nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒03‒22
94 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Bank and Sovereign Risk Interdependence in the Euro Area By Kollintzas, Tryphon; Tsoukalas, Konstantinos
  2. Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control By Funke, Michael; Mihaylovski, Petar; Zhu, Haibin
  3. Monetary Policy with Ambiguity Averse Agents By Riccardo M. Masolo; Francesca Monti
  4. What are the macroeconomic effects of asset purchases? By Weale, Martin; Wieladek, Tomasz
  5. Oil price shocks and domestic inflation in Thailand By Jiranyakul, Komain
  6. Capital Requirements, Risk Choice, and Liquidity Provision in a Business Cycle Model By Juliane M. Begenau
  7. The Fundamental Surplus in Matching Models By Ljungqvist, Lars; Sargent, Thomas J
  8. Lessons for forecasting unemployment in the United States: use flow rates, mind the trend By Meyer, Brent; Tasci, Murat
  9. Comparison of monetary policy effects on lending channel in EMU and non-EMU countries: Evidence from period 1999-2012 By Tomáš Heryán; Iveta PaleÄková; Nemanja Radić
  10. The Limits of Monetary Policy Under Imperfect Knowledge By Marc Giannoni; Bruce Preston; Stefano Eusepi
  11. Institution Design for Macroeconomic Policy By Alexander Mihailov; Katrin Ullrich
  12. Prolonged Reserves Accumulation, Credit Booms, Asset Prices and Monetary Policy in Asia By Andrew J. Filardo, Pierre L. Siklos
  13. Empirical Properties of Inflation Expectations and the Zero Lower Bound By Mirko Wiederholt
  14. Inflation and Professional Forecast Dynamics: An Evaluation of Stickiness, Persistence, and Volatility By Elmar Mertens; James M Nason
  15. Advertising and Aggregate Consumption: A Bayesian DSGE Assessment By Benedetto Molinari; Francesco Turino
  16. Segmented Labor Markets and the Distributive Cycle: A Roadmap towards Inclusive Growth By Charpe, Matthieu; Flaschel, Peter; Hartmann, Florian; Malikane, Christopher
  18. Optimum Currency Area and Business Cycle Synchronization Across U.S. States By Luís Aguiar-Conraria; Pedro Brinca; Haukur Viðar Guðjónsson; Maria Joana Soares
  19. New Evidence on the Impact of Financial Crises in Advanced Countries By Christina D. Romer; David H. Romer
  20. Bank Equity and Macroprudential Policy By Keqing Liu
  21. Theories of finance and financial crisis: Lessons for the Great Recession By Dodig, Nina; Herr, Hansjörg
  22. Fiscal Sustainability: A Panel Assessment for Advanced Economies By António Afonso; João Tovar Jalles
  23. The macro impact of the Portuguese Constitutional Court decisions regarding the budgetary proposals of the Portuguese Budget Law (2012, 2013, 2014) By António Afonso,; Jorge Caiado,; Miguel St. Aubyn
  24. Revisiting Bank of Japan’s Policy Duration Commitment: Impact, Consequences and Challenges By Tomohiro Kinoshita
  25. Target Controllability and Time Consistency: Complement to the Tinbergen Rule By Huiping Yuan; Stephen M. Miller
  26. Globalization, Market Structure and the Flattening of the Phillips Curve. By S. Guilloux-Nefussi
  27. Distributing scarce jobs and output: Experimental evidence on the effects of rationing By Luba Petersen; Guidon Fenig
  28. Precautionary Strategies and Household Saving By Joshua Aizenman; Eduardo Cavallo; Ilan Noy
  29. Assessing Fiscal Sustainability for SAARC and IMT-GT Countries By Syed, Munawar-Shah; Mariani, Abdul-Majid; Syed, Hussain-Shah
  30. Riesgo de crédito y la transmisión de la política monetaria en Colombia By Fernando Tenjo Galarza; Enrique López Enciso; Héctor Zárate Solano
  31. U.S. macroeconomic and regulatory developments and emerging market economies By Musalem, Alberto G.
  32. Some Surprising Facts about Working Time Accounts and the Business Cycle By Balleer, Almut; Gehrke, Britta; Merkl, Christian
  33. Disentangling loan demand and supply shocks in Russia By Deryugina, Elena; Kovalenko, Olga; Pantina, Irina; Ponomarenko , Alexey
  34. Euro-Dollar Polarixation and Heterogeneity in Exchange Rate Pass-Throughs Within the Euro Zone By Mariarosaria Comunale
  35. Finance-growth nexus: insights from an application of threshold regression model to Malaysia’s dual financial system By Alaaabed, Alaa; Masih, Mansur
  36. Public Capital Expenditure and Debt Dynamics: Evidence from the European Union By Bhatt Hakhu, Antra; Piergallini, Alessandro; Scaramozzino, Pasquale
  37. The discretionary fiscal effort: an assessment of fiscal policy and its output effect By Nicolas Carnot; Franciso de Castro
  38. The CAPM Strikes Back? An Investment Model with Disasters By Hang Bai; Kewei Hou; Howard Kung; Lu Zhang
  39. Meta-analysis of Chinese business cycle correlation By Fidrmuc, Jarko; Korhonen, Iikka
  40. A Time of Moderate Expectations By Amat Adarov; Vasily Astrov; Serkan Çiçek; Rumen Dobrinsky; Vladimir Gligorov; Doris Hanzl-Weiss; Peter Havlik; Mario Holzner; Gabor Hunya; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Hermine Vidovic
  41. Debt-driven growth? Wealth, distribution and demand in OECD countries By Engelbert Stockhammer; Rafael Wildauer
  42. Uncertainty and the Signaling Channel of Monetary Policy By Jenny Tang
  43. Can the Provision of Long-Term Liquidity Help to Avoid a Credit Crunch? Evidence from the Eurosystem's LTROs. By P. Andrade; C. Cahn; H. Fraisse; J-S. Mésonnier
  44. Assessing the Evidence of Macro- Forecaster Herding: Forecasts of Inflation and Output Growth By Michael P Clements
  45. Essentials of Constructive Heterodoxy: Employment By Kakarot-Handtke, Egmont
  46. The Economic Necessity of Basic Income By Crocker, Geoff
  47. Accounting for Mismatch Unemployment By Herz, Benedikt; van Rens, Thijs
  48. The Flattening of the Phillips Curve and the Learning Problem of the Central Bank By Jean-Paul L'Huillier; William R. Zame
  49. Riesgo de crédito y la transmisión de la política monetaria en Colombia By Fernando Tenjo Galarza; Enrique López Enciso; Héctor Zárate Solano
  50. Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence By Giorgio Canarella; Stephen M. Miller; Stephen K. Pollard
  51. A Simple Model of Price Dispersion and Price Rigidity By Randall Wright; Guido Menzio; Kenneth Burdett
  52. Immigration Policy and Macroeconomic Performance in France By Hippolyte d’Albis; Ekrame Boubtane; Dramane Coulibaly
  53. Effects of Funding Portfolios on the Credit Supply of Canadian Banks By H. Evren Damar; Césaire Meh; Yaz Terajima
  54. 'Sudden Floods, Macroprudential Regulation and Stability in an Open Economy' By Pierre-Richard Agénor; K. Alper; L. Pereira da Silva
  55. Informality, Saving and Wealth Inequality By Catalina Granda; Franz Hamann
  56. Noisy News in Business Cycles By Luca Gambetti
  57. How Individuals Smooth Spending: Evidence from the 2013 Government Shutdown Using Account Data By Michael Gelman; Shachar Kariv; Matthew D. Shapiro; Dan Silverman; Steven Tadelis
  58. The liquidity preference theory: a critical analysis By Giancarlo Bertocco; Andrea Kalajzic
  59. A critique of full reserve banking By Sheila Dow; Guðrún Johnsen; Alberto Montagnoli
  60. Does bank liquidity creation contribute to economic growth? Evidence from Russia By Fidrmuc, Jarko; Fungácová, Zuzana; Weill , Laurent
  61. The Macroeconomic Effects of Uncertainty Shocks in India By Lumengo Bonga-Bonga; Rangan Gupta; Charl Jooste
  62. Monetary Union with A Single Currency and Imperfect Credit Market Integration. By V. Bignon; R. Breton; M. Rojas Breu
  63. Argentina’s sovereign debt default: a critical view By Georgescu, George
  64. Macroeconomic Effects of a Decline in Housing Prices in Sweden By Gustafsson, Peter; Stockhammar, Pär; Österholm, Pär
  65. The Debate on Growing Inequality – Implications for Developing Countries and International Co-operation By Jürgen K. Zattler
  66. The Stochastic Volatility in Mean Model with Time-Varying Parameters: An Application to Inflation Modeling By Joshua C.C. Chan
  67. Capital Flows and Domestic and International Order: Trilemmas from Macroeconomics to Political Economy and International Relations By Michael Bordo; Harold James
  68. "Consumption Volatility, Liquidity Constraints and Household Welfare" By Keshav Dogra; Olga Gorbachev
  69. The Reserve Bank's method of estimating "potential output" By Ashley Lienert; David Gillmore
  70. Evolution of the Monetary Transmission Mechanism in the US: The Role of Asset Returns By Beatrice D. Simo-Kengne; Stephen M. Miller; Rangan Gupta
  71. Financial Frictions and Reaction of Stock Prices to Monetary Policy Shocks By Ali Ozdagli
  72. Time-Varying Effects of Housing and Stock Prices on U.S. Consumption By Beatrice D. Simo-Kengne; Stephen M. Miller; Rangan Gupta; Goodness C. Aye
  73. Financial Development, Environmental Quality, Trade and Economic Growth: What Causes What in MENA Countries By Omri, Anis; Daly, Saida; Rault, Christophe; Chaibi, Anissa
  75. Precautionary strategies and household savings By Aizenman, Joshua; Cavallo, Eduardo; Noy, Ilan
  76. The Effect of Public Pension Wealth on Saving and Expenditure By Marta Lachowska; Michal Myck
  77. Financial Innovation, Collateral and Investment By Ana Fostel; John Geanakoplos
  78. The Economics of Ethical Consumption By Martha A. Starr
  79. Correlating Social Mobility and Economic Outcomes By Maia Güell; Michele Pellizzari; Giovanni Pica; José V. Rodríguez Mora
  80. Can International Macroeconomic Models Explain Low-Frequency Movements of Real Exchange Rates? By Pau Rabanal; Juan F. Rubio-Ramírez
  81. Central bank intervention in large value payment systems: An experimental approach By Peter Heemeijer; Ronald Heijmans
