nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒02‒28
121 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Effect of Intelligence on Financial Development: A Cross-Country Comparison By Oasis Kodila-Tedika ; Simplice Asongu
  2. Selection Effects in Producer-Price Setting By Carlsson, Mikael
  3. Risks in macroeconomic fundamentals and excess bond returns predictability By De Rezende, Rafael B.
  4. Near-Rational Expectations: How Far Are Surveys from Rationality? By Sergey Ivashchenko
  5. Accession to the Eurozone as Lithuania’s exit strategy from the currency board system By Dorota Zuchowska
  6. Exchange rate Pass-Through to domestic prices in Tunisia: a short and long run analysis By Helali, Kamel ; Kalai, Maha ; Boujelben, Thouraya
  7. The Impact of Government Intervention on the Stabilization of Domestic Financial Markets and on U.S. Banks’ Asset Composition By Egly, Peter V. ; Escobari, Diego ; Johnk, David W.
  8. Can monetary policy surprise the market? By Edda Claus, Mardi Dungey
  9. Credible enough? Forward guidance and perceived National Bank of Poland’s policy rule By Pawel Baranowski ; Pawel Gajewski
  10. Lessons for Forecasting Unemployment in the U.S.: Use Flow Rates, Mind the Trend By Meyer, Brent ; Tasci, Murat
  11. Inconsistent voting behavior in the FOMC By Lähner, Tom
  12. Tracing CO2 emissions in global value chains By Meng, Bo ; Peters, Glen ; Wang, Zhi
  13. The Optimal Monetary and Fiscal Policy Mix in a Financially Heterogeneous Monetary Union By Jakob Palek
  14. The Impact of Immigrants on Public Finances: A Forecast Analysis for Denmark By Hansen, Marianne Frank ; Schultz-Nielsen, Marie Louise ; Tranæs, Torben
  15. On the Size of the Government Spending Multiplier in the Euro Area By P. Fève ; J-G. Sahuc
  16. From Galloping Inflation to Price Stability in Steps: Israel 1985–2013 By Rafi Melnick ; Till Strohsal ; ;
  17. Changes in the global oil market By Erdenebat Bataa ; Marwan Izzeldin ; Denise Osborn
  18. Unemployment and Labor Force Participation in Turkey By Tansel, Aysit ; Ozdemir, Zeynel Abidin ; Aksoy, Emre
  19. Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages By Feng, Andy ; Graetz, Georg
  20. Optimal capital requirements over the business and financial cycles By Malherbe, Frédéric
  21. Learning to open up: Capital account liberalizations in the post-Bretton Woods era By Bicaba, Zorobabel T. ; Coricelli, Fabrizio
  22. Social Protection in ASEAN: Challenges and Initiatives for Post-2015 Vision By Fauziah ZEN ; Mukul G. ASHER
  23. "Twin deficits" in Greece in search of causality. By Michaelis Nikiforos ; Laura Carvalho ; Christian Schoder
  24. Technology and the Changing Family: A Unified Model of marriage, Divorce, Educational Attainment and Married Female Labor-Force Participation By Jeremy Greenwood ; Nezih Guner ; Georgi Kocharkov ; Cezar Santos
  26. Variance Bounds as Thresholds for ‘Excessive’ Currency Volatility: Inflation Targeting Emerging Economies By Shaista Amod and Shakill Hassan
  27. Assessment of Monetary Union in SADC: Evidence from Cointegration and Panel Unit Root Tests By Mulatu F Zerihun, Marthinus C Breitenbach and Francis Kemegue
  28. Human capital in economic development: from labour productiviey to macroeconomic impact By Kristinn Hermannsson ; Patrizio Lecca
  29. Tax Policy and Food Security By Gopalakrishnan, Pawan ; Saha, Anuradha
  30. On the mathematic prediction of economic and social crises: toward a harmonic interpretation of the Kondratiev Wave, revised and corrected, with a new appendix, February 12, 2015 By Albers, Scott ; Albers, Andrew
  31. The Theory of Finance: A novel finance model being formed on the Internet By Magomet Yandiev
  32. Trilemma Challenges for the People's Republic of China By Kawai, Masahiro ; Liu, Li-Gang
  33. Population structure and consumption growth: Evidence from National Transfer Accounts By Kuhn, Michael ; Prettner, Klaus
  34. Modeling Growth, Distribution, and the Environment in a Stock-Flow Consistent Framework By Asjad Naqvi
  35. An Overview of the Factor-augmented Error-Correction Model By Anindya Banerjee ; Massimiliano Marcellino ; Igor Masten
  36. Monetary Policy, Bank Bailouts and the Sovereign-Bank Risk Nexus in the Euro Area By Marcel Fratzscher ; Malte Rieth
  37. Inflation-Growth Nexus in Africa: Evidence from a Pooled CCE Multiple Regime Panel Smooth Transition Model By Reneé van Eyden ; Tolga Omay ; Rangan Gupta
  38. Assessment of Monetary Union in SADC: Evidence from Cointegration and Panel Unit Root Tests By Mulatu F. Zehirun ; Marthinus C. Breitenbach ; Francis M. Kemegue
  39. The Maturity and Payment Schedule of Sovereign Debt By Yan Bai ; Seon Tae Kim ; Gabriel P. Mihalache
  40. The International Transmission of Credit Bubbles: Theory and Policy By Jaume Ventura ; Alberto Martin
  41. Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Jobseekers By Robert E. Hall ; Sam Schulhofer-Wohl
  42. Effects of Macroeconomic Policy on Air Quality: Evidence from the US By Halkos, George ; Paizanos, Epameinondas
  43. An Analysis of the Canada-U.S. ICT Investment Gap: An Update to 2013 By Jasmin JacLyn Thomas
  44. What Explains the Canada-U.S. Software Investment Intensity Gap? By Andrew Sharpe
  45. Sustainable Governance Indicators By Andrew Sharpe ; Anke Kessler ; Martin Thunert
  46. Nowcasting and Placecasting Entrepreneurial Quality and Performance By Jorge Guzman ; Scott Stern
  47. A Threshold Cointegration Analysis of Asymmetric Adjustment of OPEC and non-OPEC Monthly Crude Oil Prices By Ghassan, Hassan B. ; Banerjee, Prashanta K.
  48. Macroeconomic Implications of Tax Cuts for the Top Income Groups: 1960 - 2010 By Markus Poschke ; Baris Kaymak
  49. Heteroeneous forecasters and nonlinear expectation formation in US stock market By Pierdzioch, Christian ; Reitz, Stefan ; Ruelke, Jan-Christoph
  50. The internationalization of the RMB, capital market openness, and financial reforms in China By Aizenman , Joshua
  51. Macroelasticities and the U.S. sequestration budget cuts By Zarazaga, Carlos E.
  52. Industrialization and the demand for mineral commodities By Stuermer, Martin
  53. 150 years of boom and bust: what drives mineral commodity prices? By Stuermer, Martin
  54. The Real Value of China's Stock Market By Jennifer N. Carpenter ; Fangzhou Lu ; Robert F. Whitelaw
  55. The Great Recession, Retirement and Related Outcomes By Alan L. Gustman ; Thomas L. Steinmeier ; Nahid Tabatabai
  56. Systemic Risk and the Macroeconomy: An Empirical Evaluation By Stefano Giglio ; Bryan T. Kelly ; Seth Pruitt
  57. A Tale of Two Countries: Sovereign Default, Exchange Rate, and Trade By Gu, Grace Weishi
  58. Foreign direct investment, economic growth and structural transformation: The case of West African Economies and Monetary Union Countries By Sandjong Tomi, Diderot Guy D'Estaing
  59. A New Money Exchange System: The World Calorie Currency (WCC) By Zhou, Xinyi Jimmy
  60. Do the macroeconomic variables have any impact on the Islamic bank deposits?An application of ARDL approach to the Malaysian market By Mobin, Mohammad Ashraful ; Masih, Mansur
  61. Increasing household debts and its relation to GDP, interest rate and house price: Malaysia’s perspective By Rahman, Sharezan ; Masih, Mansur
  62. Which type of government revenue leads government expenditure? By Abdi, Zeinab ; Masih, Mansur
  63. Long term funding and regulation: facilitating financial stability and development in low income developing countries By Marianne, Ojo
  64. Fiscal Stimulus Effectiveness in Japan: Evidence from Recent Policies By Tomomi Miyazaki
  65. The Price vs Quantity Debate: Climate policy and the role of business cycles By Anna Grodecka ; Karlygash Kuralbayeva
  66. Emergence of Sovereign Wealth Funds By Wessel Vermeulen ; Jean-Francois Carpantier
  67. Rise of the machines: the effects of labor-saving innovations on jobs and wages By Andy Feng ; Georg Graetz
  68. Forward Guidance at the Zero Lower Bound in a Model of Price-Level Targeting By Illing, Gerhard ; Siemsen, Thomas
  69. The Dynamics of Sovereign Default Risk and Political Turnover By Almuth Scholl
  70. The Changing Transmission Mechanism of U.S. Monetary Policy By Norhana Endut ; James Morley ; Pao-Lin Tien
  71. Inventory Shocks and the Great Moderation. By James Morley ; Aarti Singh
  72. Modeling the price of crude oil and motor fuel: a five-year revision By Kitov, Ivan
  73. Zum politischen Machtwechsel in Griechenland. Die Parlamentswahlen von Januar 2015 aus einem kritischen Blickwinkel By Mavrozacharakis, Emmanouil
  74. Choques fiscais e instabilidade financeira no Brasil: uma abordagem TVAR By Gian Paulo Soave
  75. Inequality of opportunity in Europe before and after the Great Recession By Michal Brzezinski
  76. Income inequality and Germany’s current account surplus By Patrick Grüning ; Thomas Theobald ; Till van Treeck
  77. Russian University Students And The Combination Of Study And Work: Is It All About Earning, Learning Or Job Market Signaling? By Sergey Roshchin ; Victor Rudakov
  80. Looking behind mortgage delinquencies By Sauro Mocetti ; Eliana Viviano
  81. Assessing potential growth in emerging countries after the global financial crisis By Enrica Di Stefano ; Daniela Marconi
  82. Easier said than done: the divergence between soft and hard data By Antonio M. Conti ; Concetta Rondinelli
  83. Medium-term forecasting of euro-area macroeconomic variables with DSGE and BVARX models By Lorenzo Burlon ; Simone Emiliozzi ; Alessandro Notarpietro ; Massimiliano Pisani
  84. Financial shocks and the real economy in a nonlinear world: a survey of the theoretical and empirical literature By Andrea Silvestrini ; Andrea Zaghini
  85. Monitoring the world business cycle By Maximo Camacho ; Jaime Martinez Martin
  86. Cyclical adjustment of capital requirements: a simple framework By Rafael Repullo
  87. Capital goods, measured TFP and growth: The case of Spain By Antonia Diaz ; Luis Franjo
  88. International Interest Rates and Housing Markets By Luis Franjo
  89. State-Dependent Pricing, Firm Entry and Exit, and Non-Neutrality of Money By Koki Oikawa ; Kozo Ueda
  90. Globalization and international risk-sharing: do political and social factors matter more than economic integration? By Faruk Balli ; Eleonora Pierucci
  91. Overnight RRP operations as a monetary policy tool: some design considerations By Frost, Joshua ; Logan, Lorie ; Martin, Antoine ; McCabe, Patrick E. ; Natalucci, Fabio M. ; Remache, Julie
  92. Pegging the exchange rate to gain monetary policy credibility By Davis, J. Scott ; Fujiwara, Ippei
  93. Asymmetric firm dynamics under rational inattention By Cheremukhin, Anton A. ; Tutino, Antonella
  94. Can monetary policy surprise the market? By Edda Claus ; Mardi Dungey
  95. Stationarity of Econometric Learning with Bounded Memory and a Predicted State Variable By Tatiana Damjanovic ; Šarūnas Girdėnas ; Keqing Liu
  96. Intertemporal equilibrium with financial asset and physical capital. By Cuong Le Van ; Ngoc-Sang Pham
  97. Domestic activity patterns pertaining to households and informality in Turkey. By Armagan Tuna Aktuna-Gunes
  98. Measuring the effect of informal work and domestic activities on poverty and income inequality in Turkey. By Armagan Tuna Aktuna-Gunes
  99. Basic understanding of social inequality dynamics By Krawczyk, Jacek B ; Townsend, Wilbur
  100. The Welfare State and Migration: A Dynamic Analysis of Political Coalitions By Razin, Assaf ; Sadka, Efraim ; Suwankiri, Benjarong
  101. 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
  102. Taking Banks to Solow By Gersbach, Hans ; Rochet, Jean-Charles ; Scheffel, Martin
  103. Hawks and Doves at the FOMC By Eijffinger, Sylvester C W ; Mahieu, Ronald J ; Raes, Louis
  104. The Price-Quantity Decomposition of Capital Values Revisited: Framework and Examples By Biørn, Erik
  105. Impacts of Informal Caregiving on Caregiver Employment, Health, and Family By Bauer, Jan M. ; Sousa-Poza, Alfonso
  106. Monetary Policy and Inequality in the UK By Haroon Mumtaz ; Angeliki Theophilopoulou
  107. Model Misspecification and Relaxing Rational Expectations By Lance Kent
  108. Policy initiatives and …firms access to external fi…nance: Evidence from a panel of emerging Asian economies By Udichibarna Bose ; Ronald MacDonald ; Serafeim Tsoukas
  109. Fiscal multipliers in a two-sector search and matching model By Konstantinos Angelopoulos ; Wei Jiang ; James Malley
  110. Labor mobility and fiscal policy in a currency union By Angelo Baglioni ; Andrea Boitani ; Massimo Bordignon
  111. Shareholding Network in the Euro Area Banking Market By Nicolò Pecora ; Alessandro Spelta
  112. Is the Friedman Rule Stabilizing? Some Unpleasant Results in a Heterogeneous Expectations Framework By Mattia Guerini
  113. Forecasting the intraday market price of money By Andrea Monticini ; Francesco Ravazzolo
  114. Animal Spirits, Heterogeneous Expectations and the Emergence of Booms and Busts By Tiziana Assenza ; William Brock ; Cars Hommes
  115. Forecasting Mortgages: Internet Search Data as a Proxy for Mortgage Credit Demand By Branislav Saxa
  116. Securitization under Asymmetric Information over the Business Cycle By Martin Kuncl
  117. Determinantes socioeconómicas de las TIC en el rendimiento de los estudiantes en las Pruebas saber 11 para Bogotá By David Leonardo Parra Araque
  118. Insider bank runs: community bank fragility and the financial crisis of 2007 By Henderson, Christopher ; Lang, William W. ; Jackson, William E.
  119. House prices, heterogeneous banks and unconventional monetary policy options By Smith, Andrew Lee
  120. Self-Fulfilling Credit Cycles By Yi Wen ; Leo Kaas ; Costas Azariadis
  121. Stationarity of Econometric Learning with Bounded Memory and a Predicted State Variable By Tatiana Damjanovic ; Sarunas Girdenas ; Keqing Liu

  1. By: Oasis Kodila-Tedika (Université de Kinshasa Département d’Eco ); Simplice Asongu (Yaoundé/Cameroun )
    Abstract: We assess the correlations between intelligence and financial development in 123 countries using data averages from 2000-2010. Human capital is measured in terms of IQ, cognitive ability & cognitive skills, while financial development is appreciated both from financial intermediary and stock market development perspectives. Short-term financial measures are private and domestic credits whereas long-term financial indicators include: stock market capitalization, stock market value traded and turnover ratio. The following findings are established. (1) With respect to private credit, the positive correlations of IQ and cognitive ability are broadly similar while that of cognitive skills is substantially higher in terms of magnitude. (2) The correlation between intelligence and other financial variables are broadly similar. (3) The underlying findings are broadly confirmed in terms of sign of correlation, though the magnitude of correlation is higher (lower) with the addition of social capital or ethnic fractionalization (institutions or income). (4) When continents are excluded to control for extreme effects, baseline results are confirmed and the following on order of continental importance in financial development is established in increasing magnitude: Africa, Americas, Oceania, Europe & Asia.
