83
    Date: 2014
  36. By: Martin, Alberto; Ventura, Jaume
    Abstract: We live in a new world economy characterized by financial globalization and historically low interest rates. This environment is conducive to countries experiencing credit bubbles that have large macroeconomic effects at home and are quickly propagated abroad. In previous work, we built on the theory of rational bubbles to develop a framework to think about the origins and domestic effects of these credit bubbles. This paper extends that framework to two-country setting and studies the channels through which credit bubbles are transmitted across countries. We find that there are two main channels that work through the interest rate and the terms of trade. The former constitutes a negative spillover, while the latter constitutes a negative spillover in the short run but a positive one in the long run. We study both cooperative and noncooperative policies in this world. The interest-rate and terms-of-trade spillovers produce policy externalities that make the noncooperative outcome suboptimal.
    Keywords: asset bubbles; capital controls; exchange rates; financial globalization; interest rates; international capital controls
    JEL: E32 E44 O40
    Date: 2015–02
  37. By: Seth G. Benzell; Laurence J. Kotlikoff; Guillermo LaGarda; Jeffrey D. Sachs
    Abstract: Will smart machines replace humans like the internal combustion engine replaced horses? If so, can putting people out of work, or at least out of good work, also put the economy out of business? Our model says yes. Under the right conditions, more supply produces, over time, less demand as the smart machines undermine their customer base. Highly tailored skill- and generation-specific redistribution policies can keep smart machines from immiserating humanity. But blunt policies, such as mandating open-source technology, can make matters worse.
    JEL: E22 E23 E24 J24 J31 O30 O40
    Date: 2015–02
  38. By: James Bullard; Jacek Suda (Banque de France); Aarti Singh (University of Sydney); Costas Azariadis (Washington University in St Louis)
    Abstract: We study a theory in which households borrow during the first half of a 241-period life cycle as part of a DSGE. Households confront a persistent regime-switching process on aggregate labor productivity growth. When the economy switches to the high growth regime, there is more borrowing based on expectations of higher future income. When the economy switches back to the low growth regime, some households will have borrowed "too much" given contemporaneous income levels–the hallmark of debt overhang. A powerful central bank can intervene in private credit markets to influence real yields. If the central bank does intervene to keep real rates lower, consumption will be reallocated relative to a laissez faire case. The reallocation will generally be away from those households saving for retirement and possibly away from those households that are heavy users of money to smooth income fluctuations.
    Date: 2014
  39. By: Aguiar-Conraria, Luis; Brinca, Pedro; Gudjonsson, Haukur; Soares, Joana
    Abstract: We use wavelet analysis to investigate to what extent individual U.S. states' business cycles are synchronized. The results show that the U.S. states are remarkably well synchronized compared to the previous findings w.r.t. the Euro Area. There is also a strong and significant correlation between business cycle dissimilitudes and the distance between each pair of states, consistent to gravity type mechanisms where distance affects trade. Trade, in turn, increases business cycle synchronization. Finally we show that a higher degree of industry specialization is associated with a higher dissimilitude of the state cycle with the aggregate economy.
    Keywords: Optimum currency areas, business cycle synchronization, continuous wavelet transform, trade
    JEL: E37 E52 R11
    Date: 2015–02–13
  40. By: Farmer, Roger E A
    Abstract: This paper constructs a simple model in which asset price fluctuations are caused by sunspots. Most existing sunspot models use local linear approximations: instead, I construct global sunspot equilibria. My agents are expected utility maximizers with logarithmic utility functions, there are no fundamental shocks and markets are sequentially complete. Despite the simplicity of these assumptions, I am able to go a considerable way towards explaining features of asset pricing data that have presented an obstacle to previous models that adopted similar assumptions. My model generates volatile persistent swings in asset prices, a substantial term premium for long bonds and bursts of conditional volatility in rates of return.
    Keywords: asset prices; sunspots
    JEL: E44 G12
    Date: 2015–02
  41. By: Michael Kiley (Board of Governors of the Federal Reserve System)
    Abstract: The most common New-Keynesian model-with sticky-prices-has potentially implausible implications in a zero-lower bound environment. Fiscal and forward guidance multipliers can be implausibly large. Moreover, the sticky-price model implies that positive supply shocks, such as an increase in productivity, will lower production, and that increased price flexibility can exacerbate such a decline in output (as well as amplifying the effects of other shocks). These results are fragile and disappear under a plausible alternative to sticky prices - sticky information: Fiscal and monetary multipliers are smaller, positive supply shocks raise output, and greater price flexibility, in the sense of more frequent updating of information, moves the economy's response toward the neoclassical benchmark. These results suggest caution in drawing policy lessons from a single, sticky-price framework. Finally, we highlight how strategies akin to nominal-income targeting can enhance the ability of policymakers to affect demand in sticky-price and sticky-information models.
    Date: 2014
  42. By: Rohloff, Sebastian; Pierdzioch, Christian; Risse, Marian
    Abstract: Economic theory predicts that, in a small open economy, the dynamics of the real price of gold should be linked to real interest rates and the rate of change of the real exchange rate. Using data for Australia, we use a real-time forecasting approach to analyze whether real interest rates and the rate of change of the real exchange rate help to forecast out-ofsample the rate of change of the real price of gold. We study the economic value-added of out-of-sample forecasts using a behavioral-finance approach that takes into account that a forecaster may have an asymmetric loss function.
    JEL: C53 E44 G12
    Date: 2014
  43. By: Rülke, Jan-Christoph; Pierdzioch, Christian
    Abstract: We study the loss function of 15 European governments as implied by their budget balance forecasts. Results suggest that the shape of the loss function varies across countries. The loss function becomes more asymmetric as the forecast horizon increases and in advance of parliamentary election. Compared to that, government ideology does not affect the shape of the loss function. Under a fiscal rule, government agencies experience a higher loss when overpredicting the fiscal balance compared to an underprediction of the same size. We also document that under an asymmetric loss function government forecasts look more rational compared to a symmetric loss function. This may explain why government agencies' forecasts have been found to be too optimistic (Frankel 2012).
    JEL: E62 H50 E27
    Date: 2014
  44. By: Mazelis, Falk
    Abstract: This paper studies the role of uncertainty in the corporate cash hoarding puzzle. The baseline model is a stochastic neoclassical growth model featuring idiosyncratic and uninsurable technology shocks and a cash-in-advance constraint on new investments on the individual firm level. Individual agents' choices regarding cash holdings are analyzed and the effects of the introduction of a financial sector explored. The resulting aggregate cash holdings of households are non-optimal compared to the complete markets solution and aggregate excess cash increases with uncertainty. Aggregate consumption is also higher, but the added volatility of consumption decreases lifetime utility. Since cash holdings are usually managed by the financial sector, the results suggest a link between firm level risk and the behavior of the banking system.
    JEL: C63 E21 E41
    Date: 2014
  45. By: Kroencke, Tim Alexander
    Abstract: This paper provides an explanation why garbage as a measure of consumption implies a several times lower coefficient of relative risk aversion in the consumption-based asset pricing model than consumption based on the official National Income and Product Accounts (NIPA): Unlike garbage, NIPA consumption is filtered to mitigate measurement error. I apply a structural model of the filtering process, which allows to revoke the filter inherent in NIPA consumption. Unfiltered NIPA consumption performs as well as garbage in explaining the equity premium and risk-free rate puzzle. Furthermore, I find that two other popular NIPA-based measures, three-year and fourth-quarter NIPA consumption, are related to unfiltered NIPA consumption. Both can be viewed as ad hoc unfilter rules.
    JEL: G12 E21 E44
    Date: 2014
  46. By: Ricardo Nunes (Federal Reserve Board); Jinill Kim (Korea University); Jesper Linde (Federal Reserve Board); Davide Debortoli (Universitat Pompeu Fabra)
    Abstract: Yes. Using the workhorse Smets and Wouters (2007) model of the U.S. economy, we find that the role of the output gap should be equal to or even more important than that of inflation when designing a simple loss function to represenst household welfare. Moreover, we document that a loss function with nominal wage inflation and the hours gap provides an even better approximation of the true welfare function than a standard objective based on inflation and the output gap. Our results hold up when we introduce interest rate smoothing in the objective to capture the observed gradualism in policy behavior and to ensure that the probability of the federal funds rate hitting the zero lower bound is negligible.
    Date: 2014
  47. By: Mikael Juselius; Előd Takáts
    Abstract: Several countries are concurrently experiencing historically low inflation rates and ageing populations. Is there a connection, as recently suggested by some senior central bankers? We undertake a comprehensive test of this hypothesis in a panel of 22 countries over the 1955–2010 period. We find a stable and significant correlation between demography and low-frequency inflation. In particular, a larger share of dependents (ie young and old) is correlated with higher inflation, while a larger share of working age cohorts is correlated with lower inflation. The results are robust to different country samples, time periods, control variables and estimation techniques. We also find a significant, albeit unstable, relationship between demography and monetary policy.
    Keywords: demography, ageing, inflation, monetary policy
    Date: 2015–02
  48. By: Steve Ambler (CIRPÉE, UQAM, C.D. Howe Institute; The Rimini Centre for Economic Analysis, Italy); Jean-Paul Lam (Department of Economics, University of Waterloo; The Rimini Centre for Economic Analysis, Italy)
    Abstract: We compare inflation targeting and price-level targeting in the canonical New Keynesian model, with particular attention to multiple steady-states, indeterminacy, and global stability. Under price-level targeting we show the following: 1) the well-known problem of multiple steady-state equilibria under inflation targeting is absent; 2) the model’s dynamics close to the steady state are determinate for a much wider range of parameter values; 3) the model is globally saddlepoint stable. These results provide additional arguments in favour of price-level targeting as a monetary policy framework.
    Date: 2015–02
  49. By: Lan, Hong; Meyer-Gohde, Alexander
    Abstract: We analyze the theoretical moments of a nonlinear approximation to real business cycle model with stochastic volatility and recursive preferences. We nd that the conditional heteroskedasticity of stochastic volatility operationalizes a time-varying risk adjustment channel that induces variability in conditional asset pricing measures and assigns a substantial portion of the variance of macroeconomic variables to variations in precautionary behavior, both while leaving its ability to match key macroeconomic and asset pricing facts untouched. We calculate the theoretical moments directly and decomposes these moments into contributions from shifts in the distribution of future shocks (i.e., risk) and from realized shocks and differing orders of approximation, enabling us to identify the common channel through which stochastic volatility in isolation operates and through which conditional asset pricing measures vary over time. Under frictional investment and varying capital utilization, output drops in response to an increase in risk, but the contributions to the variance of macroeconomic variables from risk becomes negligible.