  82. Aggregate Effects of a Universal Social Insurance Fiscal Reform By Antón Arturo; Leal-Ordoñez Julio C.
  83. Dissecting the Purchasing Managers’ Index: Are all relevant components included? Are all included components relevant? By Boriss Siliverstovs
  84. The Demise of Marx’s Labour Theory of Value and the ‘New Interpretation’: A Recap Note By Ernesto Screpanti
  85. Tax Aversion, Laffer Curve, and the Self-financing of Tax Cuts By Soldatos, Gerasimos T.
  86. The Mutualisation of Sovereign Debt: Comparing the American Past and the European Present By Armin Steinbach
  87. The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains By Tsangyao Chang; Xiao-lin Li; Stephen M. Miller; Mehmet Balcilar; Rangan Gupta
  88. Malthusian pressures: Empirical evidence from a frontier economy By Geloso, Vincent; Kufenko, Vadim
  89. Hawks and Doves at the FOMC By Eijffinger, S.C.W.; Mahieu, R.J.; Raes, L.B.D.
  90. Trade, Wages, and Collective Bargaining: Evidence from France By Carluccio, Juan; Fougère, Denis; Gautier, Erwan
  91. Low Versus High Leverage (LVH) By Bebel, Arkadiusz
  92. Inequality, Recessions and Recoveries By Fabrizio Perri
  93. Skill Acquisition in the Informal Economy and Schooling Decisions: Evidence from Emerging Economies By Tumen, Semih
  94. Heterogeneous labor demand: sectoral elasticity and trade effects in the U.S., Germany and Sweden. By Judzik, Dario

  1. By: Kollintzas, Tryphon; Tsoukalas, Konstantinos
    Abstract: We develop a dynamic stochastic general equilibrium model to study bank risk and sovereign risk interdependence in the Euro Area. We find that an increase in capital investment risk shock, results in a considerably deeper recession when sovereign risk is also present. This result has three policy implications. First, Euro Area policies dealing with failing banks aggravated the recession. Second, although there has been a supranational effort with the creation of the EFSF/ESM to provide loans to sovereigns, as long as there is no direct mechanism for financial sector rescues, Euro Area policies continue to exacerbate the recession. Third, in favor of austerity measures used in the EA, we find that government spending multipliers are smaller in the presence of sovereign risk.
    Keywords: bank rescues; cyclicality; DSGE model; government spending multiplier; investment risk; sovereign risk
    JEL: E32 E44 E52 E58 E62 E63 G21 H3
    Date: 2015–03
  2. By: Funke, Michael (BOFIT); Mihaylovski, Petar (BOFIT); Zhu, Haibin (BOFIT)
    Abstract: The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.
    Keywords: DSGE model; monetary policy; financial market reform; shadow banking; China
    JEL: E32 E42 E52 E58
    Date: 2015–03–09
  3. By: Riccardo M. Masolo (Bank of England); Francesca Monti (Bank of England; Centre for Macroeconomics (CFM))
    Abstract: We study a prototypical new-Keynesian model in which agents are averse to ambiguity, and where the ambiguity regards the monetary policy rule. We show that ambiguity has important effects even in steady state, as uncertainty about the policymaker’s response function affects the rest of the model via the consumption-saving decision. A reduction in ambiguity - e.g. due to credible monetary policy actions and communications - results in a fall in inflation and the policy rate, and an increase in welfare. Moreover while, absent ambiguity, the policymaker’s actual responsiveness to inflation does not matter as long as the Taylor principle is satisfied, in the face of ambiguity the exact degree to which the central bank responds to inflation regains importance. Indeed, a high degree of responsiveness to inflation mitigates the welfare costs of ambiguity. We also present various results regarding the optimal choice of an inflation target, both when ambiguity is given and when assuming the policymaker can affect ambiguity with increased transparency and communications.
    Keywords: Ambiguity, aversion, monetary policy
    JEL: D84 E31 E43 E52 E58
    Date: 2015–03
  4. By: Weale, Martin; Wieladek, Tomasz
    Abstract: We examine the impact of large scale asset purchase announcements of government bonds on real GDP and the CPI in the United Kingdom and the United States with a Bayesian VAR, estimated on monthly data from 2009M3 to 2014M5. We identify an asset purchase announcement shock with four different identification schemes, always leaving the reactions of real GDP and CPI unrestricted, to test whether these variables react to asset purchases. We then explore the transmission channels of this policy. The results suggest that an asset purchase announcement of 1% of GDP leads to a statistically significant rise of .58% (.25%) and .62% (.32%) rise in real GDP and CPI for the US (UK). In the US, this policy is transmitted through the portfolio balance channel and a reduction in household uncertainty. In the UK, the policy seems to be mainly transmitted through the impact on investors’ risk appetite and household uncertainty.
    Keywords: Bayesian VAR; unconventional monetary policy
    JEL: E50 E51 E52
    Date: 2015–03
  5. By: Jiranyakul, Komain
    Abstract: This paper employ monthly data to examine the empirical relationship between oil price shocks and domestic inflation rate during 1993 and 2013. The results show that oil price, domestic or international, does not have the long-run impact on consumer prices. However, oil price shocks cause inflation to increase while oil price uncertainty does not cause an increase in inflation. Furthermore, inflation itself causes inflation uncertainty. The findings of this study encourage the monetary authorities to formulate a more accommodative policy to respond to oil price shocks.
    Keywords: Oil shocks, inflation, bivariate GARCH, causality
    JEL: E31 Q43
    Date: 2015–03
  6. By: Juliane M. Begenau (Harvard Business School, Finance Unit)
    Abstract: This paper develops a quantitative dynamic general equilibrium model in which households' preferences for safe and liquid assets constitute a violation of Modigliani and Miller. I show that the scarcity of these coveted assets created by increased bank capital requirements can reduce overall bank funding costs and increase bank lending. I quantify this mechanism in a two-sector business cycle model featuring a banking sector that provides liquidity and has excessive risk-taking incentives. Under reasonable parametrizations, the marginal benefit of higher capital requirements related to this channel significantly exceeds the marginal cost, indicating that US capital requirements have been sub-optimally low.
    Keywords: Capital Requirements, Bank Lending, Safe Assets, Macro-Finance
    JEL: E32 E41 E51 G21 G28
    Date: 2015–03
  7. By: Ljungqvist, Lars; Sargent, Thomas J
    Abstract: To generate big responses of unemployment to productivity changes, researchers have reconfigured matching models in various ways: by elevating the utility of leisure, by making wages sticky, by assuming alternating-offer wage bargaining, by introducing costly acquisition of credit, or by positing government mandated unemployment compensation and layoff costs. All of these redesigned matching models increase responses of unemployment to movements in productivity by diminishing the fundamental surplus fraction, an upper bound on the fraction of a job's output that the invisible hand can allocate to vacancy creation. This single common channel unites analyses of business cycle and welfare state dynamics.
    Keywords: business cycle; fundamental surplus; market tightness; matching model; unemployment; volatility; welfare state
    JEL: E24 E32 J08
    Date: 2015–03
  8. 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 incorporate 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 are useful in forecasting the unemployment rate. We find that any approach that considers 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 the 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: 2015–02–01
  9. By: Tomáš Heryán (Department of Finance and Accounting, School of Business Administration, Silesian University); Iveta PaleÄková (Department of Finance and Accounting, School of Business Administration, Silesian University); Nemanja Radić (The Business School, Middlesex University, The Burroughs, London NW4 4BT)
    Abstract: Current study has focused on the bank lending channel of monetary transmission in EU countries. The aim of the paper is to carry out an empirical investigation of the bank lending channel of monetary transmission in EMU and non-EMU countries. As estimation method we use GMM model with pooled annual data as it was used in previous studies. Our estimation period is from 1999 to 2012. Contribution of the study is in three major ways: (i) we investigated independently panel of EMU and non-EMU countries; (ii) we examined the interaction terms between the bank characteristics and both monetary policy indicators, shortterm interest rates and monetary aggregate M2; (iii) we discussed about possible quantitative easing by the European Central Bank. We have proved some differences between the bank lending channels of monetary transmission of both, the EMU and non-EMU. It has also been proved a higher impact of M2 development than a development of short-term interest rates. Finally, there are definitely some monetary policy implications, too.