    Keywords: Financial development, Intelligence, Skill, Human Capital
    JEL: E01 G20 I20 I29
    Date: 2015–02
  2. By: Carlsson, Mikael (Uppsala University )
    Abstract: We use micro data on product prices linked to information on the firms that set them to test for selection effects (state dependence) in micro-level producer pricing. In contrast to using synthetic data from a canonical Menu-Cost model, we find very weak, if any, micro-level selection effects when running price change probability regressions on actual data. Also, fitting a model that nests both time- and state-dependent elements (the CalvoPlus model of Nakamura and Steinsson, 2010), the parameters mimic the standard Calvo (1983) model. Thus, upstream in the supply chain, price setting is best characterized by a very low degree of self-selection.
    Keywords: Price-setting; Business Cycles; Micro Data
    JEL: D40 E30 L16
    Date: 2014–11–01
  3. By: De Rezende, Rafael B. (Monetary Policy Department, Central Bank of Sweden )
    Abstract: I provide evidence that risks in macroeconomic fundamentals contain valuable information about bond risk premia. I extract factors from a set of quantile-based risk measures estimated for US macroeconomic variables and document that they account for up to 31% of the variation in excess bond returns. The main predictor factors are associated with point expectations of real economic activity, uncertainty about real GDP growth, and downside and upside risks in housing starts and the unemployment rate. In addition, factors provide information about bond risk premia variation that is largely unrelated to that contained in the Cochrane-Piazzesi and Ludvigson-Ng factors. These results are confirmed statistically and economically in an out-of-sample setting and hold when factors are constructed using macroeconomic data available in real-time. All together, these findings suggest that risks to macroeconomic fundamentals are an important source of fluctuations in the US government bond market.
    Keywords: expectations hypothesis; term structure of interest rates; ex ante macroeconomic risks; bond risk premia; macro risk factors.
    JEL: E43 E44 G11 G12 G17
    Date: 2015–02–01
  4. By: Sergey Ivashchenko
    Abstract: New simple forms of deviation from rational expectations (RE) are suggested: strong near-rational expectations (SNRE) and weak near-rational expectations (WNRE). The medium-scale DSGE model is estimated with the RE, the SNRE and the WNRE. It is estimated with and without observed from the surveys expectations. The quality of out-of-sample forecasts is estimated. It is shown that near-rational concept produce the same advantages as learning without its disadvantages. However, the DSGE model with the RE and the observed expectations with measurement errors can produce results that only slightly worse than with the WNRE. The influence of the observed expectations on the forecasting quality is analyzed.
    Keywords: DSGE, out of sample forecasts, survey expectations, near-rational expectations
    JEL: E32 E37 E47
    Date: 2014–12–31
  5. By: Dorota Zuchowska (College of Social and Media Culture in Torun )
    Abstract: In the years 2004-2014 the Lithuania’s exchange rate policy was based on a rigid currency board system. After a period of uncontested success in the fight against inflation in the first decade of the transition and economic growth, entering the ERM II in 2004 and efforts to adopt the euro were treated as an optimal exit strategy from the currency board system. However, the consequences of this exchange rate system in the following years (until 2014) prevented Lithuania from meeting the economic convergence criteria. The starting point for the research is based on the theoretical analysis of literature studying benefits and risks associated with the use of the currency board system by the monetary authorities. The empirical analysis refers to the case of Lithuania and covers the years 2004-2014. The purpose of this analysis is to look at the effects of the use of the currency board system from the perspective of the convergence criteria of monetary nature and the extent of their implementation in the absence of opportunities for autonomous monetary policy.
    Keywords: Currency Board; Inflation;Euro Adoption; Lithuania
    JEL: E31 F31 F36
    Date: 2015–02
  6. By: Helali, Kamel ; Kalai, Maha ; Boujelben, Thouraya
    Abstract: This study analyzes the impact of the exchange rate fluctuations in the short and long-runs in Tunisia under a pure commitment policy through two channels. The first is the Structural Vector Autoregression used to analyze the short run effects of the exchange rate on the industrial production index and on the consumer and import price indexes. The second is the Vector Error Correction Model used to examine the long run dynamic effects of the exchange rate upon the same variables relying on Tunisian monthly data during the period January 1993 to June 2011. Unlike several empirical studies, which show that the impact of the exchange rate movements on prices has been reduced over the past few years in the industrialized countries, the exchange rate is found to be a potential source not only of production but also of inflation reduction in Tunisia. Indeed, the direct channel of the exchange rate seems to have a significant impact on production and inflation in the long-run, whereas the indirect one has no effect on the money supply. These results strongly support the monetary policy of the central bank targeting the exchange rate because there is a strong correlation between this rate and prices.
    Keywords: Exchange rate Pass-through; domestic prices; short and long run analysis; Tunisia.
    JEL: C32 E31 F31 F43
    Date: 2014–06–15
  7. By: Egly, Peter V. ; Escobari, Diego ; Johnk, David W.
    Abstract: The 2007-2009 financial crisis that evolved from various factors including the housing boom, aggressive lending activity, financial innovation, and increased access to money and capital markets prompted unprecedented U.S. government intervention in the financial sector. We examine changes in banks’ balance sheet composition associated with U.S. government intervention during the crisis. We find that the initial round of quantitative easing positively impacts bank liquidity across all bank samples. Our results show a positive impact of repurchase agreement market rates on bank liquidity for small and medium banks. We conclude that banks have become more liquid in the post-crisis period, especially the larger banks (large and money center banks). We show that real estate loan portfolio exposures have reverted to pre-crisis levels for money center banks and remained flat for all other bank samples.
    Keywords: Bank Liquidity, Government Intervention, Quantitative Easing, Dynamic Panel Data Methods
    JEL: E44 G21
    Date: 2014–12–10
  8. By: Edda Claus, Mardi Dungey (Wilfrid Laurier University )
    Abstract: This paper extracts measures of monetary policy surprises for Australia, Canada and the United States using a latent factor framework. We distinguish monetary policy surprises which occur when central banks report new assessments of the economy (or do not reinforce changes expected by market assessments) from those when policy makers appear to change their preferences. Changing policy preferences are evident in all jurisdictions, particularly during periods of stress. No-change policy announcements have distinctly differing impacts across the three countries; in Canada these have the same impact as policy changes, in Australia they are not discernibly different to a normal trading day and the US market lies between these scenarios. The revealed differences in size and type of the policy surprise outcomes for these operationally similar central banks suggests that the role of transparency policy is more subtle than previously appreciated.
    Keywords: monetary policy, central banks, latent factor model
    JEL: E43 E52 C38
    Date: 2015–01–01
  9. By: Pawel Baranowski (Faculty of Economics and Sociology, University of Lodz ); Pawel Gajewski (Faculty of Economics and Sociology, University of Lodz )
    Abstract: Credible forward guidance should reduce the perceived impact of macroeconomic variables on the interest rate. Using a micro-level dataset we test the perception of monetary policy in Poland among professional forecasters and find evidence for forward guidance credibility.
    Keywords: minimum wages, survey data, forward guidance, Taylor rule, expectations
    JEL: E44 E52 E58
    Date: 2015–02
  10. By: Meyer, Brent (Federal Reserve Bank of Atlanta ); Tasci, Murat (Federal Reserve Bank of Cleveland )
    Abstract: This paper evaluates the ability of autoregressive models, professional forecasters, and models that leverage unemployment flows to forecast the unemployment rate. We pay particular attention to flows-based approaches—the more reduced form approach of Barnichon and Nekarda (2012) and the more structural method in Tasci (2012)—to generalize whether data on unemployment flows is useful in forecasting the unemployment rate. We find that any approach that leverages unemployment inflow and outflow rates performs well in the near term. Over longer forecast horizons, Tasci (2012) appears to be a useful framework, even though it was designed to be mainly a tool to uncover long-run labor market dynamics such as the “natural” rate. Its usefulness is amplified at specific points in the business cycle when unemployment rate is away from the longer-run natural rate. Judgmental forecasts from professional economists tend to be the single best predictor of future unemployment rates. However, combining those guesses with flows based approaches yields significant gains in forecasting accuracy.
    Keywords: Unemployment Forecasting; Natural Rate; Unemployment Flows; Labor Market Search
    JEL: C53 E24 E32 J64
    Date: 2015–02–13
  11. By: Lähner, Tom
    Abstract: This paper examines determinants of inconsistent voting behavior in the Federal Open Market Committee (FOMC). Inconsistent voting behavior is defined as a changing preference on the preferred interest rate voiced in the policy go-around relative to the interest rate preference cast in the formal voting. It is hypothesized that the change in transparency in 1993 as well as individual characteristics of FOMC members may play a significant role in inconsistent voting behavior. Using FOMC voting data extracted from verbatim transcripts from 1989 until 2008 results can be summarized as follows: The regime shift in transparency has a significant impact on the probability of casting inconsistent votes. After 1993, the probability of casting inconsistent votes decreases significantly, on average by 3.3%. FOMC members with longer tenure on the committee have a lower probability of casting inconsistent votes. Further results suggest that Board members and bank presidents differ significantly, with bank presidents casting inconsistent votes more often than Board members do. This relation holds true for gender as well, with female members casting more inconsistent votes than males. In addition, political aspects and career backgrounds also contribute to explaining inconsistent voting behavior in the FOMC. Conditional effects reveal that after the change in transparency differences between Board members and bank presidents remain, whereas differences between male and female members have diminished. Further results suggest that FOMC members with a career in the government sector have been strongly affected by the regime shift in transparency.
    Keywords: FOMC; transcript data, inconsistent voting; logit estimations
    JEL: E43 E52 E58
    Date: 2015–01
  12. By: Meng, Bo ; Peters, Glen ; Wang, Zhi
    Abstract: This paper integrates two lines of research into a unified conceptual framework: trade in global value chains and embodied emissions. This allows both value added and emissions to be systematically traced at the country, sector, and bilateral levels through various production network routes. By combining value-added and emissions accounting in a consistent way, the potential environmental cost (amount of emissions per unit of value added) along global value chains can be estimated. Using this unified accounting method, we trace CO2 emissions in the global production and trade network among 41 economies in 35 sectors from 1995 to 2009, basing our calculations on the World Input–Output Database, and show how they help us to better understand the impact of cross-country production sharing on the environment.
    Keywords: Developing countries, China, Developed countries, International trade, Trade policy, Air pollution, Environmental problems, Environmental policy, Value-added, Embodied emissions, Global value chains
    JEL: E01 F1 F14 F18 Q5 Q56
    Date: 2015–01–13
  13. By: Jakob Palek (University of Kassel )
    Abstract: Recent work on financial frictions in New Keynesian models suggest that there is a sizable spread between the risk-less interest rate and the borrowing rate. We analyze the optimal policy mix of monetary and fiscal authorities in a currency union with a country-specific credit spread by introducing a cost channel differential. The cost channel decreases the efficiency of monetary policy and increases the need for fiscal stabilization. We show that the importance of fiscal policy in stabilizing shocks increases, when there is a gap in the inflation differential due to a relative shock, an idiosyncratic shock or a credit spread differential. The welfare losses will be increasing (decreasing) in the size of the cost channel, if the nominal interest rate is a demand- (supply-) side instrument.
    Keywords: cost channel; financial frictions; credit spreads; optimal monetary policy; fiscal policy; monetary union
    JEL: E31 E52 E62 E63
    Date: 2015
  14. By: Hansen, Marianne Frank (Danish Rational Economic Agents Model (DREAM) ); Schultz-Nielsen, Marie Louise (Rockwool Foundation Research Unit ); Tranæs, Torben (Rockwool Foundation Research Unit )
    Abstract: All over Europe, ageing populations threaten nations' financial sustainability. In this paper we examine the potential of immigration to strengthen financial sustainability. We look at a particularly challenging case, namely that of Denmark, which has extensive tax-financed welfare programmes that provide a high social safety net. The analysis is based on a forecast for the entire Danish economy made using a dynamic computable general equilibrium model with overlapping generations. Net contributions to the public purse are presented both as cross-sectional figures for a long time horizon and as average individual life-cycle contributions. The main conclusion is that immigrants from richer countries have a positive fiscal impact, while immigrants from poorer countries have a large negative one. The negative effect is caused by both a weak labour market performance and early retirement in combination with the universal Danish welfare schemes.
    Keywords: immigration, sustainable fiscal policy, welfare benefits
    JEL: F22 E62 J61
    Date: 2015–02
  15. By: P. Fève ; J-G. Sahuc
    Abstract: This article addresses the existence of a wide range of estimated government spending multipliers in a dynamic stochastic general equilibrium model of the euro area. Our estimation results and counterfactual exercises provide evidence that omitting the interactions of key ingredients at the estimation stage (such as Edgeworth complementarity/substitutability between private consumption and government expenditures, endogenous government spending policy and general habits in consumption) paves the way for potentially large biases. We argue that uncertainty on the quantitative assessments of fiscal programmes could partly originate from these biases.
    Keywords: Government spending multiplier, DSGE models, Estimation bias, Euro area.
    JEL: C32 E32 E62
    Date: 2015
  16. By: Rafi Melnick ; Till Strohsal ; ;
    Abstract: After the introduction of a stabilization program Israeli inflation decreased from 400% in 1985 to 2% in 2013. This paper analyzes how the remarkable transition process of Israel’s disinflation took place. We reinforce the existing hypothesis that inflationmoved in distinct steps characterized by constant levels with short-lived fluctuations around them. Multiple endogenous breakpoint tests provide strong empirical evidence in favor of our claim. We find that the disinflation process is defined by three clear steps of high, medium and low inflation. The break dates are in line with major economic events that constitute the end and the beginning of each disinflation step.
    Keywords: Inflation, Disinflation Steps, Multiple Breakpoint Tests, Inflation Targeting
    JEL: E31 E52 E58 C22
    Date: 2015–02
  17. By: Erdenebat Bataa ; Marwan Izzeldin ; Denise Osborn
    Abstract: Using a new iterative algorithm that tests for possible breaks in the coefficients and residual variances of recursively identified structural equations, we examine changes in the parameters of the oil market model of Kilian (2009). Our analysis reveals breaks in the coefficients of the oil production and price equations, together with volatility shifts in all equations. In particular, the medium term response of production to aggregate demand shocks increases after 1980 and the price response to supply shocks is more persistent from the mid-1990s. All variables evidence changes in the relative contributions of individual shocks to their forecast error variances.
    Keywords: Oil price shocks, multiple breaks, breaks in SVAR
    JEL: E42 Q43
    Date: 2015
  18. By: Tansel, Aysit (Middle East Technical University ); Ozdemir, Zeynel Abidin (Gazi University ); Aksoy, Emre (Kirikkale University )
    Abstract: This paper investigates the relationship between labor force participation rate and unemployment rate in Turkey a developing country. Cointegration analysis is carried out for the aggregate and gender and age specific series. The findings indicate that there is no long-run relationship between labor force participation and unemployment rates in Turkey. Thus, unlike in the case of the developed countries the unemployment invariance hypothesis is supported in Turkey.