    JEL: C63 E32 G12
    Date: 2014
  50. By: Esser, Andreas
    Abstract: The dynamic comovement between time series is a key concept in macroeconomic analysis. The extent to which series are cyclically synchronized is particularly important for evaluating the feasibility of common policy measures for groups of countries. This paper investigates concepts in the time domain and in the frequency domain that have traditionally been used to detect and describe such cyclical comovements in output data. However, methods from the former category cannot account for different cycle lengths, while the statistics from the latter category fail to capture transient relationships. Therefore, the use of multivariate wavelet analysis and a modification of the cohesion statistic from Fourier analysis is suggested to simultaneously assess comovement at the frequency level and over time for both country pairs and larger aggregates. The main finding from applying this method to output cycles is that synchronization does indeed vary across both dimensions and that important events during the time span of the sample, such as the introduction of the Euro, can be visualized. As a further benefit of the wavelet approach, it turns out to be hardly sensitive to the technique employed to extract the cyclical component from the output series.
    JEL: C40 E32 F15
    Date: 2014
  51. By: Felix Reichling; Charles Whalen
    Abstract: The recession from 2007 to 2009 sparked wide interest in the economic effects of fiscal policy. That interest is reflected in an ongoing debate over the size of the fiscal multiplier. This working paper addresses three questions: What models do economists use to estimate that multiplier? Why do estimates of it vary widely? How can economists use those estimates to judiciously analyze U.S. economic policy??
    JEL: E62 H30
    Date: 2015–02–03
  52. By: Fabrice Collard (Department of Economics - University of Bern); Sujoy Mukerji (Department of Economics and University College - University of Oxford); Kevin Sheppard (Department of Economics and Oxford-Man Institute of Quantitative Finance - University of Oxford); Jean-Marc Tallon (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: This paper assesses the quantitative impact of ambiguity on the historically observed financial asset returns and prices. The single agent, in a dynamic exchange economy, treats the conditional uncertainty about the consumption and dividends next period as ambiguous. We calibrate the agent's ambiguity aversion to match only the first moment of the risk-free rate in data and condition the uncertainty each period on the actual, observed history of (U.S.) macroeconomic growth outcomes. Ambiguity aversion accentuates the conditional uncertainty endogenously in a dynamic way, depending on the history; e.g., it increases during recessions. We show the model implied time series of asser returns match observed return dynamics of first and second conditional moments, very substantially. In particular, we find the time-series properties of our model generated equity premium, which may be regarded as an index measure of revealed uncertainty, relates very closely to those of the macroeconomic uncertainty index recently developed in Jurado, Ludvigson, and Ng (2013).
    Keywords: Ambiguity Aversion, Asset pricing, Equity premium puzzle, uncertainty shocks, time-varying uncertainty.
    JEL: G12 E21 D81 C63
    Date: 2011–05
  53. By: João Sousa Andrade (Faculty of Economics, University of Coimbra and GEMF, Portugal); António Portugal Duarte (Faculty of Economics, University of Coimbra and GEMF, Portugal)
    Abstract: It is well known and widely accepted by economists that the characteristics of the European countries that become the Eurozone in 1999 did not match the requirements of an Optimum Currency Area (OCA). The only criteria for membership of the new area were nominal. A strict level of convergence in inflation and interest rates was imposed. In addition to the nominal convergence (monetary), a process of convergence of nominal incomes in the new monetary unit was expected to be generated with the monetary integration. After summarizing the criteria for a successful currency area in the context of the OCA theory, we study the real and nominal convergence process for an older group (11) of countries to establish whether or not these countries form an OCA. We apply the original conditions imposed on ADF tests, together with the Schmidt-Phillips tests, and we estimate fractional differential process to overcome the disadvantages of the traditional tests. We conclude that a process of real divergence and nominal convergence does exist. We think this is a source of genuine imbalance in the European integration process that can destroy the harmonious development of a European Monetary Union.
    Keywords: Monetary integration, Optimum Currency Areas, real and nominal convergence, spectral analysis and total factor productivity.
    JEL: C01 E24 F31 J31
    Date: 2015–01
  54. By: Hebous, Shafik; Zimmermann, Tom
    Abstract: We re-examin the notion of identifying macroeconomic effects using the narrative approach taking as an application the estimation of tax multipliers. We point out to a test for the checking the adequacy of regressing the narrative measure directly on the outcome variable. This test straightforwardly reconciles the reduced form narrative approach with the instrumental variable approach. We consider estimating tax multipliers using six different recently published narrative tax series. The results of our test suggest that none of the considered measures can be regressed directly on output growth. This finding entails questioning the exogeneity of these variables or, in case that exogeneity is maintained, rethinking the appropriate specification. We argue in favor of using an IV procedure and correcting the confidence bands for the weak instrument problem.
    JEL: E62 H30 E60
    Date: 2014
  55. By: Anil Alpman (Centre d'Economie de la Sorbonne - Paris School of Economics); François Gardes (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: This paper is a comment on the analysis of “Time Use During the Great Recession” conducted by Aguiar, Hurst and Karabarbounis. We derive an opportunity cost by exploring the substitution between individual's time and monetary resources and show that the changes in non-market activities during the Great Recession compensate to some extend the decrease of individuals' monetary resources.
    Keywords: Household Production, Time Allocation, Wealth, Business Fluctuations.
    JEL: D31 E32 J22
    Date: 2015–02
  56. By: Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: The paper addresses the question on what is the typical time horizon over which a full transmission of movements in the real exchange rate into real economy takes place. To this end, we base our analysis on the mixed-frequency small-scale dynamic factor model of Siliverstovs (2012) fitted to the Swiss data. In this paper, we augment the benchmark model with the real exchange rate of the Swiss franc vis-a-vis currencies of its 24 trading partners, while keeping the rest of model specification intact. We are interested in investigating the relationship between the common latent factor, representing the Swiss business cycle, and the real exchange rate. We explore the temporal relationship between these two variables by varying the time lag with which the real exchange rate enters the factor model by recording magnitude and statistical signicance of the factor loading coefficient in the equation pertaining to the real exchange rate variable. Our main conclusion is that the fluctuations in the exchange rate start influencing real economy after one month and their effect is practically over after thirteen months. The largest eect is recorded at the time horizon of about six to nine months.
    Keywords: mixed-frequency data, factor model, GDP growth, exchange rate, Factor model, Mixed-frequency data
    JEL: C22 E32
    Date: 2015–02
  57. By: Rieth, Malte; Fratzscher, Marcel
    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 mostly 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.
    JEL: E52 G10 E60
    Date: 2014
  58. By: Grimme, Christian; Siemsen, Thomas
    Abstract: Did the increase in counterparty risk perception in the interbank market since autumn 2007 contribute to the severe contraction of the US economy? To address this question we introduce interbank market uncertainty in a DSGE model with frictional financial intermediation. Interbank uncertainty is modeled as exogenous change in the dispersion of beliefs about the fraction of interbank loans expected to be repaid. In our model higher uncertainty in wholesale banking leads to reductions in interbank lending activities as banks become more funding constraint. This induces a deleveraging process which reduces loans to firms and investment severely.
    JEL: E32 E37 E17
    Date: 2014
  59. By: Dürsch, Peter; Eife, Thomas
    Abstract: A constant price level facilitates cooperation among firms whereas steady inflation and deflation rates lower firms' ability to cooperate. In an experimental market with price competition we show that both inflation and deflation signi cantly reduce cooperation compared to treatments with a constant price level. The diffi culties to cooperate also aff ect prices and welfare: depending on the market structure, inflation and deflation lead to signifi cantly lower real prices and higher welfare.
    JEL: C92 D43 E31
    Date: 2014
  60. By: Hendricks, Lutz; Leukhina, Oksana
    Abstract: This paper is motivated by the fact that nearly half of U.S. college students drop out without earning a bachelor's degree. Its objective is to quantify how much uncertainty college entrants face about their graduation outcomes. To do so, we develop a quantitative model of college choice. The innovation is to model in detail how students progress towards a college degree. The model is calibrated using transcript and financial data. We find that more than half of college entrants can predict whether they will graduate with at least 80% probability. As a result, stylized policies that insure students against the financial risks associated with uncertain graduation have little value for the majority of college entrants.
    Keywords: Education,College dropout risk
    JEL: E24 J24 I21
    Date: 2015
  61. By: Homburg, Stefan
    Abstract: In recent contributions, Weizs cker (2014) and Summers (2014) maintain that mature economies accumulate too much capital. They suggest large and lasting public deficits as a remedy. This paper argues that overaccumulation cannot occur in an economy with land. It presents novel data of aggregate land values, analyzes the issue in a stochastic framework, and conducts an empirical test of overaccumulation.
    JEL: D92 E62 H63
    Date: 2014
  62. By: Asian Development Bank (ADB); (Pacific Department, ADB); ;
    Abstract: The Monitor provides an update of developments in Pacific economies and explores topical policy issues.
    Keywords: Pacific, economic updates, labor market, wage employment, employment, unemployment, Cook Islands, Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, Vanuatu
    Date: 2014–07
  63. By: Mirdala, Rajmund
    Abstract: European transition economies are still suffering from negative implications of economic crisis. Significant decrease in the key interest rates was followed by reduced maneuverability of central banks in providing incentives into real economies. Low interest rate environment together with effects of quantitative easing induced economists to examine sources of interest rates volatility. Responsiveness of short-term interest rates to the structural shocks provides unique platform to investigate sources of their unexpected volatility and associated effects on monetary policy decision making. Moreover, sources of interest rates volatility may help to reveal side effects of the exchange rate regime choice. Empirical investigation of interest rates determination under different exchange rate regimes highlights substantial implications of relative exchange rate diversity and its importance during the crisis period. In the paper we analyze sources of the short-term nominal interest rates volatility in ten European transition economies by employing SVAR methodology. We observed unique patterns of the short-term interest rates responsiveness in countries with different exchange rate arrangements that contributes to the fixed versus flexible exchange rate dilemma.