    Keywords: monetary policy, bank landing channel, EMU countries, non-EMU countries, GMM
    JEL: E52 C51
    Date: 2015–03–17
  10. By: Marc Giannoni (Federal Reserve Bank of New York); Bruce Preston (Monash University); Stefano Eusepi (Federal Reserve Bank of New York)
    Abstract: The modern theory of monetary policy emphasizes the management of expectations. In New Keynesian models frequently used for policy evaluation it is well understood that it is not so much the current interest rate, but instead anticipated movements in future interest rates that are central to aggregate demand management. Movements in current and future expected interest rates are linked through arbitrage relationships. Through the appropriate choice of current interest rates, good policy seeks to have these expectations evolve in a way that achieves the most desirable short-run trade-off between inflation and the output gap. <P> An important question then is whether the efficacy of monetary policy is compromised when current interest-rate movements are not efficiently transmitted to various longer-term interest rates relevant to spending and pricing plans of agents in the economy. Is the potency of monetary policy diminished when there is imprecise control of interest-rate expectations? <P> The central focus of this paper are the consequences of imperfect knowledge for monetary control. Under rational expectations, optimal policy prescribes that the nominal interest rate should track the evolution of the natural rate of interest, which in our framework embeds (exogenous) fluctuations in productivity, propensity to work and government spending. Importantly, optimal policy under perfect knowledge can fully stabilize output gap and inflation (the well known divine coincidence). The key result of the paper is that under imperfect knowledge and learning the efficacy of monetary policy can be drastically reduced. It is shown that imperfect knowledge prevents full stabilization of output gap and inflation, even for optimal monetary policy that accounts for imperfect knowledge. More precisely, a policy-maker who knows the structure of the economy and has full information about private agents' expectations formation process will not be able to achieve full economic stability. Optimal monetary policy has the property that the evolution of beliefs is managed in exactly the right way to ensure a bounded equilibrium consistent with maximization of households' welfare. In this sense the economy is stable: it has unique bounded state-contingent evolution for all endogenous variables given bounded stochastic disturbance processes. But this does not necessarily imply that drifting beliefs are not problematic for the transmission of monetary policy. <P> Under imperfect knowledge optimal policy prescribes slow adjustments in current interest-rate policy in response to evolving macroeconomic conditions to limit excess volatility in long-term rates. Changes in current interest rates lead to revisions of beliefs about future interest rates, albeit with a lag due to learning dynamics. The revisions in beliefs in turn feedback on the state of aggregate demand in subsequent periods. Aggressive adjustment of current interest rates, which would promote full stabilization under perfect knowledge, cause excessive movements in long-rates and macroeconomic volatility. Potential instability in long-term interest rates constrains the degree to which current monetary policy can respond to evolving economic conditions. In other words the link between short-term interest setting, and the evolution of long-term interest rates is much weaker under imperfect knowledge than under rational expectations. <P> The results in the paper have two main implications for current monetary policy debate. First, the past recession is widely believed to be caused by a `demand' shock, lowering both the output-gap and inflation. However, despite the monetary stimulus provided by central banks in the form low interest rates from conventional and unconventional policies, the recovery in US and in other countries remains sluggish. Consequently monetary authorities have been criticized for `not doing enough'. This paper suggests that the observed gradual adjustment is not inconsistent with policy being set optimally once we take into account of market participants' uncertainty about economic fundamentals. Second, the paper offers an alternative rationale for gradualism in monetary policy even in normal times, as reflected by high interest smoothing coefficients that are usually found in estimated Taylor rules.
    Date: 2014
  11. By: Alexander Mihailov (School of Economics, University of Reading); Katrin Ullrich (KfW Bankengruppe, Germany)
    Abstract: This paper explores the normative aspects of the institution design for macroeconomic policymaking when a society legislates specific objectives and sequencing of decisions for the involved authorities. We develop a general theoretical framework that adds fiscal policy to the flexibility-credibility trade-off well-established in monetary policy. We find that delegation of both monetary and fiscal policy to autonomous institutions of appointed experts improves macroeconomic outcomes by delivering lower average in flation and lower average public-sector deficit-to-output ratio over alternative policies conducted with interference by elected politicians. Yet greater independence of monetary and fiscal policymakers from the government also generates increased output variability around normal output. The latter effect is minor in magnitude, and the simulated expected social losses in all considered 24 institution-design regimes demonstrate the long-run welfare dominance of delegation of both monetary and fiscal policy to independent expert committees over joint government optimization. In addition, preannouncing an escape clause to be activated following extreme negative shocks may help mitigate short-run output and employment fluctuations, but at the cost of expected social losses that rise considerably.
    Keywords: delegation, independence, expert committees, monetary-fiscal interactions, policy games, institution design
    JEL: E02 E61 E63
    Date: 2015–02–05
  12. By: Andrew J. Filardo, Pierre L. Siklos (Wilfrid Laurier University)
    Abstract: This paper examines past evidence of prolonged periods of foreign exchange reserves accumulation in the Asia-Pacific region. Several proxies for this unobserved variable are considered, including a newly proposed one based on a factor model. We focus on identifying periods of prolonged interventions and identify its key macro-financial determinants. Two broad conclusions emerge from the stylized facts and the econometric evidence. First, the best protection against costly reserves accumulation is a more flexible exchange rate. Second, the necessity to accumulate reserves as a bulwark against goods price inflation is misplaced. Instead, there is a strong link between asset price movements and the likelihood of accumulating foreign exchange reserves that are costly. Policy implications are also drawn.
    Keywords: foreign exchange reserves accumulation, monetary and financial stability
    JEL: F41 F32 E44 D52
    Date: 2015–02–01
  13. By: Mirko Wiederholt (Goethe University Frankfurt)
    Abstract: Survey data on expectations shows that households have heterogeneous inflation expectations and their inflation expectations respond sluggishly to realized shocks to future inflation. By contrast, in models with a zero bound on the nominal interest rate currently used for monetary and fiscal policy analysis, households' inflation expectations are not heterogeneous and not sticky. This paper solves a New Keynesian model with a zero lower bound in which households have dispersed information. Households' inflation expectations are heterogeneous and sticky. The main properties of the model are: (1) the deflationary spiral in bad states of the world is less severe than under perfect information, (2) central bank communication (without a change in current or future policy) affects consumption and the sign of this effect depends on whether the zero lower bound is binding, i.e., an announcement that increases consumption when the zero lower bound is not binding reduces consumption when the zero lower bound is binding, (3) a commitment to future inflation can reduce consumption, (4) the government spending multiplier can be negative, and (5) shocks to uncertainty can have first-order effects.
    Date: 2014
  14. By: Elmar Mertens; James M Nason
    Abstract: This paper studies the joint dynamics of U.S. inflation and the average inflation predictions of the Survey of Professional Forecasters (SPF) on a sample running from 1968Q4 to 2014Q2. The joint data generating process (DGP) of these data consists of the unobserved components (UC) model of Stock and Watson (2007, "Why has US inflation become harder to forecast?," Journal of Money, Credit and Banking 39(S1), 3-33) and the sticky information (SI) forecast updating equation of Mankiw and Reis (2002, "Sticky information versus sticky prices: A proposal to replace the New Keynesian Phillips curve," Quarterly Journal of Economics 117, 1295-1328). We introduce timevarying inflation gap persistence into the Stock and Watson (SW)-UC model and a timevarying frequency of forecast updating into the SI forecast updating equating. These models combine to produce a nonlinear state space model. This model is estimated using Bayesian tools grounded in the particle filter, which is an implementation of sequential Monte Carlo methods. The estimates reveal the data prefer the joint DGP of time-varying frequency of SI forecast updating and a SW-UC model with time-varying persistence. The joint DGP produces estimates that indicate the inflation spike of 1974 was explained most by gap inflation, but trend inflation dominates the inflation peak of the early 1980s. We also find the stochastic volatility (SV) of trend inflation exhibits negative co-movement with the time-varying frequency of SI forecast updating while the SV and time-varying persistence of gap inflation often show positive co-movement. Thus, the average SPF respondent is most sensitive to the impact of permanent shocks on the conditional mean of inflation.
    Keywords: Inflation, professional forecasters, sticky information, particle filter, Bayesian estimation, Markov chain Monte Carlo, stochastic volatility, time-varying persistence.
    JEL: E31 C11 C32
    Date: 2015–03
  15. By: Benedetto Molinari (Universidad Pablo de Olavide); Francesco Turino (Universitat d'Alacant)
    Abstract: Aggregate data reveal that advertising in the U.S. absorbs approximately 2% of GDP and has a well defined pattern over the business cycle, being strongly procyclical and highly volatile. Because the purpose of brand advertising is to foster sales, we ask whether such spending has an appreciable effect on the pattern of aggregate consumption and, through this avenue, on economic activity. This question is addressed by developing a dynamic general equilibrium model in which households' preferences for differentiated goods depend on the intensity of brand advertising, which is endogenously determined by profit-maximizing firms. Once the model is estimated to match the U.S. economy, it argues that the presence of advertising in the long run raises aggregate consumption and hours worked, eventually fostering economic activity. We also find that advertising has a relevant impact on fluctuations in consumption, investment and markup over the business cycle. All of the abovementioned effects are proven to epend crucially on the degree of competitiveness of advertising at the firm level.
    Keywords: Residual Wage Inequality, Wage Polarization, Price and Composition Effects, Routinization hypothesis, Skill Biased Technical Change, Occupational Tasks, Job Polarization.
    JEL: E32 D11 J22 M37
    Date: 2015–03
  16. By: Charpe, Matthieu; Flaschel, Peter; Hartmann, Florian; Malikane, Christopher
    Abstract: The paper builds on the Goodwin (1967) model which describes the distributive cycle of capitalist economies whereby mass unemployment is generated periodically through the conflict about income distribution between capital and labor. We add to this model a segmented labor market structure with fluid, latent, and stagnant components. The model exhibits a unique balanced growth path which depends on the speeds with which workers are pushed into or out of the labor market segments. We investigate the stability properties of this growth path with segmented labor markets and find that, though there is a stabilizing inflation barrier term in the wage Phillips curve, the interaction with the latent and stagnant portions of the labor market generates potentially (slowly) destabilizing forces if policy measures are absent that regulate these labor markets. We then introduce an activating labor market policy, where government in addition acts as employer of last resort thereby eliminating the stagnant portion of the labor market, whilst erecting benefit systems that partially sustain the incomes of workers that have to leave the floating/latent labor market of the private sector of the economy. We show that such policies guarantee the macrostability of the economy’s balanced growth path.
    Keywords: distributive cycle; Goodwin model; segmented labor markets; active labor market policy; macroeconomic stability; employer of last resort
    JEL: E32 E64 H53 J38
    Date: 2014–04–30
  17. By: Olteanu, Dan
    Abstract: This paper aims to investigate the presence of a creditless economic recovery in Eastern Europe, after de 2008-2009 output collapse. To this end, we use three variables: credit stock, credit flow and money supply M1. We find that the changes in the credit flow, as percentage of GDP, are the most distinctly correlated with the GDP rate. During the growth recovery, the credit flow tends to rise in six of the surveyed countries, although the credit stock declines in some cases. On the other side, the liquid segment of money supply (M1) registered in some countries strong rebounds that boosted demand recovery, due not so much to credit but to the liquidity preference. Within domestic demand, we notice a steeper decline of the fixed capital formation than the consumption one, but also a stronger subsequent upturn. The investment recovery seems to be supported in most of countries by the credit flow growth; there is a stronger dependence of capital formation on the newly created credit than in the case of consumption, which is rather correlated with the whole money supply M1. In conclusion, we can say that there was a “creditless recovery” phenomenon in Eastern Europe after the global crisis, but most countries recorded an increase of credit flow along with the GDP. The new flow of money is mostly used for investment and consumption, and thus supports the revival of domestic demand, especially in countries with a less developed financial system, such as the emerging european ones. On the other hand, the trend in the liquid part of the money supply may evolve, especially in times of financial instability, regardless of credit developments. This, along with other factors, strongly affects the degree to which GDP rely on credit.