    Keywords: unemployment invariance hypothesis, cointegration, Turkey
    JEL: E24
    Date: 2015–02
  19. By: Feng, Andy (Singapore Ministry of Trade and Industry ); Graetz, Georg (Uppsala University )
    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
  20. By: Malherbe, Frédéric
    Abstract: I propose a simple theory of intertwined business and financial cycles, where financial regulation both optimally responds to and influences the cycles. In this model, banks do not internalize the effect of their credit expansion on other banks’ expected bankruptcy costs, which leads to excessive aggregate lending. In response, the regulator sets a capital requirement to trade off expected output against financial stability. The capital requirement that ensures investment efficiency depends on the state of the economy and, because of a general equilibrium effect, its stringency increases with aggregate banking capital. A regulation that fails to take this effect into account would exacerbate economic fluctuations and result in excessive aggregate lending during a boom. It would also allow for an excessive build-up of risk in the financial sector, which implies that, at the peak of a boom, even a small adverse shock could trigger a banking sector collapse, followed by an excessively severe credit crunch.
    Keywords: Basel 3; capital requirement; costly default; counter-cyclical buffers; financial cycles; financial regulation
    JEL: E44 G01 G21 G28
    Date: 2015–02
  21. By: Bicaba, Zorobabel T. ; Coricelli, Fabrizio
    Abstract: The Great Recession has shattered the consensus on the benefits of capital account liberalization. Capital account controls have been introduced in several countries and have even been supported by the International Monetary Fund. In this paper we investigate whether capital account policies in the post-Bretton Woods era can be explained as a process driven by learning by policymakers, who update their beliefs on the basis of their own experience and of the policies adopted by other countries. We emphasize the impact of financial crises on the learning process. The learning model developed in the paper explains more than 90% of the variability of capital account policies. We find that over time beliefs about the growth effects have changed slowly and not smoothly from negative to positive. However, at the outset of the Great Recession beliefs on the positive growth dividends from capital account liberalization were still affected by a significant degree of uncertainty, which suggests that reversals in external liberalizations in the aftermath of the Great Recession are consistent with rational learning by policymakers. Finally, in evaluating the potential benefits and costs of capital controls in a given set of countries, contagion effects through changing beliefs of other countries should be taken into account.
    Keywords: beliefs; capital account liberalization; learning; strategic experimentation
    JEL: C79 D8 E61 F42 G15 G18
    Date: 2015–02
  22. By: Fauziah ZEN (Economic Research Institute for ASEAN and East Asia (ERIA) ); Mukul G. ASHER (Professorial Fellow, National University of Singapore, Councillor, Takahashila Institution )
    Abstract: The Association of Southeast Asian Nations (ASEAN) is engaged in framing a post- 2015 vision for social protection in ASEAN which would facilitate productive ageing. This paper assesses existing social protection systems in ASEAN and suggests initiatives which policymakers and other stakeholders could consider for progressing towards a more robust social protection system. The paper argues that progressing towards the post-2015 vision of social protection will require greater coordination between ASEAN’s economic and social sector groups, as weak social protection systems existing today will increasingly constrain future economic growth. ASEAN as a group will also need to lessen its reliance on outside donors for funding and expertise. The specific initiatives suggested for facilitating productive ageing in ASEAN are (i) creating an ASEAN social protection forum for developing more robust databases, encouraging communication and indigenous research, and rendering technical assistance to members; (ii) pursuing measures to reduce expenditure needs of the elderly, including well-designed discount systems for public amenities and basic needs; (iii) giving greater priority to cross-border worker agreements to improve their living conditions, and encourage totalization agreements; and (iv) enhancing professionalism and systemic perspectives
    Keywords: ASEAN, social protection, cross-border workers, pensions, severance payment, workers'compensation, labour market, demographic trends
    JEL: H55 J18 J21 E26
    Date: 2015–02
  23. By: Michaelis Nikiforos ; Laura Carvalho ; Christian Schoder
    Abstract: The paper discusses the trajectories of the Greek public deficit andsovereign debt between 1980 and 2010 and its connection to thepolitical and economic environment of the same period. We payspecial attention to the causality between the public and the externaldeficit in the period after 1995, the post-Maastricht treaty period.We argue that, due to the European monetary unification processand the adoption of the common currency, causality ran fromthe external deficit to the public deficit. This hypothesis is testedeconometrically using both Granger Causality and Cointegrationanalyses. We find empirical support for this hypothesis.
    Keywords: Greece, crisis, public debt, twin deficits, imbalances
    JEL: E62 F21 F34 F41
    Date: 2014
  24. By: Jeremy Greenwood (University of Pennsylvania, Philadelphia, PA 19104 ); Nezih Guner (ICREA-MOVE, Universitat Autonoma de Barcelona and Barcelona GSE, Spain ); Georgi Kocharkov (Department of Economics, University of Konstanz, Germany ); Cezar Santos (Getulio Vargas Foundation )
    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: E24 D31 J13 J17 J62
  25. By: Jean Messiha ; Frédéric Teulon
    Abstract: The European institutions have failed on the Cyprus issue, the opportunity to establish their credibility with it. Not only they have not benefited from the modesty of the Cyprus problem to show how they could prevent systemic risks grow in the euro area, but they additionally led an action proved pro-cyclical. Thus, faced with the deterioration of the situation in Cyprus, Europe, together with the IMF presented a first bailout, one action - the taxation of all deposits - has resulted aggravate the crisis she wanted to fight. A new plan was made more balanced by the Eurogroup on 25 March 2013. The partial taxation of deposits and the adoption of exchange controls drastically violate the pact of trust that binds far investors and their banks. Cyprus has been under de facto economic tutelage.
    Keywords: Chypre, Crise financière, Régulation de la zone euro.
    JEL: E50 G15 G21
    Date: 2015–02–10
  26. By: Shaista Amod and Shakill Hassan
    Abstract: At what level does a currency’s volatility become ‘excessive’, in a concrete sense? Any claim that an exchange rate is excessively volatile needs a benchmark for ‘normal’variability. We compute variance bounds implied by exchange rate models as the norm, for a set of particularly volatile emerging market currencies; and a…nd that long-run exchange rate volatility does not breach the upper bound implied by the present value of underlying fundamentals –for each currency in our sample, except the Brazilian real. However, nominal exchangerate variances get closer to implied upper bounds under in‡inflation targeting. We also find a reduction in real exchange rate misalignment under inflation targeting.
    Keywords: Currency volatility, variance bounds, monetary exchange rate models, Inflation targeting, emerging markets
    JEL: F31 E52
    Date: 2015
  27. By: Mulatu F Zerihun, Marthinus C Breitenbach and Francis Kemegue
    Abstract: In this paper we investigate the likelihood of a proposed monetary union in the Southern African Development Community (SADC) being successful from the viewpoint of the Generalised Purchasing Power Parity (GPPP) hypothesis and optimum currency area (OCA) theory. We apply Johansen’s multivariate co-integration technique, panel unit root tests, Pedroni’s residual cointegration test and error correction based panel co-integration tests. The findings from this study confirm that GPPP holds among SADC member countries included in this study on account of cointegration and stationarity in real exchange rate series. The South African rand normalised long run beta coefficients of all the real exchange rates are below one except in the case of the Mauritian rupee and all bear negative signs except in the case of the Angolan New Kwanza and Mauritian rupee. This evidence support monetary union in the region except for Angola and Mauritius. However, the absolute magnitudes of the short run adjustment coefficients of SADC countries’ real exchange rates are low and bear positive signs in some cases. This finding implies that the observed slow speed of adjustment for the (log) real exchange rate of SADC member states might constrain the effectiveness of stabilization policies in the wake of external shocks, rendering SADC countries vulnerable to macroeconomic instability in the region. This result has important policy implications for the proposed monetary union in SADC.
    Keywords: SADC, OCA, GPPP, Real Exchange Rate, cointegration, panel unit root
    JEL: C32 E31 F15 F41
    Date: 2015
  28. By: Kristinn Hermannsson (Centre for Educational Change, University of Glasgow ); Patrizio Lecca (Department of Economics, University of Strathclyde )
    Abstract: Micro-econometric evidence reveals high private returns to education, most prominently in low-income countries. However, it is disputed to what extent this translates into a macro-economic impact. This paper projects the increase in human capital from higher education in Malawi and uses a dynamic applied general equilibrium model to estimate the resulting macroeconomics impact. This is contingent upon endogenous adjustments, in particular how labour productivity affects competitiveness and if this in turn stimulates exports. Choice among commonly applied labour market assumptions and trade elasticities results in widely different outcomes. Appraisal of such policies should consider not only the impact on human capital stocks, but also adjustments outside the labour market.
    Keywords: human capital, higher education, labour markets, trade, Malawi
    JEL: O15 O22 E17 I25 F16
    Date: 2015–02
  29. By: Gopalakrishnan, Pawan ; Saha, Anuradha
    Abstract: We build a two sector (agriculture and manufacturing) heterogenous agent model to analyze the effects of a food subsidy program on output and prices. The government may finance this subsidy by levying a distortionary income tax or a tax on manufacturing consumption. We find that in the long run the program increases the food output but lowers the manufacturing output, in both methods of its financing. While the price of food crop relative to the price of manufacturing good falls with subsidies in the income tax regime, the effect is opposite in the consumption tax regime. We also find that the food subsidy program may have long-run welfare gains for the two agents, but only for a certain range of subsidies. However, our simulations suggest that there is no subsidies which benefit both agents at the same time. Further, financing this program using an indirect consumption tax is a Pareto improvement over the direct income tax regime.
    Keywords: Endogenous Growth, Fiscal Policy, Food Security, Welfare
    JEL: E2 E62 H29 O1 O11
    Date: 2015–02–10
  30. By: Albers, Scott ; Albers, Andrew
    Abstract: In Part One of this paper we use the harmonic analogy of a musical octave to analyze mathematic ratios of U.S. real GNP. These ratios are generated by bringing together figures for U.S. real GNP over intervals of time – “spreads of years” – as numerator and denominator in a single fraction. Using a range of 7-year to 18-year “spreads,” we find that this approach provides strong evidence that American economic history is composed of four 14-year quarter-cycles within a 56 year circuit in the real GNP of the United States, 1869-2007. These periods correlate closely with analysis by Nickolai Kondratiev and provide a framework for predicting an annual steady state rate of growth for the United States falling between 3.4969% and 3.4995% per year. In Part Two of this paper we provide three postscripts including: (1) correlations / speculations on the political and social consequences of this model, (2) simplification / expansion of the geometries implied, and (3) analysis / prediction based upon this approach as concluded by a brief afterword and an extensive Appendix. These post-script refinements narrow the steady state rate of growth predicted to between 3.4969% and 3.4973% per year correlating closely with the 3.4971% rate for annualized quarterly data calculated for Okun’s Law, 1947-2007. The size and interconnectedness of world economies, and the virtually exact correlations provided herein, suggest that the dates predicted for future crises will see changes which are unexpectedly global, dramatic and fierce.
    Keywords: Real GNP, Golden Mean, Phi, Kondratiev Wave, Global Financial Crisis, American Economic History, GNP Spiral, Okun’s Law, Revolution
    JEL: B41 B5 C01 C02 C50 C63 E00 E01 E10 E19 E30 N00 N01 N11 Z10 Z13
    Date: 2015–02–12
  31. By: Magomet Yandiev (Department of Economics, Lomonosov Moscow State University )
    Abstract: The present paper argues that the present Internet conditions favour an entirely new finance model. Understood to soon supplement the existing ones (classical finance, corporate finance, and Islamic finance), it is argued that the new model will be defined by the destructive effect it is to have on the contemporary financial infrastructure of most countries, and the advent of the ‘future money value exceeds its present one’ principle.
    Keywords: theory, finance, model, new, development, future, Internet
    JEL: G1 G2 G3 F3 E4 E6
    Date: 2015–02
  32. By: Kawai, Masahiro (Asian Development Bank Institute ); Liu, Li-Gang (Asian Development Bank Institute )
    Abstract: This paper first reviews recent developments in exchange rate regimes, capital account liberalization, interest rate liberalization, and monetary policymaking in the People's Republic of China (PRC). It then observes that the PRC's monetary policy autonomy may have been reduced with falling capital control effectiveness and a rigid exchange regime that is still tightly managed against the United States (US) dollar. This hypothesis is investigated empirically using both the Taylor rule and the McCallum-like rule to test whether the PRC's money market interest rate and/or quantity of money supply are being increasingly influenced by the US interest rate or reserve accumulation. The paper concludes that there is considerable evidence suggesting diminishing monetary policy autonomy in the PRC. To regain policy autonomy, the monetary authority needs to substantially increase exchange rate flexibility of the renminbi as long as it continues to pursue capital account opening.
    Keywords: trilemma challenges; exchange rate regimes; monetary policy autonomy; peoples republic of china; taylor rule; mccallum rule
    JEL: E52 E58
    Date: 2015–02–16
  33. By: Kuhn, Michael ; Prettner, Klaus
    Abstract: We assess the impact of population structure on economic growth. Following recent research, we focus on the generational turnover as a key driver of consumption growth. We characterize the impact of the average birth and death rates on the generational turnover, depending on the age-profile of consumption and on the extent of annuity market imperfection. Using recent data from the National Transfer Accounts on consumption profiles for a number of countries, we assess in a comparative way the sign and magnitude of generational turnover and its impact on consumption growth. We find considerable cross-country variation and trace it back to differences in demographic rates and in the consumption structure.
    Keywords: demography,economic growth,generational turnover,National Transfer Accounts
    JEL: E21 J11 O40
    Date: 2015
  34. By: Asjad Naqvi
    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-ow consistent, growth, distribution, environment, European Union
    JEL: E12 E17 E23 E24 Q52 Q56
    Date: 2015–02
  35. By: Anindya Banerjee ; Massimiliano Marcellino ; Igor Masten
    Abstract: The Factor-augmented Error Correction Model (FECM) generalizes the factor-augmented VAR (FAVAR) and the Error Correction Model (ECM), combining error-correction, cointegration and dynamic factor models. It uses a larger set of variables compared to the ECM and incorporates the long-run information lacking from the FAVAR because of the latter's specification in differences. In this paper we review the specification and estimation of the FECM, and illustrate its use for forecasting and structural analysis by means of empirical applications based on Euro Area and US data.
    Keywords: Dynamic Factor Models, Cointegration, Structural Analysis, Factor-augmented Error Correction Models, FAVAR
    JEL: C32 E17
    Date: 2015–01
  36. By: Marcel Fratzscher ; Malte Rieth
    Abstract: The paper analyses the empirical relationship between bank risk and sovereign credit risk in the euro area. Using structural VAR with daily financial markets data for 2003-13, the analysis confirms two-way causality between shocks to sovereign risk and bank risk, with the former being overall more important in explaining bank risk, than vice versa. The paper focuses specifically on the impact of non-standard monetary policy measures by the European Central Bank and on the effects of bank bailout policies by national governments. Testing specific hypotheses formulated in the literature, we find that bank bailout policies have reduced solvency risk in the banking sector, but partly at the expense of raising the credit risk of sovereigns. By contrast, monetary policy was in most, but not all cases effective in lowering credit risk among both sovereigns and banks. Finally, we find spillover effects in particular from sovereigns in the euro area periphery to the core countries.
    Keywords: Credit risk, banks, sovereigns, monetary policy, bank bailout, heteroscedasticity, spillovers
    JEL: E52 G10 E60
    Date: 2015
  37. By: Reneé van Eyden (Department of Economics, University of Pretoria ); Tolga Omay (Cankaya University, Turkey ); Rangan Gupta (Department of Economics, University of Pretoria )
    Abstract: This paper analyses the empirical relationship between inflation and growth using a panel data estimation technique, Multiple Regime Panel Smooth Transition Regression (MR-PSTR), which takes into account the nonlinearities in the data. By using a panel data set for 10 African countries that permit us to control for unobserved heterogeneity at both country and time levels, we find that a statistically significant negative relationship exists between inflation and growth for the inflation rates above the critical threshold levels of 9% and 30% which are endogenously determined. Furthermore, we remedy the cross section dependence with the Common Correlated Effects (CCE) estimator.