    Keywords: interest rates, structural shocks, exchange rate arrangements, economic crisis, VAR, impulse-response function
    JEL: C32 E43 F41
    Date: 2014–08
  64. By: International Monetary Fund. European Dept.
    Abstract: Ireland’s recovery has strengthened yet political challenges to adjustment appear to have increased. The recovery is led by job creation and investment financed by retained earnings rather than lending. But uncertainties around medium-term prospects are wide given external risks and domestic crisis legacies. Sustaining recovery and rebuilding space for policy maneuver are therefore key policy priorities. However, weak polls for the governing coalition and adjustment fatigue—reflected in widespread protests against water charges—may constrain policy efforts, as seen in limited fiscal adjustment in 2015. A clear strategy to underpin reaching budget balance in the medium term is needed:Budget balance is a sound medium-term goal as it will put Ireland’s high public debt firmly on a downward path and enable fiscal policy to cushion the economy. As growth is likely to diminish over the medium term, steady structural adjustment of about ¾ percent of GDP annually is appropriate to avoid undue drag on growth.A strategy is needed to achieve the restraint envisaged by the authorities in the face of strong spending pressures. Such a strategy should include reforms to generate savings while protecting core services, flexibility in reallocating spending, and preparedness to implement new measures including on the revenue side if needed.Completing bank repairs and ensuring financial resilience are needed to ensure a revival of bank lending that supports a lasting recovery: Although bank capitalization, liquidity, and profitability are much improved, nonperforming loans (NPLs) remain exceptionally high. Priorities are further progress on durable resolution of distressed mortgages—supported by more timely repossession proceedings to motivate borrower engagement on restructures—and ensuring steady workouts or disposals of distressed commercial loans.Recent proposals by the Central Bank of Ireland (CBI) to strengthen regulation of mortgage loan origination are a welcome step to increase the resilience of banks and households to property cycles and help moderate such cycles in future.
    Keywords: Post-program monitoring;Economic recovery;Labor markets;Fiscal policy;Banks;Bank supervision;Economic indicators;Staff Reports;Press releases;Ireland;
    Date: 2015–01–29
  65. By: Pirschel, Inske; Wolters, Maik
    Abstract: We study the forecasting performance of three alternative large scale approaches for German key macroeconomic variables using a dataset that consists of 123 variables in quarterly frequency. These three approaches handle the dimensionality problem evoked by such a large dataset by aggregating information, yet on different levels. We consider different factor models, a large Bayesian VAR and model averaging techniques, where aggregation takes place before, during and after the estimation of the different models, respectively. We find that overall the large Bayesian VAR provides the most precise forecasts compared to the other large scale approaches and a number of small benchmark models. For some variables the large Bayesian VAR is also the only model producing unbiased forecasts at least for short horizons. While a Bayesian factor augmented VAR with a tight prior also provides quite accurate forecasts overall, the performance of the other methods depends on the variable to be forecast.
    JEL: C53 E37 E47
    Date: 2014
  66. By: Stockhammer, Engelbert (Kingston University London); Wildauer, Rafael (Kingston University London)
    Abstract: The paper investigates the effects of changes in the distribution of income and in wealth on aggregate demand and its components. We extend the Bhaduri and Marglin (1990) model to include personal income inequality as well as asset prices and debt. This allows for an evaluation of the wage or profit-led nature of demand regimes, of the expenditure cascade argument (Frank et al. 2010) and several hypotheses regarding the effects of wealth and debt. Our estimates are based on a panel of 18 OECD countries covering the period 1980-2013. For the full panel the average demand regime is found to be wage led. We fail to find effects of personal inequality, but do find strong effects of debt and property prices which have been the major drivers of aggregate demand in the decade prior to the 2007 crisis.
    Keywords: post-Keynesian economics; wage-led growth; Bhaduri-Marglin model; demand regimes; wealth effect; Veblen effect; expenditure cascade; aggregate demand
    JEL: E11 E12 E21
    Date: 2015–02–16
  67. By: Philipp König; David Pothier
    Abstract: The question of whether monetary policy should target asset prices remains a contentious issue. Prior to the 2007/08 financial crisis, central banks opted for a wait-and-see approach, remaining passive during the build-up of asset price bubbles but actively seeking to stabilize prices and output after they burst. The macroeconomic and financial turbulence that followed the subprime housing bubble has led to a renewed debate concerning monetary policy’s role in maintaining financial stability. This Round-Up provides a brief overview of this topic.
    Date: 2015
  68. By: Köhne, Sebastian; Abraham, Arpad; Pavoni, Nicola
    Abstract: Several frictions restrict the government s ability to tax assets. First of all, it is very costly to monitor trades on international asset markets. Moreover, agents can resort to non-observable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset observability have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we find that optimal labor income taxes typically become less progressive when assets are imperfectly observed. We evaluate the effect quantitatively in a model calibrated to U.S. data.
    JEL: H21 E21 D82
    Date: 2014
  69. By: Heathcote, Jonathan; Tsujiyama, Hitoshi
    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: flat tax; Mirrlees taxation; optimal income taxation; private insurance; Ramsey taxation; social welfare functions; tax progressivity
    JEL: E62 H21 H23 H31
    Date: 2015–02
  70. By: Brandolini, Andrea (Bank of Italy); Carta, Francesca (Bank of Italy); D'Amuri, Francesco (Bank of Italy)
    Abstract: This paper contributes to the debate on the design of a centralised fiscal tool absorbing country-specific negative shocks in the euro area. Based on theoretical insights, it identifies the broad characteristics that a shock absorber based on unemployment should have in order to be incentive-compatible and politically feasible. It then derives empirically the combination of activation thresholds, experience rating, eligibility criteria, and benefit generosity which define the systems offering the highest stabilisation for given levels of redistribution, accounting for the large variation in benefit take-up rates across European countries. The analysis suggests that the shock absorber should: i) give rise to macro cross-national transfers, mimicking those that would be generated by a notional euro-wide unemployment benefit scheme of minimal coverage and generosity; ii) be activated by a trigger; and iii) feature partial experience rating. The simulation results, confirmed by robustness checks, show that even systems that do not redistribute resources between countries can have a non-negligible stabilisation impact in the medium run. Low benefit take-up rates in Southern Europe substantially reduce the stabilisation properties and the size of the scheme.
    Keywords: unemployment benefits, absorption of macroeconomic shocks, fiscal union
    JEL: E6 J65 H53
    Date: 2015–02
  71. By: Tae-Hwy Lee (Department of Economics, University of California Riverside); Yiyao Wang (Booth School of Business, University of Chicago)
    Abstract: To find forecasts that are closest to Greenbook forecast from the Survey of Professional Forecasters, this paper looks for SPF cross-sectional percentile forecasts that are not encompassed by Greenbook forecast under Greenbook's loss preference, which exhibits time-varying asymmetry. To evaluate SPF percentile forecasts under Greenbook's loss function, we introduce the forecast encompassing test for the asymmetric least square regression of conditional expectiles. From the analysis of the U.S. quarterly real output and inflation forecasts over the past four decades, we find that almost all SPF percentiles are encompassed by Greenbook forecast in full data period. However there is evidence in sub-periods that many SPF percentiles are not encompassed by Greenbook. Among those not-encompassed SPF percentiles, the best SPF percentile closest to Greenbook for real output growth forecast is near the median, while the best SPF percentile for inflation forecast is far below the median in the left tail of the SPF cross-sectional distribution.
    Keywords: Greenbook, Survey of Professional Forecasters, estimation of ‡exible loss function, SPF cross-sectional distribution, SPF percentiles, encompassing test, asymmetric least squares.
    JEL: C53 E37 E27
    Date: 2015–02
  72. By: Shutao Cao; Sharon Kozicki
    Abstract: In this paper, a quarterly growth-accounting data set is built for the Canadian business sector with the top-down approach of Diewert and Yu (2012). Inputs and outputs are measured and used to estimate the quarterly total factor productivity (TFP). In addition, the estimates of annual TFP growth by Diewert and Yu (2012) are revised and updated to reflect changes in the new national economic accounts and national balance-sheet accounts. The quarterly series also provide suitable data for studying short-run dynamics. To demonstrate, a simple vector autoregressive model is estimated to study the responses of hours worked and investment to TFP shocks. Hours worked drop and investment rises in reaction to a positive TFP shock.
    Keywords: Productivity
    JEL: O47 D24 F43
    Date: 2015
  73. By: Dirk Drechsel (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Samad Sarferaz (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Matthias Bannert (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper studies the effects of a change in the Swiss franc/euro exchange rate floor, as introduced by the Swiss National Bank in September 2011 using a survey based impulse responses analysis. Survey based impulse responses incorporate experimental settings into representative firm surveys, expose firm executives to treatment or shock scenarios and evaluate the effects of the shocks on executives’ expected firm-level outcomes. Our results suggest that a change in the exchange rate floor from 1.20 to 1.10 Swiss francs per euro and a subsequent appreciation of the Swiss franc by the same magnitude considerably decreases expected turnovers, costs and profits of Swiss firms. Manufacturing turnover decreases by 3.3% within six months and by 4.3% within 18 months. Total costs decline by 1.3% within six months and 2.0% within 18 months, while profits shrink by 3.3% within six months. The effects are substantially lower for the service and the construction sector, but exhibit large variation across sub-sector industries. Panel regression analysis reveals that firm-specific export shares and intermediate goods import shares are key determinants of firms’ turnover, costs and profits reactions.
    Keywords: Swiss franc/euro exchange rate floor, survey based impulse responses, macroeconomic shock identification, structural micro data, disaggregation
    JEL: C83 C99 E37 F31
    Date: 2015–01
  74. By: Rabah Arezki; Valerie A. Ramey; Liugang Sheng
    Abstract: This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output - the delay between a discovery and production is on average 4 to 6 years.  We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery.  We then estimate the effects of giant oil discoveries on a large panel of countries.  Our empirical estimates are consistent with the predictions of the model.  After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years.  Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years.  Employment rates fall slightly for a sustained period of time.