    Keywords: Credit, Economic Recovery, Phoenix Miracle
    JEL: E44 E51 G01
    Date: 2014–12
  18. By: Luís Aguiar-Conraria (Universidade do Minho, NIPE and Departamento de Economia); Pedro Brinca (European University Institute); Haukur Viðar Guðjónsson (Stockholm University); Maria Joana Soares (Universidade do Minho, NIPE and Departmento de Matemática e Aplicações)
    Abstract: We use wavelet analysis to investigate to what extent individual U.S. states' business cycles are synchronized. The results show that the U.S. states are remarkably well synchronized compared to the previous findings w.r.t. the Euro Area. There is also a strong and significant correlation between business cycle dissimilitudes and the distance between each pair of states, consistent to gravity type mechanisms where distance affects trade. Trade, in turn, increases business cycle synchronization. Finally we show that a higher degree of industry specialization is associated with a higher dissimilitude of the state cycle with the aggregate economy.
    Keywords: Optimum currency areas, business cycle synchronization, continuous wavelet transform, trade
    JEL: E37 E52 R11
    Date: 2015
  19. By: Christina D. Romer; David H. Romer
    Abstract: This paper examines the aftermath of financial crises in advanced countries in the four decades before the Great Recession. We construct a new series on financial distress in 24 OECD countries for the period 1967–2007. The series is based on assessments of the health of countries’ financial systems from a consistent, real-time narrative source; and it classifies financial distress on a relatively fine scale, rather than treating it as a 0-1 variable. We find that output declines following financial crises in modern advanced countries are highly variable, on average only moderate, and often temporary. One important driver of the variation in outcomes across crises appears to be the severity and persistence of the financial distress itself.
    JEL: E32 E44 G01 N10 N20
    Date: 2015–03
  20. By: Keqing Liu (Department of Economics, University of Exeter)
    Abstract: We investigate a new macroprudential policy in a DSGE model with fi?nancial frictions. As Gertler, Kiyotaki and Queralto (2012), we propose to subsidize bank equities. However, our tax rate is different from their policy. The tax rate in our macroprudential policy is proportional to capital ratio gap while it is proportional to the shadow price of bank deposit in Gertler et al. (2012). Our policy has two advantages: Firstly, because bank?s balance sheet structure is observable target for central bank, our policy is more applicable for practical policy design. Secondly, our policy makes individual banks choose to raise more capital. While it tightens the moral hazard constraint, the policy could raise the future value of investment and it shows the modi?fied policy is welfare dominant.
    Keywords: Macroprudential policy, Bank equity, Capital ratio, DSGE model
    JEL: C61 E61 G28
    Date: 2015
  21. By: Dodig, Nina; Herr, Hansjörg
    Abstract: This paper presents an overview of different models which explain financial crises, with the aim of understanding economic developments during and possibly after the Great Recession. In the first part approaches based on efficient markets and rational expectations hypotheses are analyzed, which however do not give any explanation for the occurrence of financial crises and thus cannot suggest any remedies for the present situation. A broad range of theoretical approaches analyzing financial crises from a medium term perspective is then discussed. Within this group we focused on the insights of Marx, Schumpeter, Wicksell, Hayek, Fisher, Keynes, Minsky, and Kindleberger. Subsequently the contributions of the Regulation School, the approach of Social Structures of Accumulation and Post-Keynesian approach, which focus on long-term developments and regime shifts in capitalist development, are presented. International approaches to finance and financial crises are integrated into the analyses. We address the issue of relevance of all these theories for the present crisis and draw some policy implications. The paper has the aim to find out to which extent the different approaches are able to explain the Great Recession, what visions they develop about future development of capitalism and to which extent these different approaches can be synthesized.
    Keywords: theories of crisis,Marxian,Institutional,Keynesian,capitalism,finance,financial crisis
    JEL: B14 B15 B24 B25 E11 E12 E13 E32
    Date: 2015
  22. By: António Afonso; João Tovar Jalles
    Abstract: We assess the sustainability of public finances in OECD countries using panel unit root and cointegration analyses. Results show: no cointegration (no sustainability) between revenues and expenditures; improvement of the primary balances after worsening debt ratios; causality from government debt to primary balances.
    Keywords: debt, primary balance, stationarity, panel analysis, FMOLS
    JEL: C33 E62 H62 H63
    Date: 2015–03
  23. By: António Afonso,; Jorge Caiado,; Miguel St. Aubyn
    Abstract: We review the main budgetary measures not accepted by the Portuguese Constitutional Court in the Budget Laws of 2012, 2013 and 2014. Considering the feedback effect of the fiscal impulse, the impact on the budget balance is -0.42% and of -0.34% of GDP respectively for 2013 and for 2014; in both years the impact of the fiscal expansion could result in rather mitigated reductions in the unemployment rate in the range of 0.1 percent; the impact on the government debt level is around 0.42% of GDP in 2013, declining from then on, in a conservative estimate, and about 2.95% of GDP in 2020 in the worst case scenario.
    Keywords: budget balance; fiscal consolidation; debt-to-GDP ratio; Portugal.
    JEL: E62 E65 H62
    Date: 2015–03
  24. By: Tomohiro Kinoshita (National Graduate Institute for Policy Studies)
    Abstract: Forward guidance or more specifically policy duration commitment invented and developed by the Bank of Japan has become an essential part of unconventional monetary policy instruments employed by modern central banks. This paper’s simple empirical analysis finds that the market believes or perceives Bank of Japan’s policy duration commitment to be credible, which has in turn helped the Bank to manage expectations of future interest rates and control the level and shape of the yield curve at an extraordinarily low range. The suppressed yield curve has contributed to reduction of financing costs for businesses and households and has supported macroeconomic growth through the conventional interest rate channel of policy transmission. However, forward guidance including policy duration commitment does have difficulties. The magnitude of its impact has been time-variant, which appears to depend on evolution in policy frameworks and communication skills. More importantly, this paper projects that the extraordinarily low and flattened yield curve coupled with maturity extension of the Bank assets could pose threats to the future income of the central bank in the event of policy normalization, which could have unintended fiscal implications.
    Date: 2015–03
  25. By: Huiping Yuan (Department of Finance, Xiamen University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas)
    Abstract: The Tinbergen Rule states that achieving the desired targets requires an equal number of instruments. This paper shows that time inconsistency does not exist in the case of an equal number of instruments and targets. Target uncontrollability and time inconsistency, however, emerge as problems in the case of fewer instruments than targets. In this case, we obtain a necessary and sufficient condition for joint asymptotic controllability of target values, which complements the Tinbergen rule. The condition is identical under commitment and under discretion. If the condition does not hold, the steady-state values of target variables regress to their respective target values. The paper solves both problems by determining the central bank’s target values of inflation and output as well as the relative weight between stabilizing inflation and output. Intuitively, a proper target value trade-off solves target uncontrollability, whereas a proper relative weight achieves optimal target variability trade-off and solves time inconsistency. As a result, target values are controllable, establishing monetary policy credibility. Discretionary policy under the designed loss function, which replicates optimal policy under the social loss function, proves time-consistent. In addition, we identify two situations where the delegated weight equals the social weight, providing additional insight into time inconsistency.
    Keywords: Target controllability; Time inconsistency; Optimal policy; Discretionary policy; Trade-off
    JEL: E52 E58
    Date: 2014–12
  26. By: S. Guilloux-Nefussi
    Abstract: The decline in the sensitivity of inflation to domestic slack observed in developed countries over the last 25 years has been often attributed to globalization. However, this intuition has so far not been formalized. I develop a general equilibrium setup that can rationalize the flattening of the Phillips curve in response to a fall in trade costs. In order to do so, I add three ingredients to an otherwise standard two-country new-Keynesian model: strategic interactions generate time varying desired markup; endogenous firm entry makes the market structure change with globalization; heterogeneous productivity allows for self-selection among firms. Because of productivity heterogeneity, only high-productivity firms (that are also the bigger ones) enter the export market. They tend to transmit less marginal cost fluctuations into inflation because they absorb them into their desired markup in order to protect their market share. At the aggregate level, the increase in the proportion of large firms reduces the pass-through of marginal cost into inflation.
    Keywords: Inflation; Phillips curve; Macroeconomic Impacts of Globalization.
    JEL: E31 F41
    Date: 2015
  27. By: Luba Petersen (Simon Fraser University); Guidon Fenig (University of British Columbia)
    Abstract: How does the allocation of scarce jobs and production influence their supply? We present the results of a macroeconomics laboratory experiment that investigates the effects of alternative rationing schemes on economic stability. Participants play the role of consumer-workers who interact in labor and output markets. All output, which yields a reward to participants, must be produced through costly labor. Automated firms hire workers to produce output so long as there is sufficient demand for all production. Thus, either labor hours or output units are rationed. Random queue, equitable, and priority (i.e., property rights) schemes are compared. Production volatility is the lowest under a priority rationing rule and is significantly higher under a scheme that allocates the scarce resource through a random queue. Production converges toward the high steady state under a priority rule, but can diverge to significantly low levels under a random queue or equitable rule where there is the opportunity for and perception of free-riding. At the individual level, rationing in the output market leads consumer-workers to supply less labor in subsequent periods. A model of myopic decision making is developed to rationalize the results.