    Keywords: Inflation, growth, threshold effects, multiple regime panel smooth transition regression model, cross section dependence, common correlated effects
    JEL: C33 E31 O40
    Date: 2015–02
  38. By: Mulatu F. Zehirun (Department of Economics, Faculty of Economics and Finance, Tshwane University of Technology ); Marthinus C. Breitenbach (Department of Economics, University of Pretoria ); Francis M. Kemegue (Department of Economics, University of Pretoria )
    Abstract: In this paper we investigate the likelihood of a proposed monetary union in the Southern African Development Community (SADC) being successful from the viewpoint of the Generalised Purchasing Power Parity (GPPP) hypothesis and optimum currency area (OCA) theory. We apply Johansen’s multivariate co-integration technique, panel unit root tests, Pedroni’s residual cointegration test and error correction based panel cointegration tests. The findings from this study confirm that GPPP holds among SADC member countries included in this study on account of cointegration and stationarity in real exchange rate series. The South African rand normalised long run beta coefficients of all the real exchange rates are below one except in the case of the Mauritian rupee and all bear negative signs except in the case of the Angolan New Kwanza and Mauritian rupee. This evidence support monetary union in the region except for Angola and Mauritius. However, the absolute magnitudes of the short run adjustment coefficients of SADC countries’ real exchange rates are low and bear positive signs in some cases. This finding implies that the observed slow speed of adjustment for the (log) real exchange rate of SADC member states might constrain the effectiveness of stabilization policies in the wake of external shocks, rendering SADC countries vulnerable to macroeconomic instability in the region. This result has important policy implications for the proposed monetary union in SADC.
    Keywords: SADC, OCA, GPPP, real exchange rate, cointegration, panel unit root
    JEL: C32 E31 F15 F41
    Date: 2015–01
  39. By: Yan Bai ; Seon Tae Kim ; Gabriel P. Mihalache
    Abstract: This paper studies the maturity and stream of payments of sovereign debt. Using Bloomberg bond data for eleven emerging economies, we document that countries react to crises by issuing debt with shortened maturity but back-load payment schedules. To account for this pattern, we develop a sovereign default model with an endogenous choice of debt maturity and payment schedule. During recessions, the country prefers its payments to be more back-loaded—delaying relatively larger payments—to smooth consumption. However, such a back-loaded schedule is expensive given that later payments carry higher default risk. To reduce borrowing costs, the country optimally shortens maturity. When calibrated to the Brazilian data, the model can rationalize the observed patterns of maturity and payment schedule, as an optimal trade-off between consumption smoothing and endogenous borrowing cost.
    JEL: E62 F34
    Date: 2015–01
  40. By: Jaume Ventura ; Alberto Martin
    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.
    JEL: E32 E44 O40
    Date: 2015–02
  41. By: Robert E. Hall ; Sam Schulhofer-Wohl
    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.
    JEL: E24 J63
    Date: 2015–02
  42. By: Halkos, George ; Paizanos, Epameinondas
    Abstract: This paper examines the effect of economic policy on air quality using US quarterly data from 1973 to 2013. In particular, we analyze the short-run as well as the long-run interactions between fiscal and monetary policy with CO2 emissions, employing time series techniques of co-integration, Granger multivariate causality and vector error-correction modeling. To take into account possible variations of the effect of economic policy according to the sources of pollution, we distinguish between industrial and residential inflicted CO2 emissions. In addition, we construct the impulse responses to three linear combinations of fiscal shocks, corresponding to the three scenarios of deficit-spending, deficit-financed tax cuts and a balanced budget spending expansion. Policy implications from the results vary depending on the source of CO2 emissions.
    Keywords: Fiscal policy; monetary policy; environment.
    JEL: E52 E62 Q53 Q54 Q56
    Date: 2015–02
  43. By: Jasmin JacLyn Thomas
    Abstract: Canada’s productivity performance reflects in large part our innovation record, both in terms of business sector R&D and information and communications technology (ICT) investment. The objective of this report is to examine the country’s ICT investment performance since 2000. The key finding is that, since the 2008 peak, business sector ICT investment in Canada has performed poorly, both relative to the Canadian non-business sector and to the business sector in the United States. By 2013, four years after the 2009 recession, nominal ICT investment in the business sector in Canada had failed to regain the 2008 level, falling on average 1.0 per cent per year over the 2008-2013 period. In contrast, despite government belttightening, nominal investment in the non-business sector in Canada advanced at a 2.0 per cent average annual rate. Equally, the United States, which experienced a more severe downturn than Canada, saw business sector nominal ICT investment grow at a 1.5 per cent average annual rate between 2008 and 2013. The fall in nominal ICT investment in Canada, combined with the increase in the United States, resulted in an 8.5 percentage point fall in the ICT investment per worker in Canada from 59.6 per cent of that of the US business sector in 2008 to 51.1 per cent in 2013. More research is needed to understand the reasons for the weak post-2008 ICT investment performance of Canada’s business sector.
    Keywords: Canada, United States, Software, Investment, Gap, Productivity, Business Sector, ICT, Computers, Communications, Labour Productivity, Growth, Productivity Growth
    JEL: L86 N92 E22 J24 O47 D24
    Date: 2015–01
  44. By: Andrew Sharpe
    Abstract: In 2012, business sector software investment per worker in Canada was 40.7 per cent of that in the United States. The objective of this report is to deepen our understanding of the reasons for which Canadian businesses invest substantially less in software than their U.S. counterparts. The report reviews the state of the software investment landscape in Canada, discusses the views of industry experts obtained through key informant interviews, and assesses possible explanations for the software gap. About one-third of the gap can be assigned to differences in labour productivity, industry structure, and measurement methodologies between the two countries. The remaining two-thirds are more difficult to explain.
    Keywords: Canada, United States, Software, Investment, Gap, Productivity, Business Sector
    JEL: L86 N92 E22 J24 O47 D24
    Date: 2014–10
  45. By: Andrew Sharpe ; Anke Kessler ; Martin Thunert
    Abstract: A strong case can be made that the quality of governance provided by the government of Canada deteriorated somewhat from May 2011 to May 2013. While the government has constructed high-quality governance structures and implemented effective policies in many areas over many decades, the actions of the Conservative government since winning a majority of the seats in the House of Commons in May 2011 have jeopardized this situation. This report highlights a number of developments that lead to this conclusion.
    Keywords: Sustainability, Government, Governance, Indicators, Governance Structures, Policies, Conservative government, House of Commons
    JEL: E42 P16 P48 N42 O51 N92
    Date: 2014–05
  46. By: Jorge Guzman ; Scott Stern
    Abstract: A central challenge in the measurement of entrepreneurship is accounting for the wide variation in entrepreneurial quality across firms. This paper develops a new approach for estimating entrepreneurial quality by linking the probability of a growth outcome (e.g., achieving an IPO or a significant acquisition) as a function of start-up characteristics observable at or near the time of initial business registration (e.g., the firm name or filing for a trademark/patent). Our approach allows us to characterize entrepreneurial quality at an arbitrary level of geographic granularity (placecasting) and in advance of observing the ultimate growth outcomes associated with any cohort of start-ups (nowcasting). We implement this approach in Massachusetts from 1988-2014, yielding several key findings. First, consistent with Guzman and Stern (2015), we find that a small number of observable start-up characteristics allow us to distinguish the potential for a significant growth outcome: in an out-of-sample test, more than 75% of growth outcomes occur in the top 5% of our estimated quality distribution. Second, we propose two new economic statistics for the measurement of entrepreneurship: the Entrepreneurship Quality Index (EQI) and the Regional Entrepreneurship Cohort Potential Index (RECPI). We use these indices to offer a novel characterization of changes in entrepreneurial quality across space and time. For example, we are able to document changes in entrepreneurial quality leadership between the Route 128 corridor, Cambridge and Boston, as well as more granular assessments that allow us to distinguish variation in average entrepreneurial quality down to the level of individual addresses. Third, we find a high correlation between an index that depends only on information directly observable from business registration records (and so can be calculated on a real-time basis) with an index that allows for a two-year lag that allows the estimate of entrepreneurial quality to incorporate early milestones such as patent or trademark application or being featured in local newspapers. Finally, we find that the most significant “gap” between our index and the realized growth outcomes of a given cohort seem to be closely related to investment cycles: while the most successful cohort of Massachusetts start-ups was founded in 1995, the year 2000 cohort registered the highest estimated quality.
    JEL: C43 C51 C81 E27 L25 L26 R12
    Date: 2015–02
  47. By: Ghassan, Hassan B. ; Banerjee, Prashanta K.
    Abstract: The purpose of this paper is to analyze the dynamics of crude oil prices of OPEC and non-OPEC countries using threshold cointegration. To capture the long run asymmetric price transmission mechanism, we develop an error correction model within a threshold cointegration and CGARCH errors framework. The empirical contribution of our paper specifies the cointegrating relation between OPEC price and non-OPEC prices and estimates how and to what extent the respective prices adjust to eliminate disequilibrium. The finding exhibits that the conditional volatility of variance has long run memory feature and the shocks on the long run component do not adjust quickly. The OPEC producers could not drive down (up) crude oil prices with equivalent speeds for all participants in the market. The slow adjustment of OPEC process of positive discrepancies to the long run equilibrium indicates that OPEC does not prefer modest oil prices. While, the rapid adjustment of non-OPEC process signifies their preference of modest oil prices after oil price increases. These differences of speeds show evidence for competitive behaviors between OPEC and non-OPEC countries.
    Keywords: Asymmetric Adjustment, Cointegration, CGARCH, Conditional Variance, OPEC Prices.
    JEL: C22 C51 E30 Q40
    Date: 2013–10–13
  48. By: Markus Poschke (McGill University, Montreal ); Baris Kaymak (Universite de Montreal )
    Abstract: Over the last 40 years the US tax system went through striking changes that considerably reduced the progressivity of the system. This resulted in a dramatic reduction of effective tax rates on top income groups. This paper investigates the macroeconomic repercussions of this change in tax policy, particularly for the distributions of income, wealth, consumption and welfare.
    Date: 2014
  49. By: Pierdzioch, Christian ; Reitz, Stefan ; Ruelke, Jan-Christoph
    Abstract: We use a Panel Smooth Transition Regression (STR) model to study nonlinearities in the expectationformation process in the US stock market. To this end, we use data from the Livingston survey to investigate how the importance of regressive and extrapolative expectations fluctuates over time as market conditions summarized by stock-market misalignments and recent returns change. We find that survey participants form stabilizing expectations in the long run. Short-run expectations, in contrast, are consistent with weak mean reversion of stock prices.
    Keywords: Non-linear expectation formation,Survey data,Stock market,Heterogeneous agents
    JEL: G17 E47 C53
    Date: 2015
  50. By: Aizenman , Joshua (BOFIT )
    Abstract: This paper provides an overview of Chinese financial and trade integration in recent decades, and the challenges facing China in the coming years. China had been a prime example of export-led growth, benefiting from learning by doing, and by adopting foreign know-how, supported by a complex industrial policy. While the resultant growth has been spectacular, it comes with hidden but growing costs and distortions. The Chinese export-led growth path has been challenged by its own success, and the Global Financial Crisis forced China toward rebalancing, which is a work in progress. Reflecting on the internationalization of the CNY, one expects the rapid accelerating of the commercial internationalization of the CNY. In contrast, there are no clear-cut reasons to rush with the full CNY financial internationalization: The gains from CNY financial internationalization are overrated.
    Keywords: export led growth; CNY internationalization; mercantilism; financial integration; FDI
    JEL: E60 F36 F40 O24 O40
    Date: 2015–02–12
  51. By: Zarazaga, Carlos E. (Federal Reserve Bank of Dallas )
    Abstract: Microeconomic studies keep reporting that the intertemporal substitution in consumption and the Frisch elasticity of aggregate labor supply have significantly lower values than macroeconomic models find consistent with the dynamics of aggregate variables. The paper argues that in the U.S. such dynamics have been influenced since 2013 by the temporary spending cuts imposed by the so-called budget sequestration. The paper exploits the "policy experiment" features of that measure to gauge macroelasticity values from the evidence associated with it, adopting to that effect a macroeconomic model constructed according to the methodological principles advocated by the real business cycle literature. Readings of the preliminary evidence available at the time of this writing with such a measuring device do not particularly favor high values for either of the two macroelasticities under study. Although it's too early to be conclusive, this finding illustrates how existing disagreements about the value of key macroelasticities can eventually be narrowed down by applying the approach proposed in this paper to the evidence coming out of the budget sequestration policy, as it unfolds over time.
    JEL: E22 E24 E32 E65 J22
    Date: 2014–11–01
  52. By: Stuermer, Martin (Federal Reserve Bank of Dallas )
    Abstract: This paper uses a new data set extending back to 1840 to investigate how industrialization affects the derived demand for mineral commodities. I establish that there is substantial heterogeneity in the long-run effect of manufacturing output on demand across five commodities after controlling for sectoral change, substitution and technological development. My results imply substantial differences across commodities with regard to future demand from industrializing countries and with regard to the effect of demand shocks on prices. Models should include non-Gormand preferences to account for this heterogeneity.
    Keywords: Commodities; non-renewable resources; elasticity of demand; non-homothetic preferences; nonstationary heterogenous panel.
    JEL: E23 N50 O13 Q31
    Date: 2014–12–29
  53. By: Stuermer, Martin (Federal Reserve Bank of Dallas )
    Abstract: My paper provides long-run evidence on the dynamic effects of supply and demand shocks on mineral commodity prices. I assemble and analyze a new data set of price and production levels of copper, lead, tin, and zinc from 1840 to 2010. Price fluctuations are primarily driven by demand rather than supply shocks. Demand shocks affect the price persistently for up to five-teen years, whereas the effect of mineral supply shocks persists for a maximum of five years. My paper shows that price surges caused by rapid industrialization are a recurrent phenomenon throughout history. Mineral commodity prices return to their declining or stable trends in the long run.
    Keywords: Mineral commodity markets; prices; non-renewable resources; SVAR
    JEL: E30 N50 Q31 Q33
    Date: 2014–12–12
  54. By: Jennifer N. Carpenter ; Fangzhou Lu ; Robert F. Whitelaw
    Abstract: China is the world’s largest investor and greatest contributor to global economic growth by wide margins, and will remain so for many years. The efficiency of its financial system in allocating capital to investment will be important to sustain this growth. This paper shows that China’s stock market has a crucial role to play. Since the reforms of the last decade, China’s stock market has become as informative about future corporate profits as in the US. Moreover, though it is a segmented market, Chinese investors price risk and other stock characteristics remarkably like investors in other large economies. They pay up for large stocks, growth stocks, and long shots, and they discount for illiquidity and market risk. China’s stock market no longer deserves its reputation as a casino. In addition, the trend of stock price informativeness over the last two decades is highly correlated with that of corporate investment efficiency. China’s stock market appears to be aggregating diffuse information and generating useful signals for managers. On the buy side, because of its low correlation with other stock markets and high average returns, China’s stock market offers high alpha to diversified global investors who can access it. Yet this high alpha amounts to an inflated cost of equity capital, constraining the investment of China’s smaller, more profitable enterprises. Further reforms that open this market to global investors and improve stock price informativeness will be important to increase China’s investment efficiency and fuel its continued economic growth. Finally, we interpret the stock market’s recent gyrations through the lens of this research, arguing that its post-crisis lag was a rational downward adjustment to competition from the rapidly expanding shadow banking sector, and its enormous rally last year is a cheer for the roll out of deposit insurance and other Third Plenum reforms. More than ever, China’s stock market is a crucial counterpart to its extraordinary, relationship-driven, but opaque banking sector. China’s stock market may now be the world’s most important crystal ball.