    Keywords: news shocks, curent account, saving, investment, employment, oil, discovery
    JEL: E00 F3 F4
    Date: 2015–01–12
  75. By: Hott, Christian
    Abstract: We develop a theoretical model of mortgage loss rates that evaluates their main underlying risk factors. Following the model, loss rates are positively influenced by the house price level, the loan-to-value of mortgages, interest rates, and the unemployment rate. They are negatively influenced by the growth of house prices and the income level. The calibration of the model for the US and Switzerland demonstrates that it is able to describe the overall development of actual mortgage loss rates. In addition, we show potential applications of the model for different macroprudential instruments: stress tests, countercyclical buffer, and setting risk weights for mortgages with different loan-to-value and loan-to-income ratios.
    JEL: E51 G21 G28
    Date: 2014
  76. By: Grant Allan (Department of Economics, University of Strathclyde); Gary Koop (Department of Economics, University of Strathclyde); Stuart McIntyre (Department of Economics, University of Strathclyde); Paul Smith (Department of Economics, University of Strathclyde)
    Abstract: The delays in the release of macroeconomic variables such as GDP mean that policymakers do not know their current values. Thus, nowcasts, which are estimates of current values of macroeconomic variables, are becoming increasingly popular. This paper takes up the challenge of nowcasting Scottish GDP growth. Nowcasting in Scotland, currently a government office region within the United Kingdom, is complicated due to data limitations. For instance, key nowcast predictors such as industrial production are unavailable. Accordingly, we use data on some non-traditional variables and investigate whether UK aggregates can help nowcast Scottish GDP growth. Such data limitations are shared by many other sub-national regions, so we hope this paper can provide lessons for other regions interested in developing nowcasting models.
    Keywords: nowcasting, mixed frequency data, regional macroeconomics
    Date: 2014–11
  77. By: Samuel Wills
    Abstract: This paper studies how capital-scarce countries should manage volatile resource income.  Existing literature recommends that capital-scarce countries invest domestically, but that volatile resource income should be saved in a foreign sovereign wealth fund.  I reconcile these by combining a stochastic model of precautionary savings with a deterministic model of a capital-scarce resource exporter.  I show that capital-scarce countries should still establish a Volatility Fund, but it should be relaively smaller than in capital-abundant countries.  The fund should be built before anticipated windfalls, partially invested domestically, and used as a source of income rather than a buffer against temporary shocks.  To do so I develop a parsimonious framework that nests a variety of existing results as special cases, which are presented in seven principles.  The first three apply to capital-abundant countries: i) Smooth consumption using a Future Generations Fund; (ii) Build a Volatility Fund quickly, then leave it alone;  iii) Invest to stabilise the real exchange rate. The remaining four apply to capital-scare countries; iv) Finance consumption and investment with oil; v) Use a temporary Parking Fund to improve absorption, vi) Invest part of the Volatility Fund domestically; and vii) Support private investment.
    Keywords: Natural resources, oil, volatility, precautionary saving, capital scarcity, anticipation
    JEL: D81 D91 E21 F34 H63 O13 Q32 Q33
    Date: 2015–01–26
  78. By: Hall, Robert E. (Stanford University); Schulhofer-Wohl, Sam (Federal Reserve Bank of Minneapolis)
    Abstract: Matching efficiency is the productivity of the process for matching jobseekers to available jobs. Job-finding is the output; vacant jobs and active jobseekers are the inputs. Measurement of matching efficiency follows the same principles as measuring a Hicks-neutral index of productivity of production. We develop a framework for measuring matching productivity when the population of jobseekers is heterogeneous. The efficiency index for each type of jobseeker is the monthly job-finding rate for the type adjusted for the overall tightness of the labor market. We find that overall matching efficiency declined over the period, at just below its earlier downward trend. We develop a new approach to measuring matching rates that avoids counting short-duration jobs as successes. And we show that the outward shift in the Beveridge curve in the post-crisis period is the result of pre-crisis trends, not a downward shift in matching efficiency attributable to the crisis.
    Keywords: Matching efficiency; Job-finding rates; Beveridge curve
    JEL: E24 J63
    Date: 2015–02–06
  79. By: Marc Lavoie; Eckhard Hein
    Abstract: This paper presents an extensive, but non-formalized, critique ofthe concept of the non-accelerating inflation rate of unemployment(NAIRU) and all similar concepts such as the steady-inflation rateof capacity utilization (SIRCU) which are used by mainstream economiststo argue that there is no alternative, and hence that labourmarkets must be made more flexible while governments must abstainfrom engaging in expansionary fiscal policies except underexceptional circumstances. This is followed by the presentation ofan alternative approach of the labour market, based on a more realisticview of the shape of the unit costs of firms, which argue s thatemployment is essentially determined by the extent of sales in thegoods market rather than by some profit-maximization constraint,and that higher real wages will normally generate a rise in domesticaggregate demand and hence a rise in employment. The paperends with a discussion of the implications of such a view for wagebargaining and macroeconomic policies. What is advocated here isa wage-led growth strategy.
    Keywords: NAIRU, unit costs, wage-led growth
    Date: 2015
  80. By: Razzak, Weshah; Laabas, Belkacem
    Abstract: We use the work-leisure choice model to compute equilibrium weekly hours worked for a number of Arab countries, where actual statistics are unavailable. We show that the labor supply curve is elastic in all Arab countries, and provide a new measure of labor productivity. This finding confirms previous research that workers respond to incentives, which has serious implications for tax and social security policies. We also provide some policy simulations pertinent to the effects of taxation on welfare and poverty.
    Keywords: -worked, natural resource endowment, poverty, welfare
    JEL: E01 E62 J22
    Date: 2011–06–19
  81. By: Schumacher, Christian
    Abstract: Mixed-data sampling (MIDAS) regressions allow to estimate dynamic equations that explain a low-frequency variable by high-frequency variables and their lags. To account for temporal instabilities in this relationship, this paper discusses an extension to MIDAS with time-varying parameters, which follow random-walk processes. The non-linear functional forms in the MIDAS regression necessitate the use of non-linear ltering techniques. In this paper, the Particle Fi lter is used to estimate the time-varying parameters in the model. Simulations with time-varying DGPs help to assess the properties of the estimation approach. A real-time application to the relationship between daily corporate bond spreads and quarterly GDP growth in the Euro area shows that the leading indicator property of the spreads ahead of GDP has diminished during the recent crisis. During that period, corporate bond spreads rather seem to be coincident indicators of GDP growth.
    JEL: C51 C53 E37
    Date: 2014
  82. By: Garry, Stefanie; Villarreal, Francisco G.
    Abstract: Through the astute analysis of official statistics, we can gather a more complete picture of the economic performance of a given country, and understand more fully what have been its drivers, leading to a more effective use of national resources and a more efficient design of policy options. However, the myriad of information and numerical data across the system of macroeconomic statistics can be challenging to interpret in a straightforward manner. In order to synthetically assess economic performance across countries in Latin America we propose the use of a composite indicator, which builds upon the methodology of Khramov and Lee (2013) and incorporates key indicators from each of the pillars of macroeconomic statistics: the System of National Accounts, the Balance of Payments Statistics, Monetary and Financial Statistics and Public Finance Statistics. Through a composite examination of key statistical indicators in each country across their long-term trends, we can more fully understand the underlying macroeconomic dynamics.
    Date: 2014–12
  83. By: Thomas von Brasch (Statistics Norway)
    Abstract: The Norwegian productivity puzzle is rooted in three seemingly contradictory “facts”: First, Norway is one of the most productive OECD countries. Second, Norway has experienced high growth in productivity. Third, Norway has a relatively low level of R&D intensity. In this article, I show that the first premise of the puzzle is probably false. Explicitly, I demonstrate that labour productivity in Norway is not particularly high when using production purchasing power parities instead of expenditure purchasing power parities to measure mainland GDP in a common currency. The gap between the two measures is traced back to the use of market exchange rates as proxies for relative net export prices in the calculation of expenditure PPPs. In addition, I show that the high growth rate in productivity can be explained by an empirical growth model that takes both R&D capital, human capital and the distance to the technological frontier into account. Based on these results, there is no reason to claim that the development of productivity in Norway represents a puzzle.
    Keywords: Economic growth; Productivity; Index numbers; Aggregation; Price level
    JEL: C43 E01 E31 O47 O57
    Date: 2015–02
  84. By: Mohamed Ali Marouani (UMR « Développement et Société », IEDES / Université Paris1-Panthéon-Sorbonne, PSL, Université Paris-Dauphine, LEDa, IRD UMR DIAL); Björn Nilsson (PSL, Université Paris-Dauphine, LEDa, UMR DIAL)
    Abstract: (english) During the last half-century, the evolution of educational attainment among Malaysians has been spectacular, and current enrollment rates suggest this progression will continue, albeit at a slower pace. Such a transformation of the educational attainment of labor should bring about macroeconomic effects such as wage compression, sectoral shifts and/or high skill un- employment, unless compensatory mechanisms exist. This article examines the impact of this evolution using a dynamic general equilibrium model applied to Malaysia. We argue that skill biased technological change occurred in Malaysia in recent years, and permitted unemployment figures to remain low and skill premia not to sink, despite the shift in skill structure. We run a retrospective simulation, looking at how unemployment and wages would have reacted had skill biased technological change not been prevalent. We also simulate the effects of a restriction in the supply of education to understand the impact of recent educational policy in Malaysia. The results are fed to a microdata set using a microaccounting technique, addressing distributional concerns. Our results show that the reduction in wage inequalities could have been substan- tially more important had skill biased technological change not been present. Furthermore, they suggest that the open-door higher education policy has contributed heavily to a reduction in wage inequalities. _________________________________ (français) Depuis plusieurs décennies, l’évolution des dotations éducationnelles des malaisiens a été spectaculaire, et les taux de scolarisation actuels indiquent que cette tendance va se poursuivre. Une telle transformation des dotations éducationnelles des travailleurs devraient engendrer des effets macroéconomiques tels qu’une compression des salaires, des glissements sectoriels et une hausse du chômage des qualifiés, en l’absence de mécanismes compensatoires. Cet article examine l’impact d’une telle évolution en utilisant un modèle d’équilibre général dynamique appliqué à la Malaisie. Nous affirmons qu’un progrès technique biaisé en faveur du travail qualifié a été présent en Malaisie dans la période récente, permettant des taux de chômage des qualifiés à rester bas et les rapports salariaux à ne pas baisser, malgré l’évolution de la structure des dotations. Nous faisons une simulation rétrospective, examinant les effets potentiels sur le chômage et les salaires en l’absence du biais du progrès technique. Nous simulons également une restriction de l’offre d’éducation pour comprendre l’impact de la politique de formation récente en Malaisie. Les résultats sont injectés dans une base de microdonnées utilisant une technique de microsimulation. Les résultats montrent que la réduction des inégalités salariales aurait pu être plus forte en l’absence du progrès technique biaisé. Ils suggèrent en outre que la politique éducative généreuse a fortement contribué à une réduction de ces inégalités.