    Keywords: rationing, allocation rules, unemployment, experimental macroeconomics, laboratory experiment, general equilibrium
    JEL: C92 E13 H31 H4 E62
    Date: 2015–03–10
  28. By: Joshua Aizenman; Eduardo Cavallo; Ilan Noy
    Abstract: Why do people save? A strand of the literature has emphasized the role of ‘precautionary’ motives; i.e., private agents save in order to mitigate unexpected future income shocks. An implication is that in countries faced with more macroeconomic volatility and risk, private saving should be higher. From the observable data, however, we find a negative correlation between risk and private saving in cross-country comparisons, particularly in developing countries. We provide a plausible explanation for the disconnect between precautionary-saving theory and the empirical evidence that is based on a model with a richer account for the various modes of ‘precautionary’ behavior by private agents, in cases where institutions are weaker and labor informality is prevalent. In such environments, household saving decisions are intertwined with firms’ investment decisions. As a result, the interaction between saving behavior, broadly construed, and aggregate risk and uncertainty, may be more complex than is frequently assumed.
    JEL: E21 E26 F36
    Date: 2015–03
  29. By: Syed, Munawar-Shah; Mariani, Abdul-Majid; Syed, Hussain-Shah
    Abstract: This study examines the fiscal sustainability of SAARC and Asian Growth-Triangle countries using Fisher and IPS tests of panel unit root and Pedroni test of panel cointegration. The tests are applied to the relationships, in terms of GDP ratios, between, i) the debt and primary surplus, and ii) government expenditure and revenues. Both models show consistent results suggesting that fiscal policy for the low-income countries is sustainable whereas it may not be sustainable for the high-income countries. This also indicates that the fiscal policy can be sustainable (non-sustainable) even for the debt above (below) 60 percent of the GDP.
    Keywords: Debt, Fiscal Policy, Sustainability, Panel Unit Roots, Panel Cointegration
    JEL: E62 H63
    Date: 2014
  30. By: Fernando Tenjo Galarza; Enrique López Enciso; Héctor Zárate Solano
    Abstract: Teniendo en cuenta los cambios recientes en la intermediación financiera y los avances en regulación, este artículo estudia las condiciones de riesgo de los bancos y sus características tradicionales para analizar el funcionamiento del canal de préstamos. La evidencia indica que los bancos con menor riesgo se protegen mejor de los choques de política monetaria y pueden mantener un relativo buen crecimiento de su oferta de crédito, en la medida en que obtienen buenos resultados y tienen facilidad de acceso a fondos.
    Keywords: Mecanismo de transmisión de la política monetaria, riesgo bancario, datos en panel.
    JEL: E44 E51 E52
    Date: 2015–03–09
  31. By: Musalem, Alberto G. (Federal Reserve Bank of New York)
    Abstract: Remarks at the International Financial Conference Annual Meeting, Cartagena, Colombia.
    Keywords: patient; Taper Tantrum; emerging market economies (EMEs); Basel III; enhanced prudential standards
    JEL: E20 E52 F30
    Date: 2015–03–09
  32. By: Balleer, Almut (RWTH Aachen University); Gehrke, Britta (University of Erlangen-Nuremberg); Merkl, Christian (University of Erlangen-Nuremberg)
    Abstract: Working time accounts (WTAs) allow firms to smooth hours worked over time. This paper analyzes whether this increase in flexibility has also affected how firms adjust employment in Germany. Using a rich microeconomic dataset, we show that firms with WTAs show a similar separation and hiring behavior in response to revenue changes as firms without WTAs. One possible explanation is that firms without WTAs used short-time work instead to adjust hours worked. However, we find that firms with WTAs use short-time work more than firms without WTAs. These findings call into question the popular hypothesis that WTAs were the key driver of the unusually small increase in German unemployment in the Great Recession.
    Keywords: working time accounts, short-time work, business cycles
    JEL: E20 E24 J20 J30
    Date: 2015–02
  33. By: Deryugina, Elena (BOFIT); Kovalenko, Olga (BOFIT); Pantina, Irina (BOFIT); Ponomarenko , Alexey (BOFIT)
    Abstract: This article presents three alternative models for decomposing loan developments into components associated with changes in loan demand and supply fundamentals. Two models are based on macro data (error correction model and structural vector autoregression with sign restrictions) and one is based on bank-specific Bank Lending Survey results. We conclude that although loan growth in Russia converges to a long-run equilibrium determined by macroeconomic (demand) factors the convergence is likely to be driven by bank-side (supply) shocks. We identify large and unexplained supply shocks in loan fluctuations during the crisis of 2008–2009, signifying an impairment of credit markets. We also find contractionary shocks unrelated to demand fundamentals or balance sheet structures in 2013, although in general loan developments in 2013 and the first half of 2014 were not at all extraordinary.
    Keywords: loan demand; loan supply; cointegration; structural VAR; sign restrictions; Bank Lending Survey; Russia
    JEL: C32 E51 G21
    Date: 2015–03–05
  34. By: Mariarosaria Comunale (Economics Department, Bank of Lithuania)
    Abstract: This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar exchange rate on the inflation in the euro zone, dividing the sample in two groups of countries: core and periphery. Then we test if the euro-US dollar exchange rate is still able to give a different impact on the groups’ performance as in the past US dollar-deutschmark polarization phenomenon studying the intra-euro area differences in exchange rate passthrough (ERPT), as an important element of inflation dynamics. Using a dynamic panel data framework based on an exchange rate pass-through model, we estimate the elasticities of the two groups by system IV-GMM and the common correlated effects mean group estimator, which deals with the presence of cross-sectional dependence. We conclude that the euro-US dollar is still an important factor, but not the only key factor, in determining the asymmetry in HICP inflation between core and periphery. The nominal effective exchange rate instead is an important driver for the inflation, but only considering the euro zone as a whole. The EMU seems to not have insulated enough some member countries from nominal external shocks. The nominal effective exchange rate is also a factor to take into account in order to analyze the recent low inflation in the euro zone, even if the size of the ERPT is relatively small.
    Keywords: Exchange Rate Pass-Through, Dynamic Panel Data, Inflation, Exchange Rates, European Monetary Union, Cross-sectional dependence
    JEL: C33 E31 F31 F36 F41
    Date: 2015–03–13
  35. By: Alaaabed, Alaa; Masih, Mansur
    Abstract: The purpose of this paper is to test the growing converging views regarding the destabilizing and growthhalting impact of interest-based debt financial system. The views are as advocated by the followers of Keynes and Hyman Minsky and those of Islam. Islam discourages interest rate based debt financing as it considers that it is not conducive to productive activities and to human solidarity. Likewise, since the onset of the crisis of 2007/2008, calls by skeptics of mainstream capitalism has been renewed, to reconsider the dynamics of the prevailing financial system with emphasis on its untamed credit-creating capacity and link (or rather delink) to real sector transactions. The paper applies a threshold regression model to Malaysian data and finds that the relationship between growth and financial development is non-linear. A threshold is estimated, after which credit expansion negatively impacts GDP growth. While the post-threshold negative relationship is found to be statistically significant, the estimated positive relationship at lower levels of financial development is insignificant. The findings are hoped to provide insights to monetary authorities for better growth-promoting policy-making..
    Keywords: Credit, Financialization, Growth, Threshold Regression Model, Islamic Perspective
    JEL: C22 C58 E44
    Date: 2014–06–20
  36. By: Bhatt Hakhu, Antra; Piergallini, Alessandro; Scaramozzino, Pasquale
    Abstract: This paper investigates the relationship between public capital expenditure and public debt in the European Union (EU) on a panel of fifteen countries over the sample period 1980-2013. We find robust evidence of a negative cointegrating relation, according to which increases in the capital expenditure-GDP ratio cause reductions in the debt-GDP ratio in the long run. Our empirical results suggest that current EU fiscal austerity can trigger upward debt spirals if cuts in total expenditure disregard its composition. Consistently with the “golden rule of public finance”, EU fiscal rules should allow for higher levels of capital expenditure in order to foster debt consolidation through growth dividends.
    Keywords: Fiscal sustainability, EU, panel cointegration, public expenditure, public debt.
    JEL: C23 E62 H62 H63
    Date: 2014
  37. By: Nicolas Carnot; Franciso de Castro
    Abstract: This paper presents an indicator of the fiscal stance that combines features of the bottom-up, narrative approach on the revenue side with a refined version of the top-down, traditional approach of the structural balance on the expenditure side. With these characteristics the indicator offers an image of fiscal policy that avoids both the 'endogeneity problems' of the structural balance and the 'indeterminacy' of the narrative approach. This indicator is used to shed light on EU fiscal policies and estimate the average short-term output effects of fiscal policy. Results suggest that, with exceptions, fiscal policy has been conducted in a more stop and go and pro-cyclical fashion over the past decade than suggested by traditional indicators. The average fiscal multiplier is estimated at a bit below unity on average, with higher (resp. lower) multipliers associated with expenditure (resp. revenue) shocks, and higher (resp. lower) multipliers in times of declining (resp. increasing) output gaps.
    JEL: E62 H60
    Date: 2015–02
  38. By: Hang Bai; Kewei Hou; Howard Kung; Lu Zhang
    Abstract: Value stocks are more exposed to disaster risk than growth stocks. Embedding disasters into an investment-based asset pricing model induces strong nonlinearity in the pricing kernel. Our single-factor model reproduces the failure of the CAPM in explaining the value premium in finite samples in which disasters are not materialized, and its relative success in samples in which disasters are materialized. The relation between pre-ranking market betas and average returns is flat in simulations, despite a strong positive relation between true market betas and expected returns. Evidence in the long U.S. sample from 1926 to 2014 lends support to the model’s key predictions.
    JEL: E32 E44 G12 G14
    Date: 2015–03
  39. By: Fidrmuc, Jarko (BOFIT); Korhonen, Iikka (BOFIT)
    Abstract: We summarize previous research on China’s business cycle correlation with other countries with the help of meta-analysis techniques. We survey 71 related papers along with all the characteristics of the estimations as well as those of the authors. We confirm that especially Pacific Rim countries have relatively high business cycle correlation with China. However, it appears that many characteristics of the studies and authors do influence the reported degree of business cycle synchronization. For instance, Chinese-language papers report higher correlation coefficients. Despite of this, we do not detect a robust publication bias in the papers.