    JEL: E44 G12 G15 G18 O16 O53 P20 P34
    Date: 2015–02
  55. By: Alan L. Gustman ; Thomas L. Steinmeier ; Nahid Tabatabai
    Abstract: This paper uses data from the Health and Retirement Study to examine retirement and related labor market outcomes for the Early Boomer cohort, those in their mid-fifties at the onset of the Great Recession. Outcomes are then compared with older cohorts at the same age. The Great Recession increased their probability of being laid off and the length of time it took to find other full-time employment. Differences in layoffs between those affected by the recession and members of older cohorts in turn accounted for almost the entire difference between cohorts in employment change with age. The Great Recession does not appear, however, to have depressed the wages in subsequent jobs for those who experienced a layoff. In 2010, 17 percent of the Early Boomers were Not Working and Not Retired or Partially Retired, and 6 percent were unemployed, leaving at least 9 percent who were not working and not unemployed but not retired or only partially retired. At the recession’s peak, half of those who experienced a layoff ended up in the Not Retired or Partially Retired, Not Working category. But only a quarter of those who declared themselves to be Not Retired or Partially Retired, and were Not Working, had experienced a layoff. Most of the jump in Not Retired or Partially Retired, Not Working appears to reflect a change in expectations about the potential or need for future work, a change that is not the result of an actual job loss.
    JEL: E24 E32 J11 J14 J21 J26 J4 J6 J63 J64 J82
    Date: 2015–02
  56. By: Stefano Giglio ; Bryan T. Kelly ; Seth Pruitt
    Abstract: This article evaluates a large collection of systemic risk measures based on their ability to predict macroeconomic downturns. We evaluate 19 measures of systemic risk in the US and Europe spanning several decades. We propose dimension reduction estimators for constructing systemic risk indexes from the cross section of measures and prove their consistency in a factor model setting. Empirically, systemic risk indexes provide significant predictive information out- of-sample for the lower tail of future macroeconomic shocks.
    JEL: C31 C32 C38 C58 E44 G01 G2
    Date: 2015–02
  57. By: Gu, Grace Weishi
    Abstract: This paper explores the impacts of sovereign defaults on trade and income through a real exchange rate channel, in a DSGE model of two risk-averse open economies, with production. In the model, once the borrower country defaults due to an adverse productivity shock, foreign firms reduce their imports of intermediate goods from the defaulting country, whose income consequently declines. This causes the defaulting country to adjust its consumption portfolio of domestic goods and imports according to its home bias preference, triggers a collapse in its real exchange rate, and leads to a further endogenous plummet in national income. This paper makes three main contributions. First, along business cycles, the model generates countercyclical trade balances, procyclical trade flows, and countercyclical bond spreads with a data-consistent average. Second, following a sovereign default, the model endogenously delivers sharp real exchange rate deterioration, output drops, trade balance improvements, and bilateral trade flow declines. This paper thus also studies a real exchange rate channel, through which default risks and occurrences, income, and trade interact with each other. Lastly, this model predicts lasting welfare gains for the creditor country through the real exchange rate channel, but relatively short-lived welfare losses for the borrower country and the world during and after a sovereign default.
    Keywords: sovereign default, real exchange rate, trade, DSGE
    JEL: E44 F31 F34 F41
    Date: 2015–02–23
  58. By: Sandjong Tomi, Diderot Guy D'Estaing
    Abstract: This article examines the long run relationship and the causality between the growth of GDP per capita and FDI in WAEMU countries. Thereafter, it measures the impact of FDI on Total Factor of Productivity (TFP) in the short and long run, for different values of the depreciation of capital stock. Using observation between 1970 and 2012, the econometric analysis provides three key results. First, there is a strong evidence of long run relationship between the growth of GDP per capita and the ratio of FDI inflows. Second, there is bidirectional causality between these two variables. Third, there is a positive and significant effect of FDI on TFP in the long run, conditional on low level of depreciation of capital stock. Therefore, for policy implications, WAEMU countries should intensify their investment in education and health in order to boost the quality of human capital stock and sufficient absorptive capacity necessary to acquire technological transfer from FDI. They should also strengthen their openness, to attract FDI inflows, and invest in infrastructure to better control the depreciation of physical capital stock.
    Keywords: FDI, Economic growth, structural transformations, WAEMU
    JEL: E65 R11
    Date: 2015–02–17
  59. By: Zhou, Xinyi Jimmy
    Abstract: The current ruble crisis causes much trouble for many of those eastern European countries like Russia and its neighbour countries: Strong ruble depreciation and high inflation for consumer goods are its most negative consequences. Because the ruble is only a national currency, but not a world currency, some people might ask if we introduce a new global currency, the World Calories Currency (WCC) or "Cal-Money", that currency would be less vulnerable and less crisis-prone. In this short paper, I firstly present the 4 main criteria of a successful and widely accepted currency: 1. Fair valuability & high inflation security, 2. high trust and acceptance among the users, 3.high distribution over the world and 4. high supportiveness of the real economy. After I compared the strength & weaknesses of the World Calorie Currency and present some concrete measures to make the Cal-Money implementation more smoothly, I then came to conclusion that all 4 main criteria of a successful, world wide applicable currency would be fulfilled by the WCC.
    Keywords: New Money Exchange System, World Calorie Currency (WCC), Real economy supportive, Ruble, currency crisis, world currency, CalorieCoin, Central bank supported, Hard currencies, BRICS, Food and energy sector, health supportive
    JEL: E40 E41 E42
    Date: 2015–02–22
  60. By: Mobin, Mohammad Ashraful ; Masih, Mansur
    Abstract: This paper makes an attempt to investigate the impact of selected macroeconomic variables on the level of deposits in the Islamic banking system. Malaysia is used as a case study. We apply ‘Auto – Regressive Distributive Lag’ model which has taken care of a major limitation of the conventional cointegrating tests in that they suffer from pre-test biases. Based on above rigorous methodology, we try to measure both long- and short-run relationships among these variables. By applying ARDL techniques, we find that the determinants such as, Inflation has strong impact on deposits of Islamic banking system while other macroeconomic variables GDP and Kuala Lumpur composite Index do not have significant impact. Most of the theories related to savings behaviour are not applicable to Islamic banking customers. Therefore, there is a possibility that religious belief might play an important role in the banking decisions of Muslim customers. The most relevant finding from the policy perspective is the significant negative effect of inflation on the Islamic banks’ saving deposits. Controlling inflation and thereby providing macroeconomic stability is essential for promoting Islamic banking.
    Keywords: Malaysia, Islamic Banking, Depositors' behaviour, ARDL cointegration
    JEL: C22 C58 E44 G21
    Date: 2014–08–10
  61. By: Rahman, Sharezan ; Masih, Mansur
    Abstract: The increase in household debts in Malaysia which has escalated to about 86% of total GDP is deemed to be at worrying stage as it may in turn trigger another financial crisis. Thus, the aim of this study is to examine the increase in household debts and its relation to GDP, interest rate and house price via time series techniques. Data collected from Datastream and monthly statistical bulletin span from 1999 to 2014 on quarterly basis. The results show that there is a cointegrating long run relation between household debt, house prices, GDP and interest rate. The analysis indicates that although household debts could not be influenced by the changes in GDP, lending rate and house price in the short run, it could be affected by house price movement in the long run. As there is a positive significant relationship between house price and household debts, it implies that, in the long run horizon, the increase in household debts is due to the increase in house price. Although both GDP and lending rate are found to be endogenous, we still believe that the movement in lending rate and GDP (as a proxy to income) may affect the household debts. Thus, extra care shall be taken by the policy maker for any decision to increase the lending rate in particular as the lending rate is deemed to be one of the macroeconomic policy instruments which may have significant influence on household income. As the lending rate is deemed endogenous, the policy maker should strengthen prudential measure in order to curb the increase in household debts. Shortening the loan tenure, tightening credit policy by implementing responsible and selective lending, higher debt service ratio, strengthening the risk management of banking institutions are amongst the measures that might facilitate the policy maker to combat the rising household debts. Additionally, as the result found that the house price is the main indicator that affects the household debt in the long horizon, the policy maker should take an initiative to control the property price in order to mitigate any bubble in asset price.
    Keywords: Household debts, GDP, interest rates, house prices, time series techniques
    JEL: C22 C58 E44
    Date: 2014–08–12
  62. By: Abdi, Zeinab ; Masih, Mansur
    Abstract: This Malaysia is a developing Islamic state that faced government budget deficit since 1998. It is undeniable that a budget deficit or inability to cover government spending is not positively seen by external parties. The optimum level of government budget is the state where government spending is totally offset by government revenue and that can be achieved through an increase in tax revenue or decrease in spending. The paper aims to discover the existence of a theoretical relationship between government spending and the different types of government revenues namely direct and indirect taxes and non-tax revenues. Furthermore, the paper tries to find out which of the different government revenues leads government spending. As well as to discover each revenue structure relationship with government spending using sample data from Malaysia for the period of 1970-2013 and time series techniques. The paper found out that although majority of government revenue is from direct tax revenue, the government spending only varies due to a change in indirect government tax revenue and non-tax revenue. In addition, it discovered that there is a long run relationship between the variables and that direct tax and government spending are endogenous (follower) variables, while non-tax revenue and indirect tax are exogenous (leader) variables. The paper also discussed the necessity of tax reform in Malaysia, since inefficiency in direct tax revenue leads to a dependence on non-tax revenue and regressive indirect taxes.
    Keywords: Government revenue, government expenditure, time series techniques
    JEL: C22 C58 E6
    Date: 2014–08–11
  63. By: Marianne, Ojo
    Abstract: Basic and fundamental issues which link financing and funding activities to financial regulation involve the problems of systemic risks and asymmetric information. In addition to addressing these issues, this paper will also consider other issues related to long term funding, which affect financial stability and development in Low Income Developing Countries (LIDCs) - namely inadequate regulatory frameworks, as well as constraints and accessibility to long term funding. By considering the recent developments with the Basel framework, it will seek to illustrate, by way of reference to studies, why low income developing countries, as well as selected emerging economies are still lagging behind in terms of the implementation of regulatory standards. It will also aim to demonstrate how these countries would largely benefit from effective implementation of these standards. Whilst aiming to facilitate means whereby sources of longer term funding could be enhanced, it will also consider the disadvantages and risks associated with longer term funding, challenges imposed by debt sustainability and propose alternative sources of funding. Transparency and disclosure, it will be highlighted, continue to generate severe obstacles to financial development and growth, as will be reflected from results of certain investigations.
    Keywords: liquidity risk; long term funding; financial stability; Low Income Countries (LICs);information disclosure
    JEL: E6 F3 G2 G28 K2 M4
    Date: 2015–02–23
  64. By: Tomomi Miyazaki (Graduate School of Economics, Kobe University )
    Abstract: This paper examines the effects of Japanese fiscal policy after the 2008 global financial crisis using a mixed vector autoregression/event study approach. We focus on the effects of stimulus packages with environmental benefits. The empirical results show that a tax break and subsidy program designed to promote the adoption of eco-friendly cars helped stimulate automobile production, while a similar program intended to promote the purchase of energy-efficient appliances had no effect on appliance production.
    Keywords: Fiscal policy effectiveness in Japan; Environmental stimulus package; Eco Subsidy
    JEL: E23 E62 H30
    Date: 2015–02
  65. By: Anna Grodecka ; Karlygash Kuralbayeva
    Abstract: What is the optimal instrument design and choice for a regular attempting to control emissions by private agents in face of uncertainty arising from business cycles?  In applying Weitzman's result [Prices vs. quantities, Review of Economic Studies, 41 (1974), 477-491] to the problem of greenhouse gas emissions, the price-quantity literature has shown that, under uncertainty about abatement costs, price instruments (carbon taxes) are preferred to quantity restrictions (caps on emission), since the damages from climate change are relatively flat.  On the other hand, another recent piece of academic literature has highlighted the importance of adjusting cabon taxes to business cycle fluctuations in a procyclical manner.  In this paper, we analyze the optimal design and the relative performance of price versus quantity instruments in the face of uncertainty stemming from business cycles.  Our theoretical framework is a general equilibrium real business cycle model with a climate change externality and distortionary fiscal policy.  First, we find that in an infinitely flexible control environment, the carbon tax fluctuates very little and is approximately constant, whilst emissions fluctuate a great deal in response to a productivity shock.  Second, we find that a fixed price instrument is advantageous over a fixed quantity instrument due to the cyclical behavior of abatement costs, which tend to increase during expansions and decline during economic downturns.  Our results suggest that the cabon tax is approximately constant over business cycles due to "flat" damages in the short-run and thus procyclical behavior as suggested by other studies cannot be justified merely on the gorunds of targeting the climate externality.
    Keywords: carbon tax, cap-and-trade, business cycles, distortionary taxes, climate change
    JEL: E32 H23 Q54 Q58
    Date: 2014–05–15
  66. By: Wessel Vermeulen ; Jean-Francois Carpantier
    Abstract: This paper tests the theoretically founded hypothesis that the surge of SWF establishments is determined by three main factors: 1) the existence of natural resources profits, 2) the government structure and 3) the ability to invest usefully in the domestic economy.  We test this hypothesis on a sample of 20 countries that established an SWF in the period 1998-2008 by comparing them to the roughly 100 countries that did not set up a fund in the same period.  We find evidence for all three factors.  The results suggest that SWFs tend to be established in countries that run an autocratic regime and have difficulties finding suitable opportunities for domestic investments.  We do not find the net foreign asset position of a country to be similarly related to the explanatory variables, indicating that the establishment of an SWF is distinct from a national accounting result.   We argue that our results indicate that it is relevant to study how an SWF interacts with the domestic economy and government policy.
    Keywords: Sovereign Wealth Fund, Institutions, natural resources
    JEL: E21 E62 F39 G23 H52
    Date: 2014–11–01
  67. 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
  68. By: Illing, Gerhard ; Siemsen, Thomas
    Abstract: We study monetary policy at the ZLB in a traceable three-period model, in which price-level targeting emerges endogenously in the welfare function. We characterize optimal price-level forward guidance under discretion and commitment. Potentially non-monotonic discretionary welfare losses are lowest with perfectly flexible prices. Price-level targeting introduces a new constraint on optimal forward guidance that restricts the credible amount of overshooting. With this constraint, the zero lower bound may be binding even after the shock has abated. We characterize conditions when the commitment to hold nominal rates at zero for an extended period is optimal. Finally, we introduce government spending and show that under persistently low policy rates optimal government spending becomes more front-loaded, while procyclical austerity fares worse than discretionary government spending.
    Keywords: zero lower bound; forward guidance; price-level target; optimal policy
    JEL: E43 E52 E58
    Date: 2015–02–09
  69. By: Almuth Scholl (Department of Economics, University of Konstanz, Germany )
    Abstract: This paper develops a stochastic dynamic politico-economic model of sovereign debt to analyze the interaction of sovereign default risk and political turnover. Two parties differ in their preferred size of public spending which is financed by taxes and external debt. Electoral outcomes are characterized by tradeoffs between the economic benefits from the incumbent's policies against idiosyncratic ideological aspects. Quantitative simulations replicate the typical empirical facts of emerging markets. Endogenous political turnovers increase the parties' discrepancies between debt and default policies. Debt crises are associated with adverse economic shocks and trigger political turnovers. Political turnovers generate defaults even without negative shocks.
    Keywords: sovereign debt, default risk, political turnover, fiscal policy
    JEL: E62 F34 F41 D72
    Date: 2015–02–25
  70. By: Norhana Endut (Bank Negara Malaysia ); James Morley (School of Economics, Australian School of Business, the University of New South Wales ); Pao-Lin Tien (Wesleyan University )
    Abstract: We examine the relative importance of the interest rate, exchange rate, and banklending channels for the transmission mechanism of monetary policy in the United States over the past 50 years. Our analysis is based on a structural vector autoregressive model that includes bank loans and uses sign restrictions to identify monetary policy shocks. Given these identified policy shocks, we quantify the relative importance of different transmission channels via counterfactual analysis. Our results suggest a nontrivial role for the bank-lending channel at the aggregate level, but its importance has been greatly diminished since the early 1980s. Despite the timing, we find no support for a link between this change in the transmission mechanism and the concurrent reduction in output volatility associated with the Great Moderation. There is, however, some evidence of a link to the reduction in inflation volatility occurring at the same time.