    Keywords: Skills acquisition, CGE, Education and the Labor Market, Technological change, Acquisition de compétences, EGC, Education et marché du travail, progrès technique.
    JEL: E17 I28 E24 H52 O30 O53
    Date: 2014–12
  85. By: Posch, Peter N; Bowden, Roger J; Kalteier, Eva-Maria
    Abstract: The asset value of government has traditionally been seen as the accounting value of public assets. We develop a detailed financial economics view on sovereign asset values using market measures to arrive at implied sovereign asset values. We establish definition and dependencies within the resulting framework. Unlike the private sector, it is not a necessary public sector objective to maximise functional asset value as such; indeed some wealthier countries can run a habitually lower asset cover. Governments exposed more to economic shocks need to make more provision for buffering implied equity exposure. The ability to do so endows a real option value to budget flexibility. We identify the economic drivers of the implied asset values and the real option value in a broad sample of industrialized countries. Our theoretical framework and empirical results are instructive for market participants as well as for governments.
    JEL: H63 G01 E62
    Date: 2014
  86. By: Tim Schwarzmüller
    Abstract: I study the performance of single predictor bridge equation models as well as a wide range of model selection and pooling techniques, including Mallows model averaging and Cross-Validation model averaging, for short-term forecasting euro area GDP growth. I explore to what extend model selection and model pooling techniques are able to outperform a simple autoregressive benchmark model in the periods before, during and after the Great Recession. I find that single predictor bridge equation models suffer a great variation in the forecast performance relative to the benchmark model over the analysed sub-samples. Moreover, model selection techniques turn out to produce quite poor forecasts in some sub-samples. On the contrary, model pooling based on the Cross-Validation and the Mallows criterion provide a very stable and accurate forecast performance
    Keywords: Short-term forecasting, Great Recession, mixed frequency data, model selection and model pooling
    JEL: C53 E37
    Date: 2015–01
  87. By: International Monetary Fund. Western Hemisphere Dept.
    Keywords: Fiscal policy;Exports;Export growth;Export performance;Interest rates;Monetary policy;Selected Issues Papers;Canada;
    Date: 2015–01–30
  88. By: Enrico Colombatto
    Abstract: L'articolo esamina gli effetti redistributivi della dinamica dei prezzi e le conseguenze espansive/recessive che questa può avere sulla congiuntura. Si richiama l'attenzione sul ruolo del contesto istituzionale (concorrenza e regolamentazione) e sui costi di aggiustamento che ne seguono. Si conclude affermando che i costi della deflazione sono in realtà i costi relativi ai fenomeni che hanno condotto alla deflazione, i quali possono dilatarsi in presenza di rigidità strutturali e/o degli errori sistematici che gli agenti sono indotti a commettere dalle autorità di politica economica.
    Keywords: Deflazione, Crisi, Ciclo economico
    JEL: E31
    Date: 2015–02
  89. By: Omer Acikgoz (Yeshiva University)
    Abstract: Aiyagari (1995) showed that long-run optimal fiscal policy features a positive tax rate on capital income in Bewley-type economies with heterogeneous agents and incomplete markets. However, determining the magnitude of the optimal capital income tax rate was considered to be prohibitively difficult due to the need to compute the optimal tax rates along the transition path. This paper shows that, in this class of models, long-run optimal fiscal policy and the corresponding allocation can be studied independently of the initial conditions and the transition path. Numerical methods based on this finding are used on a model calibrated to the U.S. economy. I find that the observed average capital income tax rate in the U.S. is too high, the average labor income tax rate and the debt-to-GDP ratio are too low, compared to the long-run optimal levels. The implications of these findings for existing literature on the optimal quantity of debt and constrained efficiency are also adressed.
    Date: 2014
  90. By: Haouas, Ilham (Abu Dhabi University); Heshmati, Almas (Jönköping University, Sogang University)
    Abstract: This paper analyses the hiring and separation rates in Tunisia before and after the Arab Spring of 2011. Several models are specified to study employment decisions based on quarterly administrative firm level data over the period of 2007 to 2012. The data provides information about important firm characteristics such as industry sector, number of hiring and separation, total employment effects and composition of labour force by gender, managerial level and age cohorts. Six models are estimated to investigate hiring, separation, hiring rate, separation rate, mobility, and net-employment. The results indicate presence of continued risk factors in Tunisia's labour market resulting from the global financial crisis in 2008 and the Arab Spring in 2011. Hiring was little changed during this time period, and the results suggest that factors that impact separation decisions remained present in Tunisia's labour market. In addition, the paper looks at various social issues such as youth unemployment and infer on how more efficient policy actions that will further engage the private sector could result in more sustainable positive net-employment and increased labour mobility.
    Keywords: hiring, separation, labour mobility, net-employment, informal sector, Tunisia, Arab Spring, global financial crisis
    JEL: E24 J23 J63
    Date: 2015–01
  91. By: Bardt, Hubertus; Grömling, Michael; Hüther, Michael
    Abstract: Die Unternehmen investieren seit der globalen Wirtschaftskrise eher verhalten in neue Ausrüstungen in Deutschland. Der aus Maschinen und Geräte bestehende Kapitalstock stagniert bereits seit dem Jahr 2008. Das ist die längste Phase ohne einen Kapitalaufbau in diesem Bereich seit 1991. Eine IW-Befragung von 2.900 Unternehmen im Herbst 2014 liefert wichtige Informationen über die gegenwärtigen Investitionshemmnisse in Deutschland. Demnach leiden die Investitionen vor allem unter den großen weltwirtschaftlichen Unsicherheiten. Die investiven Rahmenbedingungen haben sich aber auch in Deutschland verschlechtert. Für die Hälfte der befragten Firmen zählen dazu vor allem die im internationalen Vergleich hohen Energiekosten. Die Frühverrentung, der Mindestlohn mit seinen umfangreichen Dokumentationspflichten und die geplante strengere Regulierung der Zeitarbeit schaffen ebenfalls zusätzliche Kosten für die Unternehmen - und verringern den "return on investment". Bevor sich die Politik an teuren Investitionsprogrammen verausgabt, sollte sie sich bemühen, die Angebotsbedingungen für Unternehmen in Deutschland wieder zu verbessern. Hier kann auf drei Ebenen angesetzt werden: 1. Kosten in den Griff bekommen. Deutschland ist ein Hochkostenland. Das gilt nicht nur für die Arbeitskosten, sondern auch für die Energie. Eine Reduktion dieser Belastungen ist ebenso notwendig wie mehr Planungssicherheit für energieintensive Unternehmen. 2. Flexibilität erhalten. Bürokratie und Regulierungen müssen abgebaut und dürfen nicht aufgebaut werden. So könnte für jede neue bürokratische Regelung eine andere wirkungsgleich gestrichen werden. 3. Grundlagen für künftiges Wachstum schaffen. Dazu muss beständig und effektiv in die Infrastruktur investiert werden - nicht im Rahmen von Hauruck-Programmen. Die Mittel für eine ordentliche Infrastruktur sind da - die Politik muss nur Prioritäten setzen. Einen Grund für Steuererhöhungen gibt es nicht.
    Keywords: Wachstum,Angebotspolitik,Arbeitskosten,Infrastruktur,Investitionen,growth,supply side policy,infrastructure,investments,labour costs
    JEL: E22 E60 F43
    Date: 2015
  92. By: Issing, Otmar; Krahnen, Jan Pieter
    Abstract: On November 8, 2013, several members of the British House of Lords' Subcommittee A conducted a hearing at the ECB in Frankfurt, Germany, on "Genuine Economic and Monetary Union and its Implications for the UK". Professors Otmar Issing and Jan Pieter Krahnen were called as expert witnesses. The testimony began with a general discussion on the elements considered necessary for a functioning internal market. Do economic union and monetary union require a fiscal union or even a political union, beyond the elements of the banking union currently being prepared? In this context, also the critique of the German current account surplus and the international expectations that Germany stimulate internal demand to support growth in crisis countries, were discussed. With regard to the monetary union, the members of the subcommittee asked for an assessment of how European nations and the banking industry would have fared in the banking crisis that followed the Lehman collapse, had there not been a common currency. Given the important role that the ECB has played in the course of the crisis management, the members further asked for an evaluation of the OMT-program of the ECB and also if the monetary union is in need of common debt instruments, in order to provide the ECB with the possibility of buying EU liabilities, comparable to the Fed buying US Treasury bonds. Finally, the dual role of the ECB for monetary policy and banking supervision was an issue touched on by several questions.
    Keywords: European Central Bank,Monetary Union,Outright Monetary Transactions,UK
    Date: 2014
  93. By: Mavroudeas, Stavros D. (University of Macedonia)
    Abstract: This paper reviews the alternative explanations offered to explain the Greek crisis and checks there analytical and empirical validity. The first part focuses on the mainstream explanations. It distinguishes three main versions (‘Greek disease’, EMU is an unrectifiable non-OCA, EMU has problems but can be rectified). Mainstream explanations are criticized for failing to comprehend properly the deep structural dimensions of the Greek crisis and attributing it to policy errors. The second part reviews the radical explanations and particularly those around the ‘financialization thesis’. It also distinguishes three versions (EMU is the problem, Minskian case, equilibrium of class struggle). These explanations are criticized for offering a weak structural explanation of the Greek crisis by focusing upon policy or conjectural elements. The last part surveys the more classical Marxist explanations of the Greek crisis. These have a different understanding of the relationship between real and financial accumulation from all the previous explanations. Three versions are presented (TRPF, TRPF and underconsumption, TRPF and imperialist exploitation). It is argued that Marxist explanations grasp better than the rest the deep structural dimensions of the Greek crisis.