    Keywords: business cycle synchronization; meta-analysis; China
    JEL: E32 F44
    Date: 2015–03–04
  40. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Serkan Çiçek (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Growth in the CESEE region will follow the unimpressive pattern displayed by the euro area. The longer-term convergence of income levels in the CESEE countries can no longer be expected to be as rapid as was assumed a decade or so ago. Growth in the period 2015-2017 is not going to deviate substantially from the pace recorded in 2014. For the new EU Member States growth is expected to remain slightly below 3% in the years to come. This implies an average growth differential of about 1.5 percentage points as compared to the euro area – about half of what it was before the global financial crisis. On the other hand, most of the countries in the region are also expected to evade the dangers of runaway inflation, fiscal deficits or excessive foreign borrowing that often plagued them in the past. These are the main results of the newly released medium-term growth forecast for the region by the Vienna Institute for International Economic Studies (wiiw). Depressed aggregate domestic demand has been the major factor behind anaemic growth. This is evidenced by disinflation (or even mildly deflationary tendencies) across much of the region, as well as the persistence of fairly high unemployment. There is some evidence of a ‘race to the bottom’ in terms of wage setting. While wage moderation strengthens profitability and external competitiveness, it also weakens disposable household incomes and thus slows down growth in domestic demand. Apparently, there is a trade-off between improvements in the trade balance and more rapid growth in domestic demand. Overall, GDP growth is being held ‘on a short leash’. Growth in public investment may be supporting economic growth, especially in those new EU Member States (NMS) that have access to EU funds. However, a proper rebound in private-sector investment is still lacking. Weak private-sector investment cannot be attributed to a ‘profit squeeze’ in the corporate sector. On the contrary, the corporate sector has been doing very well, at least in those NMS for which relevant data are available. The corporate sector as a whole still tends to lend rather than borrow. The means available to the corporate sector appear to be plentiful at present – but the sector still prefers to lick its wounds inflicted by former excessive borrowing or extend loans (primarily to the public sector) rather than to invest productively. Loans are stagnant even in those instances where interest rates are relatively low. With a few exceptions (largely on the region’s periphery) the stocks of loans to the non-financial corporate sector increased marginally at best in 2014. This may reflect firms’ pessimistic assessment of future growth in demand, increased ‘liquidity preference’ or the relative abundance of the means at their disposal. Non-performing loans are linked to a high share of borrowing in foreign currencies. The recent strengthening of the Swiss franc will bear some negative consequences for those firms and households that borrowed heavily in that currency in the past. New evidence supports the claim that the countries with floating exchange rates fare better in the medium to long term. They tend to avoid irreversible currency overvaluation, whereas the countries with fixed exchange rates do not quite avert it. It is argued, however, that despite the rigidity of the exchange rates, overvaluation can be avoided – at least in the medium term. All the CESEE countries are running up fiscal deficits. Current account deficits are still depressed. Net national lending in the NMS tends to be positive. This is a consequence of current savings in the private sector in the NMS generally running ahead of gross fixed capital formation in that sector. On average, output growth across the NMS will become more uniform in 2015 – albeit not any faster. Average growth will remain at 2.7% in 2015. Some acceleration in marginal growth is to be expected in the biennium 2016-2017. Unemployment in the NMS will recede only gradually. Low inflation will prevail in 2015, but it will gradually return to more normal levels in 2016. Under sustained – albeit rather anaemic – growth, the current account balances will deteriorate (although they will still remain comparatively low). Growth is hardly accelerating in the (current and potential) EU candidate countries either. Output in those countries is not expected to grow faster than in the NMS. Turkey, Macedonia and Kosovo may fare slightly better than the rest of the group, with growth rates of above 3% in 2015. However, with the exception of Turkey, those countries seem to have put high inflation behind them. Nonetheless, their unemployment figures continue to be dismal (less so only in Turkey). They will also run high (or even very high) current account deficits. Most of the successor states to the Soviet Union will perform rather badly in 2015. Ukraine’s output will continue its free fall as many of the country’s industrial centres have become battlefields. A drop of 5% in economic growth is expected for 2015. The decline in world market prices for energy carriers will negatively affect both Kazakhstan and Russia, with real output in the latter country dropping sharply by almost 4% in 2015. A similar fate will befall Belarus a country that relies heavily on exports to Russia and Ukraine. However, assuming a peaceful resolution to the Ukrainian conflict in 2015, it is expected that all the successor states will resume moderate growth in 2016 or 2017.
    Keywords: Central and East European new EU Member States, Southeast Europe, Balkans, Russia, Ukraine, Kazakhstan, Turkey, economic forecasts, secular stagnation, functional distribution of income, wage-led growth, investment, deflation, sectoral financial balances, deleveraging, exchange rates, beta convergence
    JEL: C33 C50 E12 E20 E29 E65 E66 F02 F34 G01 G18 O52 P24 P27 P33 P52
    Date: 2015–03
  41. By: Engelbert Stockhammer (Kingston University); Rafael Wildauer
    Abstract: The paper investigates the effects of changes in the distribution of income and in wealth on aggregate demand and its components. We extend the Bhaduri and Marglin (1990) model to include personal income inequality as well as asset prices and debt. This allows for an evaluation of the wage or profit-led nature of demand regimes, of the expenditure cascade argument (Frank et al. 2010) and several hypotheses regarding the effects of wealth and debt. Our estimates are based on a panel of 18 OECD countries covering the period 1980-2013. For the full panel the average demand regime is found to be wage led. We fail to find effects of personal inequality, but do find strong effects of debt and property prices which have been the major drivers of aggregate demand in the decade prior to the 2007 crisis.
    Keywords: Post-Keynesian economics, wage-led growth, Bhaduri-Marglin model, demand regimes, wealth effect, Veblen effect, expenditure cascade, aggregate demand.
    JEL: E11 E12 E21
    Date: 2015–03
  42. By: Jenny Tang (Harvard University)
    Abstract: This paper studies optimal monetary policy in an environment where policy actions provide a signal of economic fundamentals to imperfectly informed agents. I derive the optimal discretionary policy in closed form and show that, in contrast to the perfect information case, the signaling channel leads the policymaker to be tougher on inflation. The strength of the signaling effect of policy depends on relative uncertainty levels. As the signaling effect strengthens, the optimal policy under discretion approaches that under commitment to a forward-looking linear rule, thereby decreasing the stabilization bias. This contributes to the central bank finding it optimal to withhold its additional information from private agents. Under a general linear policy rule, inflation and output forecasts can respond positively to a positive interest rate surprise when the signaling channel is strong. This positive response is the opposite of what standard perfect information New Keynesian models predict and it matches empirical patterns found by Romer and Romer (2000) and Campbell, Evans, Fisher, and Justiniano (2012). In addition, I substantiate the existence of a signaling channel by providing new empirical evidence supporting the predicted interaction between uncertainty and the responses of inflation forecasts to interest rate surprises.
    Date: 2014
  43. By: P. Andrade; C. Cahn; H. Fraisse; J-S. Mésonnier
    Abstract: We exploit the Eurosystem’s longer-term refinancing operations (LTROs) of 2011-2012 to analyze the effects that a large provision of central bank liquidity to banks has on the credit supply to firms. We control for credit demand by examining firms that borrow from several banks, in addition to controlling for banks’ risk. We find that LTROs enhanced loan supply in France. Nevertheless, the transmission took place mostly with the first operation of December 2011, in which constrained banks bid more, and larger borrowers benefited more. The opportunity to substitute long-term central bank borrowing for short-term borrowing was instrumental in this transmission.
    Keywords: unconventional monetary policy, bank lending channel, euro area, LTRO, credit supply.
    JEL: C21 E51 G21 G28
    Date: 2015
  44. By: Michael P Clements (ICMA Centre, Henley Business School, University of Reading)
    Abstract: We consider a number of ways of testing whether macroeconomic forecasters herd or anti-herd, i.e., whether they shade their forecasts towards those of others or purpose- fully exaggerate their differences. When applied to survey respondents expectations of inflation and output growth the tests indicate conflicting behaviour. We show that this can be explained in terms of a simple model in which differences between forecasters are primarily due to idiosyncratic factors or reporting errors rather than imitative behaviour. Models of forecaster heterogeneity that stress informational rigidities will also falsely indicate imitative behaviour.
    Date: 2014–10
  45. By: Kakarot-Handtke, Egmont
    Abstract: Orthodox economics is founded on behavioral assumptions. This has been the wrong starting point because no way leads from there to an understanding of how the economic system works. Critical Heterodoxy is one step ahead insofar as it does not accept the green cheese assumptionism of optimization and supply-demand-equilibrium, yet this is not sufficient to establish a superior paradigm. What we have at the moment is a plurality of debunked theories. This is not a tenable situation. Consequently, Constructive Heterodoxy is focused on the formally consistent reconstruction of central economic phenomena like market, money, profit, and - in this paper - employment.
    Keywords: new framework of concepts; structure-centric; law of supply and demand; price flexibility; structural labor market inertia; income multiplier; stagflation; deflation
    JEL: B59 E24
    Date: 2015–03–12
  46. By: Crocker, Geoff
    Abstract: The delinkage of productivity and real wages is the underlying cause of the 2007 economic crisis. As a result of this delinking, consumer income lagged output GDP, and the gap was funded by consumer credit and increased deficit-financed welfare payments. This proved unsustainable, and so led to current austerity policy and GDP cuts. An alternative paradigm is needed in which the financial sector is re-engineered and financial instruments redefined to serve the real economy. Deficient demand and financial deficit are inevitable in advanced technology economies. The only ultimate solution is a basic income funded by QE in proportion to output GDP and not counted as deficit.