    Keywords: Bank-Lending Channel, Sign Restrictions, Great Moderation
    JEL: C32 E52
    Date: 2015–01
  71. By: James Morley (University of New South Wales ); Aarti Singh (University of Sydney )
    Abstract: Why did the volatility of U.S. real GDP decline by more than the volatility of final sales with the Great Moderation in the mid-1980s? One explanation is that firms shifted their inventory behavior towards a greater emphasis on production smoothing. We investigate the role of inventories in the Great Moderation by estimating an unobserved components model that identifies inventory and sales shocks and their propagation in the aggregate data. Our estimates provide little support for increased production smoothing. Instead, smaller transitory inventory shocks explain the excess volatility reduction in output relative to sales. These shocks behave like informational errors related to production that must be set in advance and their reduction also helps explain the changed forecasting role of inventories since the mid-1980s. Our findings provide an optimistic prognosis for a continuation of the Great Moderation despite the dramatic movements in output during the recent economic crisis.
    Keywords: Great Moderation; inventories; production smoothing; unobserved components model
    JEL: C32 E22 E32
    Date: 2015–02
  72. By: Kitov, Ivan
    Abstract: We present a five-year revision of an empirical study started in 2007. Seven years ago, we found two three distinct periods characterized by sustainable linear trends in the difference between the headline consumer price index (CPI) and the core CPI in the USA. Then we revealed similar behavior in the differences between the CPI and indices of various consumer expenditure categories. We estimated the duration of these trends which varies in a wide range from 5 years to more than 20 years. The transition periods to new trends span shorter intervals of 2 to 5 years. The transition is characterized by a higher level of volatility in the studied CPI differences. In April 2009, we introduced a simple quantitative model representing the evolution of motor fuel price (a subcategory of the consumer price index of transportation) relative to the core CPI as a linear function of time. Under our framework, all price deviations from this linear trend are transient and the price must return to the sustainable trend. The model predicted that oil price would fall to $30-$60 per barrel in 2016, which is very close to the current price. The behavior of actual oil and motor fuel price since 2010 has shown that this prediction is accurate in both amplitude and trajectory shape – a good support for the credibility of our empirical mode. We conclude that the concept of price decomposition into a short-term (oscillating) and long-term (linear trend) components deserves a deeper theoretical consideration of the driving forces behind linear time trends and can be used as a workhorse for a wide spectrum of commodity investors. According to the model, the price of crude oil will be falling to the level of $30 per barrel during the next 6 years and motor fuel will follow up the oil price. Moreover, the periodicity of the related normalized difference indicates that this low-price level may extend into the second half of the 2020s. The secular fall in energy prices may induce a lengthy period of very low inflation.
    Keywords: CPI, PPI, crude oil, motor fuel, price, prediction, USA
    JEL: E31 E37
    Date: 2015–02–23
  73. By: Mavrozacharakis, Emmanouil
    Abstract: The Greek parliamentary elections in January .2015 led to a foreseeable change in government. The coalition government between the conservative Nea Dimokratia and of the socialist PASOK, become replaced. by a coalition government between the left wing coalition party SYRIZA and the extreme right-wing ANEL ( "Independent Greeks"}, The cause for this radical political shift is located in the latent anger of the citizens in relation to the political elites of Greece and their politics in the last years. Logically this broad anger found now his expression in the ballot box. This described anger is related with the hard consolidation program taken by the creditors of Greece (EU, ECB, IMF) to restrain the country's fiscal crisis. The Intention of the restructuring program is to lead as soon as possible Greece out from the debt. In fact however the Result of this Politics is that around a quarter of the Greek population is drifted in poverty now. The rehabilitation target within a fairly short period, to promote competitiveness and make Greece more attractive as an investment location was coupled with massive wage cuts, pensions cuts , tax increases and more flexible working conditions. The new coalition government of SYRIZA and ANEL even though no more in the Position of a hard Opposition, promotes in the one hand a social Messianism in the sense of a liberation of the society of their distress and, on the other hand the hope of a settlement of the Greek dept by a conference of creditors or by favourable arrangements of the EU partner countries. The announcements of the new Government is also coupled with a whole set of ambitious programs for social and economic reconstruction and development of the country . In conclusion, this version of the political changes in Greece is also embedded in a obsession of the return in the good times of the past. In this sense, it can be assumed that this political change has no trend-setting character for Greece but represents a transition phase in an process of cushioning the social anger. However, it remains to be seen whether the consequences of this transition process for Greece are portable.
    Keywords: Griechenland,Wahlen,Machtwechsel,Krise,Populismus, Syriza , Neoliberalismus
    JEL: E5 E52 E6 E61 E64 F34 F35 F36 F4 F42 F43 G1 G18 H1 H4 H5 H51 H53 H62 H63 I1 I14 I3 I31 I32 I38
    Date: 2015–02–22
  74. By: Gian Paulo Soave
    Abstract: Este artigo investiga os efeitos não lineares da política fiscal no Brasil sob dois diferentes regimes de condições financeiras. Emprega-se um modelo vetorial autorregressivo com limiar (Threshold Vector Autoregression-TVAR) utilizando uma variável estimada indicadora das condições de liquidez para a economia brasileira. Tal variável é estimada utilizando filtro de Kalman e métodos de ponderação dinâmica de modelos, e cobre vários aspectos financeiros. Os resultados mostram que as respostas não lineares são estado-dependentes, sendo os multiplicadores maiores e os choques mais persistentes em regime sob liquidez restrita.
    Keywords: Política Fiscal; VAR com Limiar (TVAR); Fricções Financeiras; Acelerador Financeiro
    JEL: E32 E62 E44 C33
    Date: 2015–02–24
  75. By: Michal Brzezinski (University of Warsaw, Poland )
    Abstract: This paper is a follow-up to Marrero and Rodriguez (2012), who estimated the inequality of opportunity (IO) in Europe in 2005. We use the EU-SILC 2005 and 2011 databases to com-pare the IO in 23 European countries before and after the Great Recession. The parametric procedure of Ferreira and Gignoux (2011) is used to measure IO. Results show that between 2004 and 2010 both absolute and relative IO increased in Belgium and Slovakia, while de-creased in Portugal and Lithuania. In addition, relative IO rose in Austria, Hungary and Greece.
    Keywords: Inequality of opportunity, Great Recession, EU-SILC, circumstances, Europe.
    JEL: D63 E24 O15 O52
    Date: 2015–01
  76. By: Patrick Grüning ; Thomas Theobald ; Till van Treeck
    Abstract: Germany entered the euro with a current account deficit but over the entire past decade has run large and persistent current account surpluses. Besides joining the common currency, the increase of Germany’s current account since the late 1990s has been accompanied by strong shifts in the personal and, in particular, the functional income distribution. In this paper, we argue that income inequality should always be analyzed with respect to both the personal and the functional distribution of income. We present a dynamic stochastic general equilibrium (DSGE) model in which a current account surplus arises as an endogenous result of a decrease in the share of household income in national income. On the one hand, this result complements existing literature where current account deficits result from rising personal income inequality. On the other hand, we find that current account imbalances will be more pronounced when accompanied by changes in the financial system. Accordingly, if we link Germany’s accession to the European monetary union to lower exchange rate costs for German bank lending, the current account surplus becomes larger.
    Keywords: income inequality, functional income distribution, household debt, financial system, current account
    JEL: D31 E17 F32
    Date: 2015
  77. By: Sergey Roshchin (National Research University Higher School of Economics. ); Victor Rudakov (National Research University Higher School of Economics )
    Abstract: The issue of how Russian students combine work and study can be analyzed through the quality of university, the quality of students and a number of financial, academic, social and demographic factors. These factors may have an effect on student employment and student labor supply, and help shed light on what motivates students to enter the labor market. We discovered that 64.7% of Russian students combined study and work and most of them begin working during their 3rd year of study. Our results indicate that factors associated with the quality of students, such as studying in a top university and participating in research activities, positively affect the probability of student employment, but negatively affect the labor supply. Financial motivations for student employment are also significant. However, we found no evidence that combining study and work affects students’ academic achievements
    Keywords: higher education, student employment, combining work and study, job market signaling, human capital
    JEL: E32
    Date: 2015
  78. By: Paulino Font (Banco de España ); Mario Izquierdo (Banco de España ); Sergio Puente (Banco de España )
    Abstract: We estimate real wage cyclicality in the period between 1987 and 2013 using a large administrative dataset of workers in Spain. Real wages are weakly procyclical in Spain and, focusing on different phases of the business cycle, we find significant differences between expansions and recessions, with even lower real wage cyclicality in recessions. Furthermore, higher levels of unemployment do not translate into additional real wage adjustments when the economy is contracting, while lower levels of unemployment during expansions have incremental effects on wage elasticity. This general result holds after accounting for differences in tenure, type of contract and age. Nevertheless, wages of newly hired workers are the most sensitive to the business cycle and exhibit the lowest asymmetric pattern between expansions and recessions. At the other end of the scale, wages of workers with more than six years’ tenure provide the most protection against economic downturns. The same is true for fixed-term vs. permanent workers and for young vs. older workers.
    Keywords: wage cyclicality, downward wage rigidity, social security data
    JEL: E32 J31
    Date: 2015–02
  79. By: Mar Delgado Téllez (Banco de España ); Pablo Hernández de Cos (Banco de España ); Samuel Hurtado (Banco de España ); Javier J. Pérez (Banco de España )
    Abstract: The economic crisis was initially associated with an increase in regional and local government payment periods and trade debt. Since 2012, central government has approved various extraordinary mechanisms for the payment of local and regional government suppliers that have significantly reduced the stock of trade debt and the average supplier-payment periods attributable to these levels of government. Successive plans have helped unblock payments and channel funds of close to €67 billion towards the private sector in somewhat less than three years. And against a background of economic weakness, fiscal consolidation and difficult conditions of access to lending, it is believed this has provided a considerable impetus to activity that has helped mitigate some of the adverse effects of the economic crisis. In parallel, the roll-out of the plan has entailed a substantial increase in local and regional government debt vis-à-vis the State. To prevent inappropriate incentives for the conduct of local and regional government from arising, the funding mechanisms agreed on require compliance with certain adjustment plans.
    Keywords: trade debt, payment to government suppliers, regional and local public finances, public spending.
    JEL: E6 H12 H74 H81
    Date: 2015–02
  80. By: Sauro Mocetti (Bank of Italy ); Eliana Viviano (Bank of Italy )
    Abstract: We examine the delinquency rate for mortgages originated before and after the 2008 financial crisis, using a novel and large representative panel obtained by merging data from tax records and credit registers. First, we estimate the selection into the mortgage market using an exogenous index of local credit supply as exclusion restriction. Second, controlling for selection we estimate the impact of income shocks on the probability of recording a delinquency. We find that since 2008 the selection process operated by banks has led to the halving of the delinquency rate. Conditional on mortgage origination, a job loss nearly doubles the delinquency risk. Estimates uncorrected for selection are subject to severe downward biased.
    Keywords: mortgage delinquency, income, selection, lending policies
    JEL: D12 E51 G01 G21
    Date: 2015–01
  81. By: Enrica Di Stefano (Bank of Italy ); Daniela Marconi (Bank of Italy )
    Abstract: We examine the growth performance of six emerging economies (Brazil, China, India, Indonesia, Russia and Turkey) in the last two decades and examine whether domestic structural constraints are affecting their present and future growth potential. In order to assess better the determinants of the recent synchronized slowdown of these economies, we concentrate on the dynamics of labor productivity (value added per worker, a synthetic measure of capital deepening, labor quality and total factor productivity) and of employment. We find that the ongoing slowdown in EMEs is largely structural, but there is still ample room for catching up in terms of output composition, reallocation of labor across sectors and within-sector productivity improvements. The scope for further reform and reform priorities differs across countries. In the longer run other structural factors will weigh on potential growth, particularly the evolution of the size and quality of the labor force.
    Keywords: emerging markets, growth, potential growth, productivity
    JEL: E32 O47 O57
    Date: 2015–01
  82. By: Antonio M. Conti (Bank of Italy ); Concetta Rondinelli (Bank of Italy )
    Abstract: Between the first half of 2013 and the summer of 2014, survey data pointed to a gradual recovery of economic activity, while the hard data continued to show persistent weakness. After providing statistical evidence to support the hypothesis that, during the sovereign debt crisis, the relationship between soft and hard variables for the Italian economy has weakened, the paper evaluates some possible explanations for this gap. The micro data for the quarterly survey conducted by the Bank of Italy – Il Sole 24 Ore on growth and inflation expectations tend to rule out the hypothesis that the gap between the qualitative and quantitative indicators comes from selection effects due to the progressive exclusion from the sample of economically distressed firms. Furthermore, the prolonged recession seems to have modified firms’ expectations, leading to a downward revision of production plans and the setting of a “new normal” situation. Therefore, firms may still have expressed favorable expectations for the economic outlook in spite of cyclically slack activity.
    Keywords: survey data, confidence, industrial production, new normal
    JEL: E32 C40 C80
    Date: 2015–01
  83. By: Lorenzo Burlon (Bank of Italy ); Simone Emiliozzi (Bank of Italy ); Alessandro Notarpietro (Bank of Italy ); Massimiliano Pisani (Bank of Italy )
    Abstract: The paper assesses the performance of medium-term forecasts of euro-area GDP and inflation obtained with a DSGE model and a BVARX model currently in use at the Bank of Italy. The performance is compared with that of simple univariate models and with the Eurosystem projections; the same real time assumptions underlying the latter are used to condition the DSGE and the BVARX forecasts. We find that the performance of both forecasts is similar to that of Eurosystem forecasts and overall more accurate than that of simple autoregressive models. The DSGE model shows a relatively better performance in forecasting inflation, while the BVARX model fares better in forecasting
    Keywords: forecasting, DSGE, BVARX, euro area
    JEL: C53 E32 E37
    Date: 2015–01
  84. By: Andrea Silvestrini (Bank of Italy ); Andrea Zaghini (Bank of Italy )
    Abstract: In this paper we present an overview of theoretical and empirical contributions exploring the inter-linkages between financial factors and real economic activity. We first revisit the main theoretical approaches that allow financial frictions to be embedded into general equilibrium models, and then we survey, from an empirical perspective, the most recent papers focusing on macro-financial linkages, with a particular emphasis on works dealing with parameter time variation and other types of nonlinearities. We conclude by discussing some policy implications and suggesting directions for future research.
    Keywords: financial shocks, credit, financial crisis, nonlinearity
    JEL: C32 E32 E44 E58
    Date: 2015–01
  85. By: Maximo Camacho ; Jaime Martinez Martin
    Abstract: We propose a Markov-switching dynamic factor model to construct an index of global business cycle conditions, to perform short-term forecasts of world GDP quarterly growth in real time and to compute realtime business cycle probabilities. To overcome the real-time forecasting challenges, the model accounts for mixed frequencies, for asynchronous data publication and for leading indicators. Our pseudo real time results show that this approach provides reliable and timely inferences of the world quarterly growth and of the world state of the business cycle on a monthly basis.
    Keywords: Economic Analysis, Global, Research, Working Paper
    JEL: E32 C22 E27
    Date: 2015–02
  86. By: Rafael Repullo
    Abstract: We present a model of an economy with heterogeneous banks that may be funded with uninsured deposits and equity capital. Capital serves to ameliorate a moral hazard problem in the choice of risk. There is a fixed aggregate supply of bank capital, so the cost of capital is endogenous. A regulator sets risk-sensitive capital requirements in order to maximize a social welfare function that incorporates a social cost of bank failure. We consider the effect of a negative shock to the supply of bank capital and show that optimal capital requirements should be lowered. Failure to do so would keep banks safer but produce a large reduction in aggregate investment. The result provides a rationale for the cyclical adjustment of risk-sensitive capital requirements.