    Keywords: Greek economic crisis; Eurozone crisis
    JEL: B50 E65 F50 H60
    Date: 2015–02–10
  94. By: Grant Allan; Gary Koop (Department of Economics, University of Strathclyde, United Kingdom; The Rimini Centre for Economic Analysis, Italy); Stuart McIntyre; Paul Smith
    Abstract: The delays in the release of macroeconomic variables such as GDP mean that policymakers do not know their current values. Thus, nowcasts, which are estimates of current values of macroeconomic variables, are becoming increasingly popular. This paper takes up the challenge of nowcasting Scottish GDP growth. Nowcasting in Scotland, currently a government office region within the United Kingdom, is complicated due to data limitations. For instance, key nowcast predictors such as industrial production are unavailable. Accordingly, we use data on some non-traditional variables and investigate whether UK aggregates can help nowcast Scottish GDP growth. Such data limitations are shared by many other sub-national regions, so we hope this paper can provide lessons for other regions interested in developing nowcasting models.
    Date: 2014–11
  95. By: Nicolas Van de Sijpe
    Abstract: This paper draws further attention to the importance of taking into account off-budget aid when estimating the degree of foreign aid fungibility.  It does so by re-evaluating the results of a recent, influential paper which concluded that health aid is fully fungible in the long run.  Allowing for the presence of off-budget aid indicates that the degree of fungibility of health aid is much more uncertain than at first blush appears.  Under plausible assumptions about the role of off-budget aid, the conclusion of full fungibility is overturned and at most only a limited degree of fungibility is found.
    Keywords: foreign health aid, fungibility, publish health expenditure
    JEL: E62 F35 H51 I18 O23
    Date: 2013–06–09
  96. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context: Moderate growth is continuing; however credit and wage growth are weak. The level of nonperforming loans (NPLs) remains high and public debt has risen sharply in recent years. Fiscal policy: Medium-term funding needs to roll over existing debt and to fund budget deficits are large. A new highway, budgeted to cost about one quarter of GDP, will cause deficits to widen and add to public debt. The draft 2015 budget shows appropriate restraint on other spending, but a long period of strong fiscal discipline will be needed to manage fiscal risks. Laying out clear long-term plans for managing the public finances would boost credibility and reduce risks to market access. Fundamental expenditure reform, especially of the pension system and the public sector wage bill, would be an essential part of such plans. Financial sector: The banking system’s liquidity appears comfortable; however, profitability is low and lending spreads are high. Regulatory provisioning is set higher than that reported under international accounting standards, but a wide range of provisioning levels across banks and weak incentives to take losses remain concerns. A more transparent and comprehensive reporting environment would be beneficial. Reforms to ensure better enforcement of contracts and collateral would help bring down structural lending risk premia. Structural reform: Higher levels of labor participation and employment are needed to boost potential growth and safeguard the public finances. Ensuring that wages adjust in line with productivity alongside reforms to achieve better employment outcomes and boost productivity would enhance the economy’s ability to respond to macroeconomic shocks, and are even more important in a country that lacks its own currency and with decreasing fiscal buffers.
  97. By: Foellmi, Reto; Hanslin, Sandra; Kohler, Andreas
    Abstract: This paper presents a dynamic North-South general-equilibrium model where households have non-homothetic preferences. Innovation takes place in a rich North while firms in a poor South imitate products manufactured in North. Introducing non-homothetic preferences delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are not only determined by supply side factors but also by the distribution of income between North and South. We ask how changes in Southern labor productivity, South's population size and inequality across regions affects the international product cycle. In line with presented stylized facts about the product cycle we predict a negative correlation between adoption time and per capita incomes.
    Keywords: Product cycles, Inequality, International trade
    JEL: F1 O3
    Date: 2015–02
  98. By: Simon Mongey (NYU); Gianluca Violante (NYU); Alessandro Gavazza (London School of Economics)
    Abstract: When compared to the early 2000's, the post financial crisis US labor market has produced a persistently higher unemployment rate relative to the level of vacancies posted by firms. In this paper we provide a quantitative general equilibrium model that explains one possible cause for this change and is consistent with a number of cross-sectional firm level facts that have as yet been unexplored in the literature. We posit a simple mechanism by which financial constraints reduce firm entry and growth of young firms. In good times these firms grow quickly and fill vacancies faster than older, slower growing firms. Vacancies posted following the recession are therefore filled more slowly, shifting the Beveridge curve outwards. This mechanism acts through (i) financial frictions, (ii) the time series change in the distribution of firms, (iii) the cross-sectional relationship between vacancy filling rates and firm growth rates, both of which we document empirically and replicate quantitatively.
    Date: 2014
  99. By: Yannis M. Ioannides
    Abstract: The paper presents a model of an economy whose urban structure consists of cities of different types. All cities of different types. All cities produce a non-tradeable final good using both types of tradeable intermediate varieties. Each city has an internal spatial structure: individuals commute to the CBD in order to work, when employed, and to seek jobs, when unemployed. Hiring by each intermediate producing firm is subject to frictions, which are modeled in the Diamond-Mortensen-Pissarides fashion. Job matching requires either travel to the CBD for face to face contacts or, alternatively, referrals from social contacts.City type is conferred by specialization in producing one of the two types of intermediate varieties, diversified cities, where both types are produced, and there is intercity trade in intermediate varieties. The paper examines the properties of equilibrium with intercity trade and its dependence on such parameters as those pertaining to productivity, the matching process, the rate of job destruction and their consequences for unemployment, output and welfare across the economy along a steady state. The model's use of international trade tools confers a central role to labor market tightness, akin to factor intensity. A natural dependence of unemployment on city size is generated. The paper provides a framework for studying spatial mismatch. Equilibrium outcomes generically diverge from the planner's optimum: socially optimal unemployment trades off the probability of employment to search socts of firms independently for each skill type and independently of city size, and city sizes are independent of labor market tightness considerations but reflect both market size effects and the skill composition of the economy.
    JEL: E24 F12 F16 J60 J63 J64 R12
  100. By: Le, Vo Phuong Mai; Meenagh, David; Minford, Patrick; Wickens, Michael R.
    Abstract: Using Monte Carlo experiments, we examine the performance of indirect inference tests of DSGE models in small samples, using various models in widespread use. We compare these with tests based on direct inference (using the Likelihood Ratio). We find that both tests have power so that a substantially false model will tend to be rejected by both; but that the power of the indirect inference test is by far the greater, necessitating re-estimation to ensure that the model is tested in its fullest sense. We also find that the small-sample bias with indirect estimation is around half of that with maximum likelihood estimation.
    Keywords: bootstrap; DSGE; indirect inference; likelihood ratio; new classical; new Keynesian; Wald statistic
    JEL: C12 C32 C52 E1
    Date: 2015–02
  101. By: Saam, Marianne; Papageorgiou, Chris; Schulte, Patrick
    Abstract: Recently Acemolgu, Aghion, Bursztyn and Hemous (AER 2012) formulated a model in which a high macroeconomic elasticity of substitution between clean and dirty production represents a crucial condition for green growth. Until now it has never been systematically estimated. Using a novel panel of cross-country sectoral data, we formulate specifications of nested CES production functions that allow to estimate a special case of this parameter: the elasticity of substitution between clean and dirty energy inputs. Contrary to what is expected based on the earlier interfuel substitution literature, we find evidence that this elasticity exceeds one.
    JEL: O44 Q54 O47
    Date: 2014
  102. By: Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
    Abstract: This paper sets out a formal model to account for the net effect of an exchange rate devaluation on both income elasticities of demand for export and imports and, consequently, on the long-term balance-of-payments constrained growth rate. Such model shows how the exchange rate impacts on the home country non-price competitiveness via changes in the variables which reflect the economic structure such as the income distribution and technological change. It is built upon two basic hypotheses. Firstly, it assumes technological improvements impact positively on the income elasticity of demand for exports and negatively on the income elasticity of demand for imports. Secondly, it assumes here that changes in income distribution have an ambiguous impact on the income elasticities ratio. The model shows that the net impact of a currency devaluation on growth is ambiguous and depends on several structural features.
    Keywords: Exchange rate; income distribution; technical change; balance-of-payments constrained growth.
    JEL: O40 O33 E25
    Date: 2015–02–06
  103. By: Asjad Naqvi (Vienna University of Economics and Business, Welthandelsplatz 1, 1020 Vienna, Austria)
    Abstract: Economic policy in the EU faces a trilemma of solving three challenges simultaneously - growth, distribution, and the environment. In order to assess policies that address these issues simultaneously, economic models need to account for both sector-sector and sector-environment feedbacks within a single framework. This paper presents a multi-sectoral stock-flow consistent (SFC) macro model where a demand-driven economy consisting of multiple institutional sectors - firms, energy, households, government, and financial - interacts with the environment. The model is calibrated for the EU region and five policy scenarios are evaluated; low consumption, a capital stock damage function, carbon taxes, higher share of renewable energy, and technological shocks to productivity. Policy outcomes are tracked on overall output, unemployment, income and income distributions, energy, and emission levels. Results show that investment in mitigation technologies allows for absolute decoupling and ensures that the above three issues can be solved simultaneously.
    Keywords: ecological macroeconomics, stock-grow consistent, growth, distribution, environment, European Union
    Date: 2015–02
  104. By: Beckmann, Joscha; Belke, Ansgar; Dreger, Christian
    Abstract: Deviations of policy interest rates from the levels implied by the Taylor rule have been persistent before the financial crisis and increased especially after the turn of the century. Compared to the Taylor benchmark, policy rates were often too low. This paper provides evidence that both international spillovers, for instance international dependencies in the interest rate-setting of central banks, and nonlinear reaction patterns can offer a more realistic specification of the Taylor rule in the main industrial countries. The inclusion of international spillovers and, even more, nonlinear dynamics improves the explanatory power of standard Taylor reaction functions. Deviations from Taylor rates tend to be smaller and their negative trend can be eliminated.