    Keywords: basic citizen income
    JEL: E0 E00
    Date: 2015–03–17
  47. By: Herz, Benedikt (Universitat Pompeu Fabra); van Rens, Thijs (University of Warwick)
    Abstract: We investigate unemployment due to mismatch in the US over the past three decades. We propose an accounting framework that allows us to estimate the overall amount of mismatch unemployment as well as the contribution of the frictions that caused the mismatch. Mismatch is quantitatively important for unemployment and the cyclical behavior of mismatch unemployment is very similar to that of the overall unemployment rate. Geographic mismatch is driven primarily by wage frictions. Mismatch across industries is driven by wage frictions as well as barriers to job mobility. We find virtually no role for worker mobility frictions.
    Keywords: mismatch, structural unemployment, worker mobility, job mobility
    JEL: E24 J61 J62
    Date: 2015–02
  48. By: Jean-Paul L'Huillier (EIEF); William R. Zame (University of California, Los Angeles)
    Abstract: We illustrate an intuitive channel through which price stickiness limits the ability of a central bank to improve welfare through stabilization policy. If the central bank uses infl ation to obtain information about nominal spending, sticky prices impair the learning ability of the central bank and hence its ability to implement the right stabilization policy. Infl ation targeting makes prices stickier, and worsens this learning problem. The key is a microfounded information-based model for price stickiness: taking into account how agents react to the adoption of infl ation targeting makes explicit a basic confl ict between in flation targeting and stabilization policy.
    Date: 2015
  49. By: Fernando Tenjo Galarza (Centro de Estudios Monetarios Latinoamericanos); Enrique López Enciso (Banco de la República de Colombia); Héctor Zárate Solano (Banco de la República de Colombia)
    Abstract: Teniendo en cuenta los cambios recientes en la intermediación financiera y los avances en regulación, este artículo estudia las condiciones de riesgo de los bancos y sus características tradicionales para analizar el funcionamiento del canal de préstamos. La evidencia indica que los bancos con menor riesgo se protegen mejor de los choques de política monetaria y pueden mantener un relativo buen crecimiento de su oferta de crédito, en la medida en que obtienen buenos resultados y tienen facilidad de acceso a fondos. Classification JEL: E44, E51, E52.
    Keywords: Mecanismo de transmisión de la política monetaria, riesgo bancario, datos en panel.
    Date: 2015–03
  50. By: Giorgio Canarella (Department of Finance, University of Nevada, Las Vegas); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Stephen K. Pollard (Department of Economics, California State University, Los Angeles)
    Abstract: This paper explores the mean-reverting behavior of the unemployment rate using monthly geographically disaggregated data for the period 1991:01 through 2012:02. We apply both standard unit-root tests and tests that allow for one and two structural breaks in the mean. We find evidence that favors both unit-root and stationary processes. No series exhibits stationarity around a constant mean, which does not support the traditional natural-rate hypothesis, but about half of the series exhibit stationarity around a shifting mean. For these series, we find that the break occurs at the Great Recession. To complement the unit-root analysis, we also examine the behavior of the series using the Bai and Perron methods to detect multiple regimes at unknown points of time. We find that the Great Recession also altered the persistence of the unemployment rate series over the identified regimes. In general, the values of the estimated persistence within regimes decrease between those regimes, implying faster absorption of shocks later in the sample period.
    Keywords: structural break tests, hysteresis, Great Recession, unit root, MSA unemployment rate, mean reversion
    JEL: C22 E24 R10 R23
    Date: 2014–12
  51. By: Randall Wright (U Wisconsin); Guido Menzio (University of Pennsylvania); Kenneth Burdett (UPenn)
    Abstract: There are two facts about the world that we take as given: First the "law of one price" is false – one can find many different prices for what appears to be, beyond reasonable doubt, the same good. Second, prices are set in nominal terms and appear, beyond reasonable doubt, to be sticky – some sellers keep their prices rigid when the aggregate price level increases. We shown these phenomena emerge naturally together in a search model. In contrast to theories that assume nominal price rigidities, when they are endogenous, they cannot be exploited by monetary policy, even though money is not neutral. The object of this study is to explain the above in a tractable model of money and search.
    Date: 2014
  52. By: Hippolyte d’Albis; Ekrame Boubtane; Dramane Coulibaly
    Abstract: This paper quantitatively assesses the interaction between permanent immigration into France and France's macroeconomic performance as seen through its GDP per capita and its unemployment rate. It takes advantage of a new database where immigration is measured by the ow of newly-issued long-term residence permits, categorized by both the nationality of the immigrant and the reason of permit issuance. Using a VAR model estimation of monthly data over the period 1994-2008, we find that immigration ow significantly responds to France's macroeconomic performance: positively to the country's GDP per capita and negatively to its unemployment rate. At the same time, we find that immigration itself increases France's GDP per capita, particularly in the case of family immigration. This family immigration also reduces the country's unemployment rate, especially when the families come from developing countries.
    Keywords: Immigration, Female and Family Migration, Growth, Unemployment, VAR Models.
    JEL: E20 F22 J61
    Date: 2015
  53. By: H. Evren Damar; Césaire Meh; Yaz Terajima
    Abstract: This paper studies how banks simultaneously manage the two sides of their balance sheet and its implications for bank risk taking and real economic activity. First, we analyze how changes in funding affect the supply of bank loans. We then examine how the supply of credit by banks that rely more on wholesale funding changed during periods of low-for-long interest rates and during the recent financial crisis. The findings suggest that contemporaneous changes in wholesale funding are positively associated with large business loans. In addition, we find that banks that rely on wholesale funding tend to increase mortgage loans in a prolonged low rate environment. This is suggestive evidence that these banks may be taking on more liquidity risk by supplying long-term loans with short-term funding. We also find that mortgage lending by banks relying more on wholesale funding increased, a likely result of government policies to increase liquidity in the market during the crisis.
    Keywords: Financial Institutions, Financial stability, Financial system regulation and policies, Monetary policy implementation
    JEL: E52 G21
    Date: 2015
  54. By: Pierre-Richard Agénor; K. Alper; L. Pereira da Silva
    Abstract: The performance of a countercyclical reserve requirement rule is studied in a dynamic stochastic model of a small open economy with financial frictions, imperfect capital mobility, a managed float regime, and sterilized foreign exchange market intervention. Bank funding sources, domestic and foreign, are imperfect substitutes. The model is calibrated and used to study the effects of a temporary drop in the world risk-free interest rate. Consistent with stylized facts, the shock triggers an expansion in domestic credit and activity, asset price pressures, and a real appreciation. A credit-based reserve requirement rule helps to mitigate both macroeconomic and financial volatility, with the latter defined both in terms of a narrow measure based on the credit-to-output ratio, the ratio of capital flows to output, and interest rate spreads, and a broader measure that includes real asset prices as well. An optimal rule, based on minimizing a composite loss function, is also derived. Sensitivity tests, related to the intensity of sterilization, the degree of exchange rate smoothing, and the rule used by the central bank to set the cost of bank borrowing, are also performed, both in terms of the transmission process and the optimal rule.
    Date: 2015
  55. By: Catalina Granda; Franz Hamann
    Abstract: The informal sector is an extensive phenomenon in developing countries. While some of its implications have drawn considerable attention in the literature, one relatively unexplored aspect has to do with the saving patterns of workers and firms and how these might influence aggregate savings and wealth inequality. In this paper, we aim to fill that gap by examining both entrepreneurs' and workers' choices regarding whether to perform informally and regarding asset accumulation. Specifically, we build an occupational choice model wherein saving is primarily motivated by precautionary considerations. The model features labor and capital market segmentation, and is calibrated to replicate the saving rates, wealth inequality and composition of occupations across the formal and informal sectors of Colombia. Computational experiments further allow us to analyze the effects of highly debated formalization policies on wealth redistribution and promotion of saving and entrepreneurship. Alternative frameworks are finally considered.
    Keywords: Informality, wealth inequality, saving, occupational choice models.
    JEL: E21 E26 O17
    Date: 2015–03–11
  56. By: Luca Gambetti (Universitat Autonoma de Barcelona)
    Abstract: We investigate the role of "noise" shocks as a source of business cycle fluctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of dynamic rotations of the reduced form residuals. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment and account for about a third of their prediction error variance at business cycle horizons.
    Date: 2014
  57. By: Michael Gelman; Shachar Kariv; Matthew D. Shapiro; Dan Silverman; Steven Tadelis
    Abstract: Using comprehensive account records, this paper examines how individuals respond to a temporary drop in income following the 2013 U.S. Federal Government shutdown. Affected employees saw their income decline by 40% on average, which was recovered within two weeks. Despite having no effect on lifetime earnings, spending dropped sharply, implying a naïve estimate of the marginal propensity to spend of 0.57. This estimate overstates how consumption responded. To smooth consumption, individuals adjusted by delaying recurring payments such as mortgages and credit card balances. Those with the least liquidity struggled most to smooth spending and were left holding more debt months after the shutdown.
    JEL: D12 D91 E21 H31
    Date: 2015–03
  58. By: Giancarlo Bertocco (Department of Economics, University of Insubria, Italy); Andrea Kalajzic (Department of Economics, University of Insubria, Italy)
    Abstract: Keynes in the General Theory, explains the monetary nature of the interest rate by means of the liquidity preference theory. The objective of this paper is twofold. First, to point out the limits of the liquidity preference theory. Second, to present an explanation of the monetary nature of the interest rate based on the arguments with which Keynes responded to the criticism levelled at the liquidity preference theory by supporters of the loanable funds theory such as Ohlin and Robertson. It is shown that this explanation is consistent with the definition of the non-neutrality of money that Keynes presented in his 1933 works in which he underlines the need to elaborate a monetary theory of production in order to explain the phenomena of the crisis and the fluctuations in income and employment.