    Keywords: Banking regulation; Basel II; Capital requirements; Procyclicality
    JEL: E44 G21 G28
    Date: 2013–09–27
  87. By: Antonia Diaz ; Luis Franjo (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland )
    Abstract: This paper reconciles two, apparently, contradictory facts about the Spanish economy: real GDP per working age person has grown at 2.4 percent during the period 1996-2007, on average, whereas Total Factor Productivity has been stagnant during that period. Here we argue that the Spanish economy has grown, in spite of stagnant TFP, because investment in structures has been heavily subsidized. This inefficiently high rate of investment in structures is the main reason for the increase in hours worked observed during that period. We use a three sector model economy where we distinguish between equipment and structures to quantify the sources of changes in measured TFP in Spain. We find that measured TFP is low because Investment-Specific Technical Change in Spain is very low. A calibrated version of this model is able to reproduce very well the growth experience of Spain for the period 1970-2007. We use the model economy to quantify the cost of direct and indirect subsidies to structures and the gains of eliminating them in terms of TFP and income growth. Our three sector model economy also allows us to quantify the cost in measured TFP of the housing price boom experienced during the 2000s.
    Keywords: Home Market Effect, Terms of Trade, Tariffs and Subsidies
    JEL: E01 E13 E32
    Date: 2014–10
  88. By: Luis Franjo (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland )
    Abstract: Current account deficits and housing prices showed a strong positive correlation throughout the mid-90s to 2007. This paper studies the effect of a decrease in the international interest rate and in the downpayment requirement to buy a house during that period on the joint behavior of the current account and housing prices. To this end, I build a small open economy model with life-cycle heterogeneous agents and two goods: tradable (non-housing) and non-tradable (housing). I calibrate the model to replicate selected aggregate statistics of the U.S. economy and compute the transition after the decrease in the interest rate and in the downpayment. The model is able to match some relevant facts: the boom and the bust (after 2007) in the housing market, where the bust, as the data show, occurs without a reversal in the interest rate; the increase in the homeownership rate; the simultaneous boom - and bust - in non-housing consumption; and the coexistence of borrowing from abroad with a current account deficit throughout the transition.
    Keywords: Current account, housing prices, debt, non-housing consumption, home-ownership, collateralized borrowing constraints.
    JEL: E21 F41 G11
    Date: 2015–02
  89. By: Koki Oikawa ; Kozo Ueda
    Abstract: Money is not neutral if firm entry and exit are incorporated into a menu cost model. The real effect of money increases as a firm entry and exit rate increases, and the key is non-uniform firm distribution.
    Keywords: (non-)uniform distribution, menu cost
    JEL: E31 E52
    Date: 2015–01
  90. By: Faruk Balli ; Eleonora Pierucci
    Abstract: We explore the impact of various forms of globalization upon international risk-sharing applying the KOF globalization indices. The empirical literature, so far, has only investigated economic and financial sides of globalization. By decomposing globalization into its economic, social and political aspects, we gauge the impact of these aspects on the extent of risk-sharing among Organization for Economic Cooperation and Development (OECD), European Monetary Union (EMU) and low and middle income (LMY) countries, obtaining unprecedented results that might shed a light on the open question about the role of globalization in risk-sharing. Our main finding is that noneconomic aspects of globalization are relevant in shaping risk-sharing opportunities. When non-economic aspects are taken into account, economic integration loses relevance, whereas social and political globalization improve risk-sharing. These remarkable unprecedented results entail new policy implications, particularly for EMU and OECD countries, and call for further investigation.
    Keywords: International risk-sharing, globalization, social and political integration
    JEL: C33 D80 E2 F15
    Date: 2015–01
  91. By: Frost, Joshua (Federal Reserve Bank of New York ); Logan, Lorie (Federal Reserve Bank of New York ); Martin, Antoine (Federal Reserve Bank of New York ); McCabe, Patrick E. ; Natalucci, Fabio M. ; Remache, Julie (Federal Reserve Bank of New York )
    Abstract: We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors, including nonbank institutions that are significant lenders in money markets, could complement the use of the interest on excess reserves (IOER) and help control short-term interest rates. We examine some potentially important secondary effects of an ON RRP facility, both positive and negative, including impacts on the structure of short-term funding markets and financial stability. We also investigate design features of an ON RRP facility that could mitigate secondary effects deemed undesirable. Finally, we discuss tradeoffs that policymakers may face in designing an ON RRP facility, as they seek to balance the objectives of setting an effective floor on money market rates during the normalization process and limiting any adverse secondary effects.
    Keywords: repo; reverse repo; overnight RRP; monetary policy; interest on excess reserves; money market funds; Federal Reserve Board; Federal Reserve System
    JEL: E52 E58 G21 G23
    Date: 2015–02–01
  92. By: Davis, J. Scott (Federal Reserve Bank of Dallas ); Fujiwara, Ippei (Keio University )
    Abstract: Central banks that lack credibility often tie their exchange rate to that of a more credible partner in order to “import” credibility. We show in a small open economy model that a central bank that displays “limited credibility” can deliver significant improvements to a social welfare function that contains no role for exchange rate stabilization by maximizing an objective function that places weight on exchange rate stabilization, and thus the central bank with limited credibility will peg their currency to that of a more credible partner. As the central bank’s credibility improves it will place less weight on exchange rate stabilization in its objective function and thus loosen the peg. When the central bank is perfectly credible its objective function and the social welfare function are identical; it places no weight on exchange rate stabilization and allows the currency to freely float. Empirical results using a panel of both developed and developing countries show that as central banks become more independent they tend to allow more currency flexibility.
    JEL: E30 E50 F40
    Date: 2015–01–01
  93. By: Cheremukhin, Anton A. (Federal Reserve Bank of Dallas ); Tutino, Antonella (Federal Reserve Bank of Dallas )
    Abstract: We study the link between business failures, markups and business cycle asymmetry in the U.S. economy with a model of optimal firm exit under rational inattention. We show that the model's predictions of lagged, counter-cyclical and positively skewed markups together with counter-cyclical exit rates are consistent with the empirical evidence. Moreover, our model uncovers a new mechanism that links information processing with the business cycle. It predicts counter-cyclical attention to economic conditions consistent with survey evidence.
    Keywords: Information; markups; exit rates; rational inattention.
    JEL: C63 D21 D22 D80 E32
    Date: 2014–11–01
  94. By: Edda Claus ; Mardi Dungey
    Abstract: This paper extracts measures of monetary policy surprises for Australia, Canada and the United States using a latent factor framework. We distinguish monetary policy surprises which occur when central banks report new assessments of the economy (or do not reinforce changes expected by market assessments) from those when policy makers appear to change their preferences. Changing policy preferences are evident in all jurisdictions, particularly during periods of stress. No-change policy announcements have distinctly differing impacts across the three countries; in Canada these have the same impact as policy changes, in Australia they are not discernibly different to a normal trading day and the US market lies between these scenarios. The revealed differences in size and type of the policy surprise outcomes for these operationally similar central banks suggests that the role of transparency policy is more subtle than previously appreciated.
    Keywords: monetary policy, central banks, latent factor model
    JEL: E43 E52 C38
    Date: 2015–02
  95. By: Tatiana Damjanovic (University of Exeter ); Šarūnas Girdėnas (University of Exeter ); Keqing Liu (University of Exeter )
    Abstract: In this paper, we consider a model where producers set their prices based on their prediction of the aggregated price level and an exogenous variable, which can be a demand or a cost-push shock. To form their expectations, they use OLS-type econometric learning with bounded memory. We show that the aggregated price follows the random coefficient autoregressive process and we prove that this process is covariance stationary
    Keywords: econometric learning, bounded memory, random coefficient autoregressive process, stationarity
    JEL: C22 C53 C62 D83 E31
    Date: 2015–02–01
  96. By: Cuong Le Van (Centre d'Economie de la Sorbonne - Paris School of Economics, IPAG Business School and VCREME ); Ngoc-Sang Pham (Centre d'Economie de la Sorbonne )
    Abstract: We build an infinite-horizon dynamic deterministic general equilibrium model with imperfect markets (because of borrowing constraints), in which heterogeneous agents invest in capital or/and financial asset, and consume. There is a representative firm who maximizes its profit. Firstly, the existence of intertemporal equilibrium is proved even if aggregate capital is not uniformly bounded. Secondly, we study the interaction between the financial market and the productive sector. We also explore the nature of physical capital bubble and financial asset bubble as well.
    Keywords: Infinite horizon, intertemporal equilibrium, financial friction, productivity, efficiency, fluctuation, bubbles.
    JEL: C62 D31 D91 G10 E44
    Date: 2014–08
  97. By: Armagan Tuna Aktuna-Gunes (Centre d'Economie de la Sorbonne - Paris School of Economics )
    Abstract: We investigate underlying determinants of informality by representing the Turkish Time Use Survey in 2006 and the Household Budget Surveys for the years from 2003 to 2006 conducted by Turkish Statistical Institute. Following the descriptive methodology proposed by Gronau and Hamermesh (2006), the main focus is to describe the household data by highlighting the main features and revealing the relative importance of expenditures of time and goods through an exaustive set of commodities and assign time and goods inputs to each in order to measure their relative goods intensities. The analysis of the evolution of commodity per time spent during 2003, 2004, 2005 and 2006 reveals the fact that the average value for total expenditures per total time spent show increases in a decreasing trend (concave shape) over these years. Supposing that the average time spent among these years in constant on average (meaning that they did not really change from one year to another), the result of this accounting support the hypotheses that the amount of consumption present in household production during these years decreased. Our findings could be used as guides to better understanding the socio-economic conditions in developing countries and to obtain more accurate measurements of the size of informality, poverty and income inequalities.
    Keywords: Domestic avtivities, time use, goods intensity, informality.
    JEL: D1 J22 E26
    Date: 2015–02
  98. By: Armagan Tuna Aktuna-Gunes (Centre d'Economie de la Sorbonne - Paris School of Economics )
    Abstract: In this article, we propose to calculate the size of the population living in poverty, measured through uni- and multidimensional poverty indices, and the Gini coefficient using extended full (time plus money and informal earnings) incomes, from cross-sectional data covering 2003-2006 in Turkey. Thus monetary incomes are corrected by adding the earnings gathered from informal activities and the monetary values of time spent in domestic activities into declared incomes, producing an error-free estimate of the size of the population living in poverty and the Gini ratio overall. To show the effect informal activities with the domestic ones have on poverty, changes in the joint probability of being in informal activity while being considered poor is measured by means of a bivariate probit model using extended (money plus informal earnings) income and extended full incomes.
    Keywords: Informal earnings, domestic activities, poverty, Gini coefficient.
    JEL: E26 D1 I32 D63
    Date: 2015–02
  99. By: Krawczyk, Jacek B ; Townsend, Wilbur
    Abstract: We provide an introduction to a model of social inequality dynamics. Because capital is distributed less equally than labour, we propose that that one of the main forces driving income inequality is the ratio of factor shares. In this paper we give an easy proof to show that this ratio is driven by the output elasticity of capital.
    Keywords: Macroeconomic dynamics, Inequality dynamics, Social inequality,
    Date: 2015
  100. By: Razin, Assaf ; Sadka, Efraim ; Suwankiri, Benjarong
    Abstract: We develop a dynamic political-economic theory of welfare state and immigration policies, featuring three distinct voting groups: skilled workers, unskilled workers, and old retirees. The essence of inter - and intra-generational redistribution of a typical welfare system is captured with a proportional tax on labor income to finance a transfer in a balanced-budget manner. We provide an analytical characterization of political-economic equilibrium policy rules consisting of the tax rate, the skill composition of migrants, and the total number of migrants. When none of these groups enjoy a majority (50 percent of the voters or more), political coalitions will form. With overlapping generations and policy-determined influx of immigrants, the formation of the political coalitions changes over time. These future changes are taken into account when policies are shaped. Naturally, a lower rate of population growth (that is, an aging population) increases the political clout of the old (the left group). But it also increases the burden on the young (particularly, the skilled).
    Keywords: center; dynamics of left and right coalitions; intra- and inter-generational transfers
    JEL: E10 F15 H10
    Date: 2015–02
  101. By: Greenwood, Jeremy ; Guner, Nezih ; Kocharkov, Georgi ; Santos, Cezar
    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; household production; inequality; marriage and divorce; married female labour supply
    JEL: E13 J12 J22 O11
    Date: 2015–02
  102. By: Gersbach, Hans ; Rochet, Jean-Charles ; Scheffel, Martin
    Abstract: We develop a simple integration of banks into the Solow model. The objective is to provide a tractable benchmark for analyzing the long-term impact of crises on economic activities and growth. A fraction of firms have to rely on banks for financing their investments while banks face themselves an endogenous leverage constraint. Informed lending by banks and uninformed lending through capital markets spur capital accumulation. The ensuing coupled accumulation rules for household wealth and bank equity yield a uniquely determined steady state. We highlight three properties when shocks to wealth, productivity or trust affect the economy. First, typically bond and loan financing react in opposite directions to such shocks. Second, negative temporary shocks to household wealth (financial crisis) or negative sectoral production shocks can surprisingly cause persistent booms of banking and even of the entire economy -- after an initial bust. Third, shocks to bank equity (banking crisis), however, lead to large and persistent downturns associated with high output losses.
    Keywords: economic activity and growth; financial intermediation; impact of banking and financial crises; Solow model
    JEL: E21 E32 F44 G21 G28
    Date: 2015–02
  103. By: Eijffinger, Sylvester C W ; Mahieu, Ronald J ; Raes, Louis
    Abstract: In this paper we estimate ideal points of Bank Presidents and Board Governors at the FOMC. We use stated preferences from FOMC transcipts and estimate a hierarchical spatial voting model. We find a clear difference between the average Board Governor and Bank President. We find little evidence for difference in ideal points according to the appointing president in case of Bank Governors. Similarly career background has no clear effect on the ideal points. We find that the median ideal point at the FOMC has been fairly stable over our sample period (1989-2007) emphasizing the lack of a political appointment channel. We also show that there was considerable variation in the median ideal point of Bank Presidents and Board Governors, but that these seem to cancel each other out. Also the dispersion of opinions (the spread between the lowest and highest ideal point) varies over time, suggestion variation in agreement at the FOMC.
    Keywords: central banks; committees; FOMC; ideal points; transcripts
    JEL: C11 E58 E59
    Date: 2015–02
  104. By: Biørn, Erik (Dept. of Economics, University of Oslo )
    Abstract: The often discussed problems of aggregating tangible capital assets across vintages and of decomposing value aggregates into quantity and price aggregates are revisited. For stock values and service flow values, some new results are given, and illustrated by examples, along with reinterpretations of familiar ones. If the definitions and measurement methods for prices and quantities do not ‘match’, a third, ‘quality’, component may be needed. Should this ‘buffer’ component be included in the price or quantity components, or both, or should it be accounted for separately, and in the latter case, how does it depend on the interest rate and the capital’s age? In discussing these issues, five related quantity variables and five related price variables are introduced and discussed. For certain parametric profiles for survival and efficiency loss they are equal. Some variables are observable from market data without large efforts, some are genuinely unobservable, and some can be quantified only if certain (sometimes questionable and often nontestable) assumptions are made. Examples based on three sets of parametric profiles, including exponential decay, are given.