    Date: 2015–02
  105. By: Theodore,Panagiotidis;Panagiotis,Printzis
    Abstract: This study examines the role of the housing market in the Greek economy. We review the literature and assess the interdependence between the housing price index and its macroeconomic determinants within a VECM framework. An equilibrium relationship exists and in the long run the retail sector and mortgage loans emerge as the most important variables for housing. The dynamic analysis shows that the mortgage loans followed by retail trade are the variables with the most explanatory power for the variation of the houses price index.
    Keywords: Housing Market · Greece · VECM · impulse response function Granger causality
    Date: 2015–01
  106. By: Podlich, Natalia
    Abstract: In this paper, I analyze the impact of the extension of the ECB s collateral framework on securities sales. In addition, I evaluate the impact of different macroeconomic and bank-specific characteristics on banks selling behavior. At this, I distinguish between healthy banks and banks rescued from the German government hypothesizing that distressed banks manage sales of their assets differently. My analysis is based on quantile regressions for panel data containing securities holdings of 27 German banks, which allows an assessment of extremely large sales. Such selling behavior could cause a collapse of prices and lead to fire sales adversely impacting other financial institutions. I find clear evidence that the ECB s collateral framework has a stabilizing impact on sales of assets, especially for impaired banks and during the crisis the relationship is significant.
    JEL: B26 C21 E58
    Date: 2014
  107. By: Ambrogio Cesa-Bianchi; Luis Felipe Cespedes; Alessandro Rebucci
    Abstract: In this paper we first compare house price cycles in advanced and emerging economies using a new quarterly house price data set covering the period 1990-2012. We find that house prices in emerging economies grow faster, are more volatile, less persistent and less synchronized across countries than in advanced economies. We also find that they correlate with capital flows more closely than in advanced economies. We then condition the analysis on an exogenous change to a particular component of capital flows. We find that a global liquidity shock, identified by aggregating bank-to-bank cross border flows and by using the external instrumental variable approach of Stock and Watson (2012) and Mertens and Ravn (2013), has a much stronger impact on house prices and consumption in emerging markets than in advanced economies. In our empirical model, holding house prices or the exchange rate constant in response to this shock tends to dampen its effects on consumption in emerging economies.
    Keywords: Housing prices;Business cycles;Capital flows;International liquidity;Emerging markets;Developed countries;Capital flows, emerging markets, global liquidity, house prices, external instrumental variables
    Date: 2015–01–29
  108. By: Joan Monras (Département d'économie)
    Abstract: Previous literature shows that internal migration rates are strongly procyclical. This would seem to imply that geographic relocation does not help mitigate negative local economic shocks during recessions. This paper shows that this is not the case. I document that net in-migrationrates decreased in areas more affected by the Great Recession. Using various IV strategies that rely on the importance of the construction sector and the indebtedness of households before the crisis, I conclude that internal migration might help to alleviate up to one third of the effects of the crisis on wages in the most affected locations. This is due to a disproportionate decrease in in-migration into those locations rather than an increase in out-migration. More generally, I show that differences in population growth rates across locations are mainly explained by differences in in-migration rates rather than in out-migration rates. I introduce a model to guide the empirical analysis and to quantify the spill-over effects caused by internal migration.
    Keywords: Internal migration and local labor demand shocks.
    JEL: J61 J20 J30 F22 J43 R23
    Date: 2015–02
  109. By: Magomet Yandiev (Department of Economics, Lomonosov Moscow State University)
    Abstract: The Islamic finance model is sufficiently well specified at the “bank-to-client” level, but does not regulate the “central bank-to-bank” and “bank-to-bank” relationships. This paper proposes a concrete Shariah-compatible mechanism for setting up an Islamic interbank loan1 market and managing Islamic bank liquidity, which allows a segregation of Islamic and non-Islamic finance. Islamic banks should as a minimum delink from LIBOR and other traditional reference rates and come up with their own financial benchmarks.
    Keywords: Islamic banks, central bank, liquidity, interbank lending market, money market
    JEL: E5 G1 F3
    Date: 2015–02
  110. By: Adam, Klaus (University of Mannheim); Marcet, Albert (Institute d'Analisi Economica); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis)
    Abstract: Consumption-based asset pricing models with time-separable preferences can generate realistic amounts of stock price volatility if one allows for small deviations from rational expectations. We consider rational investors who entertain subjective prior beliefs about price behavior that are not equal but close to rational expectations. Optimal behavior then dictates that investors learn about price behavior from past price observations. We show that this imparts momentum and mean reversion into the equilibrium behavior of the price-dividend ratio, similar to what can be observed in the data. When estimating the model on U.S. stock price data using the method of simulated moments, we find that it can quantitatively account for the observed volatility of returns, the volatility and persistence of the price-dividend ratio, and the predictability of long-horizon returns. For reasonable degrees of risk aversion, the model generates up to one-half of the equity premium observed in the data. It also passes a formal statistical test for the overall goodness of fit, provided one excludes the equity premium from the set of moments to be matched.
    Keywords: Asset pricing; Learning; Subjective beliefs; Internal rationality
    JEL: E44 G12
    Date: 2015–02–10
  111. By: John D Hey; Daniela Di Cagno
    Abstract: Inspired by Clower’s conjecture that the necessity of trading through money in monetised economies might hinder convergence to competitive equilibrium, and hence, for example, cause unemploment, we experimentally investigate behaviour in markets where trading has to be done through money. In order to evaluate the properties of these markets, we compare their behaviour to behaviour in markets without money, where money cannot intervene. As the trading mechanism might be a compounding factor, we investigate two kinds of market mechanism: the double auction, where bids, asks and trades take place in continuous time throughout a trading period; and the clearing house, where bids and asks are placed once in a trading period, and which are then cleared by an aggregating device. We thus have four treatments, the pairwise combinations of non-monetised/monetised trading with double auction/clearing house. We find that: convergence is faster under non-monetised trading, implying that the necessity of using money to facilitate trade hinders convergence; that monetised trading is noisier than non-monetised trading; and that the volume of trade and realised surpluses are higher with the double auction than the clearing house. As far as efficiency is concerned, monetised trading lowers both informational and allocational efficiency, and while the double auction outperforms the clearing house in terms of allocational efficiency, the clearing house is marginally better than the double auction in terms of informational efficiency when trade is through money. Crucially we confirm the conjecture that inspired these experiments: that the necessity to use money intrading hinders convergence to competitive equilibrium, lowers realised trades and surpluses, and hence may cause unemployment.
    Keywords: clearing house mechanism, double auction mechanism, experimental markets, money, monetised trading, non-monetised trading.
    JEL: C92 D40 E24
    Date: 2015–02
  112. By: Congressional Budget Office
    Abstract: CBO projects that, under current law, the federal budget deficit will fall to $468 billion in 2015 – 2.6 percent of GDP – and remain roughly stable, as a percentage of GDP, through 2018. After that, the gap between spending and revenues is projected to grow, raising the already high level of federal debt. CBO anticipates that, under current law, economic activity will expand at a solid pace in 2015 and the next few years, reducing the amount of underused resources, or “slack,” in the economy.
    JEL: E20 H60 H61 H68
    Date: 2015–01–26
  113. By: Kakarot-Handtke, Egmont
    Abstract: Heterodoxy has left not one stone unturned and has unraveled a plethora of errors/mistakes/contradictions of Orthodoxy. The outcome of this prolonged critical and self-critical process is that there is actually no acceptable and accepted theoretical economics. The need of a paradigm shift is irrefutable. There is less need of further debunking exercises. For Constructive Heterodoxy follows that the subjective axiomatic foundation of Orthodoxy has to be replaced. All economic conceptions have to be consistently reconstructed. What comes to mind first are phenomena like market, profit, money, employment or aggregate demand. The latter is dealt with in the following.
    Keywords: new framework of concepts; structure-centric; Structural Law of Supply and Demand; public debt; minimum profit; breakdown
    JEL: B59 E00
    Date: 2015–02–13
  114. By: Atif R. Mian; Amir Sufi
    Abstract: Academic research, government inquiries, and press accounts show extensive mortgage fraud during the housing boom of the mid-2000s. We explore a particular type of mortgage fraud: the overstatement of income on mortgage applications. We define “income overstatement” in a zip code as the growth in income reported on home-purchase mortgage applications minus the average IRS-reported income growth from 2002 to 2005. Income overstatement is highest in low credit score, low income zip codes that Mian and Sufi (2009) show experience the strongest mortgage credit growth from 2002 to 2005. These same zip codes with high income overstatement are plagued with mortgage fraud according to independent measures. Income overstatement in a zip code is associated with poor performance during the mortgage credit boom, and terrible economic and financial economic outcomes after the boom including high default rates, negative income growth, and increased poverty and unemployment. From 1991 to 2007, the zip code-level correlation between IRS-reported income growth and growth in income reported on mortgage applications is always positive with one exception: the correlation goes to zero in the non-GSE market during the 2002 to 2005 period. Income reported on mortgage applications should not be used as true income in low credit score zip codes from 2002 to 2005.
    JEL: E3 E4 E5 G01 G2 R31
    Date: 2015–02
  115. By: Silvia Domeneghetti (Banca Sella and University of Verona); Andrea Vaona (Department of Economics (University of Verona))
    Abstract: We study aggregate profitability dynamics in Italy from 1995 to 2009, by stressing its regional trends. We make use of various analytic approaches, such as decompositions, analysis of the ranking of the profit rate of the various regions and of their coefficient of variation, as well as of a shift-share analysis. We find that the distribution of regional profit rates changed little over time and that aggregate profitability dynamics was driven by within region developments rather than by changes of the weights of the regions within the national economy. Policy and theoretical implications are discussed in the light of the previous literature of reference.
    Keywords: Aggregate profitability dynamics, regions, Italy
    JEL: R10 E11
    Date: 2015–02
  116. By: Andy Feng; Georg Graetz
    Abstract: How do firms respond to technological advances that facilitate the automation of tasks? Which tasks will they automate, and what types of worker will be replaced as a result? We present a model that distinguishes between a task's engineering complexity and its training requirements. When two tasks are equally complex, firms will automate the task that requires more training and in which labor is hence more expensive. Under quite general conditions this leads to job polarization, a decline in middle wage jobs relative to both high and low wage jobs. Our theory explains recent and historical instances of job polarization as caused by labor-replacing technologies, such as computers, the electric motor, and the steam engine, respectively. The model makes novel predictions regarding occupational training requirements, which we find to be consistent with US data.