    Keywords: Capital accounting; Capital survival; Capital service price; Capital and interest; Arbitrage; Capital quality; Aggregation
    JEL: C43 C82 E22
    Date: 2014–12–30
  105. By: Bauer, Jan M. (University of Hohenheim ); Sousa-Poza, Alfonso (University of Hohenheim )
    Abstract: As the aging population increases, the demand for informal caregiving is becoming an ever more important concern for researchers and policy-makers alike. To shed light on the implications of informal caregiving, this paper reviews current research on its impact on three areas of caregivers' lives: employment, health, and family. Because the literature is inherently interdisciplinary, the research designs, sampling procedures, and statistical methods used are heterogeneous. Nevertheless, we are still able to draw several conclusions: first, despite the prevalence of informal caregiving and its primary association with lower levels of employment, the affected labor force is seemingly small. Second, such caregiving tends to lower the quality of the caregiver's psychological health, which also has a negative impact on physical health outcomes. Third, the implications for family life remain under investigated. The research findings also differ strongly among subgroups, although they do suggest that female, spousal, and intense caregivers tend to be the most affected by caregiving.
    Keywords: informal care, employment, work hours, health, review
    JEL: E26 J14
    Date: 2015–02
  106. By: Haroon Mumtaz (Queen Mary University of London ); Angeliki Theophilopoulou (University of Westminister )
    Abstract: The UK has experienced a dramatic increase in earnings and income inequality over the past four decades. We use detailed micro level information to construct historical measures of inequality from 1968 to 2008. We study whether monetary policy shocks played a significant role in explaining this increase before and after 1993. We find that contractionary monetary policy shocks lead to a deterioration in earnings and income inequality and contribute to its fluctuation. Our evidence suggest that this effect is smaller during the inflation targeting period.
    Keywords: Inequality, Earnings, Income, Mixed frequency Bayesian SVAR, Monetary policy shocks
    JEL: E2 E3 E4 E5
    Date: 2015–02
  107. By: Lance Kent (Department of Economics, College of William and Mary )
    Abstract: All models are misspecified to some degree, and the assumption of rational expectations could potentially be a serious source of misspecification. Many theories relax rational expectations and improve the predictive properties of benchmark macroeconomic models. Problematically, the space of possible deviations from rational expectations is very large, especially since it is difficult both to measure expectations and to know whose expectations matter. This paper provides evidence on which small reduced-form state-contingent deviations from rational expectations yield the most improvement in replicating features of macroeconomic time series, and which aspects of model misspecification are and are not ameliorated by these small deviations from rational expectations. The findings: a) The data favor deviations from rational expectations among firms, both for good pricing and wage setting. b) Relaxing rational expectations in a New Keynesian model partially substitutes for the additional structural mechanisms in the larger Smets Wouters (2007) model. Relaxing rational expectations within the Smets Wouters (2007) model improves that model’s ability to reproduce some of the spectral coherencies between output growth, investment growth, and labor supply. The mechanism is a combination of shocks to beliefs themselves and the role that deviations from rational expectations have in changing the propagation of other shocks.
    Keywords: Expectations, DSGE, misspecification, Bayesian estimation
    JEL: C52 E17 E27 E32
    Date: 2015–02–15
  108. By: Udichibarna Bose ; Ronald MacDonald ; Serafeim Tsoukas
    Abstract: This paper analyses the impact of policy initiatives co-ordinated by Asian national governments on fi…rms access to external …finance, using a unique …firm-level database of eight Asian countries- Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand over the period of 1996-2012. Using a difference-in- differences approach and controlling for …firm-level and macroeconomic factors, the results show a signi…cant impact of policy on …rmsaccess to external …nance. After splitting …firms into constrained and unconstrained, using several criteria, the results document that unconstrained …firms bene…ted signi…cantly in obtaining external …finance, compared to their constrained counterparts. Finally, we show that the increase in access to external …nance after the policy initiative helped …rms to raise their investment spending, especially for unconstrained …firms.
    Keywords: External …nance; Emerging Asia; Bond market policy initiatives; Financial constraints
    JEL: C23 E44 G15 G32 O16
    Date: 2014–01
  109. By: Konstantinos Angelopoulos ; Wei Jiang ; James Malley
    Abstract: This paper evaluates the e¤ects of policy interventions on sectoral labour markets and the aggregate economy in a business cycle model with search and matching frictions. We extend the canonical model by including capital-skill complementarity in production, labour mar- kets with skilled and unskilled workers and on-the-job-learning (OJL) within and across skill types. We …rst …nd that, the model does a good job at matching the cyclical properties of sectoral employment and the wage-skill premium. We next …nd that vacancy subsidies for skilled and unskilled jobs lead to output multipliers which are greater than unity with OJL and less than unity without OJL. In contrast, the positive output e¤ects from cutting skilled and unskilled income taxes are close to zero. Finally, we …nd that the sectoral and aggre- gate e¤ects of vacancy subsidies do not depend on whether they are …nanced via public debt or distorting taxes
    Keywords: fiscal multipliers, sectoral labour markets, search and matching
    JEL: E24 E32 J63 J64 J68
    Date: 2015–01
  110. By: Angelo Baglioni (Università Cattolica del Sacro Cuore ; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore ); Andrea Boitani (Università Cattolica del Sacro Cuore ; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore ); Massimo Bordignon (Università Cattolica del Sacro Cuore ; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore )
    Abstract: Labor mobility is commonly taken as a property of an optimal currency area. But how does that property a¤ect the outcome of fiscal policies? We address this issue with a two country ?two period model, where both asymmetric and symmetric productivity shocks may hit the countries. We show that perfect (costless) labour mobility is not necessarily welfare improving, since it prevents the national fiscal authorities from pursuing indepen- dent policies, opening the way to a coordination problem between them, which is particularly relevant when the two countries di¤er for their intertemporal preferences. With symmetric shocks, the federal fiscal policy can improve welfare over national policies by playing a coordinating role. With asymmet- ric shocks, the federal fiscal policy allows both countries to reach a higher productive efficiency; to do that, the federal government must be endowed with a federal budget, playing a stronger role than plain coordination between countries.
    Keywords: currency union, labor mobility, fiscal policy, federation
    JEL: E62 H77
    Date: 2014–11
  111. By: Nicolò Pecora (Università Cattolica del Sacro Cuore ); Alessandro Spelta (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore )
    Abstract: Analyzing the topological properties of the network of shareholding relationships among the Euro Area banks we evaluate the relevance of a bank in the ?nancial system respect to ownership and control of other banks. We ?nd that the degree distribution of the European banking network displays power laws in both the binary and the weighted case. We also ?nd that the exponents are linked by a scaling relation revealing a direct connection between an increase of control diversi?cation and an increase of market power. Results also reveal Single Supervisory Mechanism, recently introduced by the European Central Bank and based on banks? total assets is a good proxy for the systemic risk associated to a particular ?nancial institution. Moreover we study how control and wealth are structured and concentrated within the banking system. Interestingly, our analysis reveals that control is highly concentrated at banking level, namely, lying in the hands of very few important shareholders that have weak relationships between them. This means that each main holder controls approximately a separate subset of banks.
    Keywords: Shareholding network, European banking system, Weighted graph, Power law
    JEL: D85 E58 L14
    Date: 2014–06
  112. By: Mattia Guerini (Sant'Anna School of Advanced Studies, Pisa )
    Abstract: The recent economic crisis gave proof of the fact that the Taylor rule is no more that good instrument as it was thought to be just ten years ago; this might be due to the fact that agents acting in the economy hold Heterogeneous Expectations (HE). In a recent paper Anufriev et al. (2013) suggest that a way to force stability on the economic system is to adopt a more aggressive Taylor rule. In the present paper a standard NK-DSGE is considered in order to investigate whether a Friedman k-percent monetary policy rule may be a valid instrument to counteract the instability created by the presence of HE in a framework à la Brock and Hommes (1997). The model here presented suggests that when such a money supply rule is adopted by the Central Bank, stability strongly depends on the intensity of choice, which represents the ability of the agents to switch toward the best available predictor.
    Keywords: Heterogeneous Expectations, Friedman Monetary Policy Rule, Macroeconomic Stability
    JEL: E37 E52 E58
    Date: 2013–11
  113. By: Andrea Monticini (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore ); Francesco Ravazzolo (Norges Bank and BI Norwegian Business School )
    Abstract: Central banks' operations and eciency arguments would suggest that the intraday interest rate should be set to zero. However, a liquidity crisis introduces frictions related to news, which can cause an upward jump of the intraday rate. This paper documents that these dynamics can be partially predicted during turbulent times. Long memory approaches or a combination of them to account for model uncertainty outperform random walk, autoregressive and moving average benchmarks in terms of point and density forecasting. The relative accuracy is higher when the full distribution is predicted. We also document that such statistical accuracy can provide economic gains in investment strategies based on lending in the intraday market.
    Keywords: interbank market, intraday interest rate, forecasting, density forecasting, policy tools.
    JEL: C22 C53 E4 E5
    Date: 2014–02
  114. By: Tiziana Assenza (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore ); William Brock (Economics Department,University of Winsconsin, Madison ); Cars Hommes (CeNDEF,University of Amsterdam )
    Abstract: We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select among heterogeneous expectation rules, based upon their relative performance. A small fraction of pessimistic traders already has a large aggregate effect, leading to a crisis characterized by high contract rates for loans and low output. Our stylized model illustrates how animal spirits and heterogeneous expectations amplify boom and bust cycles and how endogenous coordination on pessimistic expectations amplifies crises and slows down recovery. Taking heterogeneous expectations and bounded rationality into account is crucial for the timing of monetary or fiscal policy.
    Keywords: Heterogeneous Expectations, Crises, Animal Spirits.
    JEL: E32 D83 D84
    Date: 2013–12
  115. By: Branislav Saxa
    Abstract: This paper examines the usefulness of Google Trends data for forecasting mortgage lending in the Czech Republic. While the official monthly statistics on mortgage lending come with a publication lag of one month, the data on how often people search for mortgage-related terms on the internet are available without any lag on a weekly basis. Growth in searches for mortgages and growth in mortgages actually provided are strongly correlated. The lag between these two growth rates is two months. Evaluation of out-of-sample forecasts shows that internet search data improve mortgage lending predictions significantly. In addition to forecasting performance evaluation, an experimental indicator of restrictively tight mortgage credit standards and conditions is proposed. Nowadays many countries run bank lending surveys to monitor the tightness of bank lending standards and conditions. The proposed indicator represents a complementary tool to such a survey.
    Keywords: Credit demand, credit standards and conditions, credit supply, forecast evaluation, forecasting, Google econometrics, Internet search data, mortgage, smoothing
    JEL: C22 C82 E27 E51
    Date: 2014–12
  116. By: Martin Kuncl
    Abstract: This paper studies the efficiency of financial intermediation through securitization in a model with heterogeneous investment projects and asymmetric information about the quality of securitized assets. I show that when retaining part of the risk, the issuer of securitized assets may credibly signal its quality. However, in the boom stage of the business cycle this practice is inefficient, information on asset quality remains private, and lower-quality assets accumulate on balance sheets of financial intermediaries. This prolongs and deepens a subsequent recession with an intensity proportional to the length of the preceding boom. In recessions, the model also produces amplification of adverse selection problems on resale markets for securitized assets. These are especially severe after a prolonged boom period and when securitized high-quality assets are no longer traded. The model also suggests that improperly designed regulation requiring higher explicit risk retention may become counterproductive due to a negative general-equilibrium effect; i.e., it may adversely affect both the quantity and the quality of investment in the economy.
    Keywords: Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial markets, Financial stability, Financial system regulation and policies
    JEL: E E3 E32 E4 E44 G G0 G01 G2 G20
    Date: 2015
  117. By: David Leonardo Parra Araque
    Abstract: Resumen La educación, los factores socioeconómicos y las TIC juegan un papel importante dentro del desarrollo de la sociedad. En ese sentido, una mayor inversión en la educación que involucre potenciación del uso de herramientas informáticas conduciría a mejores resultados en las Pruebas Saber 11, especialmente en la educación pública, la cual representan el 65% del total de estudiantes que la presentan. Al respecto, las políticas públicas son de gran relevancia en tanto podrían aumentar el rendimiento de los estudiantes bogotanos que obtendrían un mejor promedio en las áreas del núcleo común comparado con el promedio nacional.
    Keywords: Tecnologías de la Información y Comunicación (TIC), calidad de la educación, políticas publicas, capital humano.
    JEL: E24 I21 O33 O14
    Date: 2013–06–03
  118. By: Henderson, Christopher (Federal Reserve Bank of Philadelphia ); Lang, William W. (Federal Reserve Bank of Philadelphia ); Jackson, William E. (University of Alabama )
    Abstract: From 2007 to 2010, more than 200 community banks in the United States failed. Many of these failed community banking organizations (CBOs) held less than $1 billion in total assets. As economic conditions worsen, banking organizations are expected to preserve capital to withstand unexpected losses. This study examines CBOs prior to failure or becoming problem institutions to understand if, on average, a run on capital by insiders via dividend payouts led to greater financial fragility at the onset of the crisis. We use a control group of similar-sized banks that did not fail or become problem institutions to compare our results and to draw statistical conclusions. We use standard control variables highlighting corporate governance and managerial ownership, such as S-corporation designation and bank complexity that might create incentives more conducive to insider enrichment than to the welfare of depositors or debtholders. Although the new Dodd-Frank legislation exempted smaller banks from many proposed requirements, our results show that capital distributions to insiders contributed to community bank weakness during the financial crisis.
    Keywords: Dividend policy; Financial crisis; Bank lending; Bank risk; Bank regulation; Risk management
    JEL: E44 G01 G21 G32 G35
    Date: 2015–01–01
  119. By: Smith, Andrew Lee (Federal Reserve Bank of Kansas City )
    Abstract: This paper develops a nancial mechanism which integrates housing and the real econ- omy through housing-secured debt. In this environment, movements in home prices are ampli ed through both borrowers and banks' balance sheets, leading to a self-reinforcing credit/liquidity crunch. When placed within a traditional business cycle model, this - financial structure quantitatively captures empirical relationships the traditional nancial accelerator mechanism struggles to explain and the qualitative predictions of the model are consistent with dynamic responses from a VAR. The model provides a framework to examine the ability of QE policies and equity injections into big banks to mitigate a housing bust. Although both are e ective, the nuances of the policies are important. A prolonged asset purchase program is preferable to a short-term equity injection; however, the model suggests the equity injections may have been necessary to prevent an economic collapse at the acute stage of the 2008 Financial Crisis.
    Keywords: Financial Crises; Financial Frictions; Unconventional Monetary Policy; Housing
    JEL: E32 E44 G01 G21
    Date: 2014–10–01
  120. By: Yi Wen (Federal Reserve Bank of St. Louis ); Leo Kaas (University of Konstanz ); Costas Azariadis (Washington University in St Louis )
    Abstract: In U.S. data 1981-2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is at best acyclical. In this paper we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing constraints preventing an efficient capital allocation among heterogeneous firms. Capital from less productive firms is lent to more productive ones in the form of credit secured by collateral and also as unsecured credit based on reputation which is a forward-looking variable. We argue that self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated sunspot shocks to trigger persistent aggregate fluctuations in debt, factor productivity and output. We show that sunspot shocks are quantitatively important, accounting for a substantial part of the volatility in firm credit and output.
    Date: 2014
  121. By: Tatiana Damjanovic (Department of Economics, University of Exeter ); Sarunas Girdenas (Department of Economics, University of Exeter ); Keqing Liu (Department of Economics, University of Exeter )
    Abstract: In this paper, we consider a model where producers set their prices based on their prediction of the aggregated price level and an exogenous variable, which can be a demand or a cost-push shock. To form their expectations, they use OLS-type econometric learning with bounded memory. We show that the aggregated price follows the random coefficient autoregressive process and we prove that this process is covariance stationary.
    Keywords: econometric learning, bounded memory, random coefficient autoregressive process, stationarity.
    JEL: C22 C53 C62 D83 E31
    Date: 2015

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