    Keywords: Automation, job polarization, technical change, wage inequality, training
    JEL: E25 J23 J31 M53 O33
    Date: 2015–02
  117. By: Philippe Aghion; Emmanuel Farhi; Enisse Kharroubi
    Abstract: In this paper, we use cross-industry, cross-country panel data to test whether industry growth is positively affected by the interaction between the reaction of real short-term interest rates to the business cycle and industry-level measures of financial constraints. Financial constraints are measured, either by the extent to which an industry is prone to being "credit-constrained", or by the extent to which it is prone to being "liquidity-constrained". Our main findings are that: (i) the interaction between credit or liquidity constraints and the counter-cyclical real short-term interest rate has a positive, significant, and robust impact on the average annual growth rate of industry labor productivity; (ii) these interaction effects tend to be more significant in recessions than in expansions.
    Keywords: growth, tangibility, liquidity dependence, short-term interest rate, counter-cyclicality
    Date: 2015–02
  118. By: Hassan Molana; Catia Montagna
    Abstract: We study how the interaction between economic openness and competitive selection affects the effectiveness of employment (and entry) subsidisation. Within a twocountry heterogeneous-firms model with endogenous labour supply, we find that optimal employment subsidies are always positive even though they can have pro- or anti-competitive effects on industry selection depending on whether the economy is open or not. We also find that selection effects resulting from international competition and fiscal externalities may imply that non-cooperative policies entail under-subsidisation of employment. Whilst always having procompetitive selection effects on the industry, entry subsidies are shown to be less effective in raising employment and welfare than employment subsidies.
    Keywords: Optimal policy, employment subsidies, competitive selection, international trade
    JEL: E22 E64 F12 F41
    Date: 2015–02
  119. By: Silvia Gabrieli and Co-Pierre Georg
    Abstract: We study the liquidity allocation among European banks around the Lehman insolvency using a novel dataset of all interbank loans settled via the Eurosystem’s payment system TARGET2. Following the Lehman insolvency, lenders in the overnight segment become sensitive to counterparty characteristics and banks start hoarding liquidity by shortening the maturity of their interbank lending. This aggregate change in liquidity reallocation is accompanied by a substantial structural change that can best be characterized as a shrinking of the interbank network. Such a change in the network structure is consequential: banks with higher centrality within the network have better access to liquidity and are able to charge larger intermediation spreads. Therefore, we show the existence of a sizeable interbank lending channel.
    Keywords: Interbank loans, network topology, Financial Stability
    JEL: D85 E5 G1 G21
    Date: 2015
  120. By: ziadi, Azza
    Abstract: The objective of this article is to identify the nature of the relationship between the financial sphere and the productive sphere. First, disclosing the various theoretical and empirical studies on the so-called relationship, then highlighting the nature of the relationship between the two spheres for AMU countries with the exception of Algeria and Libya. We will therefore answer the question: how the financial sector affects -t- it on the real economy by taking as a case study Tunisia, Morocco and Mauritania.
    Keywords: Finance, economic growth, economic integration, savings, economic development
    JEL: E23
    Date: 2014–05–02
  121. By: LI, XI HAO; Gallegati, Mauro
    Abstract: Borrowing from our experience in agent-based computational economic research from `bottom-up', this paper considers economic system as multi-level dynamical system that micro-level agents' interaction leads to structural transition in meso-level, which results in macro-level market dynamics with endogenous fluctuation or even market crashes. By the concept of transition matrix, we develop technique to quantify meso-level structural change induced by micro-level interaction. Then we apply this quantification to propose the method of dynamic projection that delivers out-of-sample forecast of macro-level economic variable from micro-level big data. We testify this method with a data set of financial statements for 4599 firms listed in Tokyo Stock Exchange for the year of 1980 to 2012. The Diebold-Mariano test indicates that the dynamic projection has significantly higher accuracy for one-period-ahead out-of-sample forecast than the benchmark of ARIMA models.
    Keywords: economic forecasting, dynamic projection, multi-level dynamical system, transition matrix
    JEL: C53 C63 E27
    Date: 2015–01–01
  122. By: Kapetanios, George; Khalaf, Lynda; Marcellino, Massimiliano
    Abstract: Robust methods for IV inference have received considerable attention recently. Their analysis has raised a variety of problematic issues such as size/power trade-offs resulting from weak or many instruments. We show that information-reduction methods provide a useful and practical solution to this and related problems. Formally, we propose factor-based modifications to three popular weak-instrument-robust statistics, and illustrate their validity asymptotically and in finite samples. Results are derived using asymptotic settings that are commonly used in both the factor and weak instrument literatures. For the Anderson-Rubin statistic, we also provide analytical finite sample results that do not require any underlying factor structure. An illustrative Monte Carlo study reveals the following. Factor based tests control size regardless of instruments and factor quality. All factor based tests are systematically more powerful than standard counterparts. With informative instruments and in contrast with standard tests: (i) power of factor-based tests is not affected by k even when large, and (ii) weak factor structure does not cost power. An empirical study on a New Keynesian macroeconomic model suggests that our factor-based methods can bridge a number of gaps between structural and statistical modeling.
    Keywords: factor model; identification-robust inference; IV regression; new Keynesian model; principle components; weak instruments
    Date: 2015–02
  123. By: Ludwig, Maximilian
    Abstract: In recent years, the number of theoretical models on sovereign default exploded. I take a step back and investigate how good our current theoretical understanding of real world sovereign debt crisis really is. This is done by deriving implications that are hard wired into our models and comparing the evolution of nearly 20 sovereign debt crises in Latin America with them. I find that the available models capture aspects of virtually all crises, yet there are only a few crisis that are fully consistent with the available models.
    JEL: E65 F34 H63
    Date: 2014
  124. By: Ricardo de Avillez
    Abstract: The Canadian forest products sector has had an above-average productivity performance in the 2000-2012 period, driven in particular by the wood product manufacturing subsector. While the forestry and logging subsector has also benefited from strong productivity gains, the productivity performance of the paper manufacturing subsector has been far from impressive, especially in the post-2008 period. This report provides a detailed analysis of output, input and productivity trends in the Canadian forest products sector. It also looks at the key drivers of productivity in the sector, investigating potential barriers to productivity growth and discussing policies that could enable faster growth. Given the increasing role of countries with low-labour costs in several forest product markets, maintaining robust productivity growth is an imperative for the Canadian forest products sector if it wants to remain competitive internationally. In this sense, the report recommends renewed focus on human and physical capital investment, as well as on R&D spending.
    Keywords: Productivity, Growth, Forestry, Canada, Research and Development, Capital Intensity, Human Capital, Physical Capital, Wood Product Manufacturing, Paper Manufacuturing, Forest Products Sector
    JEL: O13 O30 O51 J00 E23 Q20 D24 J08
    Date: 2014–05
  125. By: Greenwood, Jeremy (University of Pennsylvania); Guner, Nezih (MOVE, Barcelona); Kocharkov, Georgi (University of Konstanz); Santos, Cezar (Getulio Vargas Foundation, Brazil)
    Abstract: Marriage has declined since 1960, with the drop being bigger for non-college educated individuals versus college educated ones. Divorce has increased, more so for the non-college educated. Additionally, positive assortative mating has risen. Income inequality among households has also widened. A unified model of marriage, divorce, educational attainment and married female labor-force participation is developed and estimated to fit the postwar U.S. data. Two underlying driving forces are considered: technological progress in the household sector and shifts in the wage structure. The analysis emphasizes the joint role that educational attainment, married female labor-force participation, and assortative mating play in determining income inequality.
    Keywords: assortative mating, education, married female labor supply, household production, marriage and divorce, inequality
    JEL: E13 J12 J22 O11
    Date: 2015–02
  126. By: Chatterjee, Rittwik; Chattopadhyay, Srobonti
    Abstract: This paper makes an attempt to link collaborative research in industry with Government initiative and market rate of interests. Two firms involved in Cournot competition in the market are deciding whether to conduct research to device a technique for cost reduction. Amount of cost reduction after the research and the initial amount of capital possessed by each firm are private information to each of the firms. In particular both of them are having capacity constraint. Our objective here is to figure out the impacts of the lending and borrowing rates of interest on collaborative research. In the process we study the effectiveness of different policies to encourage collaborative R&D.
    Keywords: Collaborative research, Government policy, Subsidy, Interest rate
    JEL: E43 H71 L50 O31 O38
    Date: 2015–02–08
  127. By: Emmanuelle Taugourdeau (Centre d'Economie de la Sorbonne - Paris School of Economics); Abderrahmane Ziad (CREM - Université de Caen)
    Abstract: This paper analyses the tax competition mechanisms in a context of commodity trade. We show that the trade market equilibrium may restore the efficiency of the public good provision when agents from different countries have symmetric preferences. Asymmetry in preferences implies over or underprovision in public goods depending on the degree of asymmetry between countries. In both cases, the price adjustment leaves the capital stock unchanged so that the stock of capital is not affected by the taxes. Finally, we show that the centralized choice does not systematically restore the efficiency of the public good provision.
    Keywords: Tax competition, Nash equilibrium, Interregional Trade.
    JEL: H21 H41 E62 F12
    Date: 2015–02
  128. By: Gao, Yuning; Zheng, Yunfeng; Hu, Angang; Meng, Bo
    Abstract: The rapid growth of China's economy has brought about huge losses of natural capital in the form of natural resource depletion and damages from carbon emissions. This paper recalculates value added, capital formation, capital stock, and related multifactor productivity in China's industrial sectors by further developing the genuine savings method of the World Bank. The sector-level natural capital loss was calculated using China's official input–output table and their extensions for tracing final consumers. The capital output elasticity in the productivity estimation was adjusted based on these tables. The results show that although the loss of natural capital in China's industrial sectors in terms of value added has slowed, the impacts on their productivity during the past decades is still quite clear.
    Keywords: China, Input-output tables, Economic sector, Productivity
    JEL: C67 E01 O4
    Date: 2015–02

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