    Date: 2014–01
  59. By: Sheila Dow (Department of Economics, University of Stirling & University of Victoria); Guðrún Johnsen (University of Iceland); Alberto Montagnoli (Department of Economics, University of Sheffield)
    Abstract: Proposals for full reserve banking have been put forward as a radical way of preventing further financial crises. They rest on the argument that crises are caused by excessive money supply growth brought about by inadequately controlled bank credit creation. Our aim is to provide a critique of the theoretical assumptions underlying the plans for full reserve banking. In particular some of the plans rely on the view that the money supply is a key causal variable and that it is feasible for central banks to identify and enforce an optimal quantity. Second, the plans all rely on an unsupported confidence in the efficiency of financial markets outside the centrally controlled banking system. Third, by removing profit-making opportunities from banks, the proposals may unduly tip the balance further in favour of shadow banking. Finally, as the case of 95% liquidity requirements on Kaupthing, Singer and Friedlander in the wake of the Great Financial Crash shows that modern financial engineering makes such policy-making difficult to execute. A Minskyan analysis rather emphasises the inherent instability of the financial system such that it is subject to systemic crises and the indeterminacy of demand for liquidity, while also emphasising the contribution prudent banking can make to financing economic activity and providing a safe money asset. While a return to a traditional separation of retail banking (regulated and supported by the central bank) from investment banking (regulated differently but not supported) would contribute to financial stability, it is argued that the full reserve banking proposals go too far.
    Keywords: bank regulation, full reserve banking
    JEL: E5 G21 G28
    Date: 2015–03
  60. By: Fidrmuc, Jarko (BOFIT); Fungácová, Zuzana (BOFIT); Weill , Laurent (BOFIT)
    Abstract: The financial crisis has shown that the liquidity creation function of banks is critical for the economy. In this paper, we empirically investigate whether bank liquidity creation fosters economic growth in a large emerging market, Russia. We follow the methodology of Berger and Bouwman (2009) to measure bank liquidity creation using a rich and exhaustive dataset of Russian banks. We perform fixed effects and GMM estimations to examine the relation of liquidity creation to economic growth for Russian regions in the period 2004–2012. Our results suggest that bank liquidity creation fosters economic growth. This effect was not washed out by the financial crisis. Our conclusion thus supports a positive impact of financial development on economic growth in Russia.
    Keywords: growth; bank liquidity creation; financial development
    JEL: E44 G21
    Date: 2015–03–05
  61. By: Lumengo Bonga-Bonga (Faculty of Economic and Financial Sciences, University of Johannesburg); Rangan Gupta (Department of Economics, University of Pretoria); Charl Jooste (Department of Economics, University of Pretoria)
    Abstract: The macroeconomic response to uncertainty for India is studied in a structural model that decomposes uncertainty into negative and positive contributions. The results show that uncertainty shocks reduce industrial production, lead to an exchange rate depreciation, lowers prices and increases interest rates. Conversely, a reduction in uncertainty (or an increase in negative uncertainty) increases industrial production, reduces prices, leads to an exchange rate appreciation and slightly increases interest rates. The results, however, reveal that the response to uncertainty is insignificant - this implies that the short run duration and sign could be different.
    Keywords: Uncertainty, Macroeconomic Variables, SVECM, India
    JEL: E10 C32
    Date: 2015–03
  62. By: V. Bignon; R. Breton; M. Rojas Breu
    Abstract: With the Euro Area context in mind, we show that currency arrangements impact on credit available through default incentives. To this end we build a symmetric two-country model with money and imperfect credit market integration. Differences in credit market integration are captured by variations in the cost for banks to grant credit for cross-border purchases. We show that for high enough levels of this cost, currency integration may magnify default incentives, leading to more stringent credit rationing and lower welfare than in a regime of two currencies. The integration of credit markets restores the optimality of the currency union.
    Keywords: banks, currency union, monetary union, credit, default.
    JEL: E42 E50 F3 G21
    Date: 2015
  63. By: Georgescu, George
    Abstract: Following the financial crisis effects, the issue of debt sustainability became of global importance, even for international security reasons. In the EU, despite post-crisis fiscal austerity measures aimed at rebalancing the public finances, the debt-to-GDP ratio continued to deteriorate. At international level, few countries have legislative mechanisms able to contain the public debt increase. The case of Argentina, pushed into default because of a single uncommon US court decision raised other questions related to the status of sovereign debt. It seems that only by agreeing a multilateral legal framework under UN umbrella the sovereign debt restructuring issues could be addressed.
    Keywords: Argentina; sovereign debt; global crisis; sovereign insolvency; debt restructuring; rating agencies
    JEL: E44 F34 F55 G01 H63
    Date: 2015–03
  64. By: Gustafsson, Peter (National Institute of Economic Research); Stockhammar, Pär (National Institute of Economic Research); Österholm, Pär (National Institute of Economic Research)
    Abstract: Real housing prices in Sweden have roughly doubled the last 15 years. The rise in housing prices has coincided with a rise in household debt, sparking debate about both the presence of financial imbalances in the Swedish economy and the macroeconomic effects that a correction of these imbalances would have. In this paper, we conduct a quantitative assessment of the macroeconomic effects of a considerable decline in housing prices using a Bayesian VAR model. Results show that a 20 per cent drop in housing prices would lead to a recession-like impact on household consumption and unemployment. The impact would be even greater if falling housing prices coincided with a global economic downturn.
    Keywords: Bayesian VAR; Housing prices; Household consumption; Unemployment; Small open economy
    JEL: C32 F43
    Date: 2015–03–17
  65. By: Jürgen K. Zattler (German Federal Ministry for Economic Cooperation and Development)
    Abstract: A body of recent research is pointing to a growing inequality in many countries. The current debate focuses on high income countries. However, developing countries are an important element in understanding the full picture. First, evidence indicates that growing inequality can also be observed in many developing countries, in particular if top income and wealth evolution is taken into account, a phenomenon which is at variance with conventional economic theory. This has a multitude of economic, political and social implications for the respective countries. In particular, high inequality is linked with political instability, financial fragility and can undermine economic growth. Secondly, developing countries form an increasingly important part of the world economy. Therefore, options to combat inequality must take into account this broader picture. For any solution, one has to understand the driving forces behind growing inequality. Piketty’s central claim is that the free-market system has a natural tendency towards increasing the concentration of wealth. However, there are strong arguments that ever growing inequality is not sustainable in the long-term, in particular because it would eventually slow down economic growth, increase debt levels as well as social and political instability. It is argued in this article that the tendency to accumulate capital at the top seems to lead periodically to unsustainable situations, whereby “external factors” such as wars, technological innovations, government re-distribution and bail-outs can rebalance (and have in fact in the past rebalanced) the system for some time. Governments of developing countries must act on two fronts to contain rising inequality: On the one hand, they have to scale-up domestic resource mobilisation in order to enhance social investments and re-distribution, as many Latin American countries did successfully in the last decade. On the other hand, they must foster the inclusiveness and resilience of their development strategies. Correspondingly, development institutions should go beyond their current focus on extreme poverty and take into account inequality – in terms of general approaches, country support and strategies as well as instruments. Finally, the issue should be adequately taken up within the new “Post-2015” framework.
    Keywords: Inequality; financial stability; developing countries
    JEL: E21 E24 H20
    Date: 2015–03–12
  66. By: Joshua C.C. Chan
    Abstract: This paper generalizes the popular stochastic volatility in mean model of Koopman and Hol Uspensky (2002) to allow for time-varying parameters in the conditional mean. The estimation of this extension is nontrival since the volatility appears in both the conditional mean and the conditional variance, and its coefficient in the former is time-varying. We develop an efficient Markov chain Monte Carlo algorithm based on band and sparse matrix algorithms instead of the Kalman filter to estimate this more general variant. We illustrate the methodology with an application that involves US, UK and Germany inflation. The estimation results show substantial time-variation in the coefficient associated with the volatility, high-lighting the empirical relevance of the proposed extension. Moreover, in a pseudo out-of-sample forecasting exercise, the proposed variant also forecasts better than various standard benchmarks.
    Keywords: nonlinear, state space, inflation forecasting, inflation uncertainty
    JEL: C11 C15 C53 C58 E31
    Date: 2015–03
  67. By: Michael Bordo; Harold James
    Abstract: This paper explains the problem of adjustment to the challenges of globalization in terms of the logic underpinning four distinct policy constraints or trilemmas, and their interrelationship, and in particular the disturbances that arise from capital flows. The analysis of a policy trilemma was developed first as a diagnosis of exchange rate problems (the incompatibility of free capital flows with monetary policy autonomy and a fixed exchange rate regime); but the approach can be extended. The second trilemma we describe is the incompatibility between financial stability, capital mobility and fixed exchange rates. The third example extends the analysis to politics, and looks at the strains in reconciling democratic politics with monetary autonomy and capital movements. Finally we examine the security aspect and look at the interactions of democracy with capital flows and international order. The trilemmas in short depict the way that domestic monetary, financial, economic and political systems are interconnected with the international. They can be described as the impossible policy choices at the heart of globalization. Frequently, the trilemmas conjure up countervailing anti-globalization tendencies and trends.
    JEL: E4 E6 N1
    Date: 2015–03
  68. By: Keshav Dogra (Columbia University); Olga Gorbachev (Department of Economics, University of Delaware)
    Abstract: We evaluate the impact of increased income uncertainty and financial liberalisation in the US on consumption volatility and household welfare. We estimate Euler equations and measure the volatility of unpredictable changes in consumption as the squared residuals. We directly control for liquidity constraints using SCF data on access to credit, and document that despite the increase in household debt between 1983 and 2007, there was no decline in the proportion of liquidity constrained households. Consumption volatil-ity increased significantly over this period, especially for liquidity constrained households, indicating substantial welfare losses.
    Keywords: liquidity constraints, consumption, income, volatility, welfare
    JEL: D12 D91 E21 J15
    Date: 2015
  69. By: Ashley Lienert; David Gillmore (Reserve Bank of New Zealand)
    Abstract: Estimates of the "output gap" play a significant role in the thinking of inflation- targeting central banks. This note outlines how the Reserve Bank estimates the level of potential output and the output gap.facing small advanced economies, such as New Zealand.
    Date: 2015–03
  70. By: Beatrice D. Simo-Kengne (Department of Economics, University of Pretoria); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This paper investigates whether changes in the monetary transmission mechanism as captured by the interest rate respond to variations in asset returns. We distinguish between low-volatility (bull) and high-volatility (bear) markets and employ a TVP-VAR approach with stochastic volatility to assess the evolution of the interest rate in relation to housing and stock returns. We measure the relative importance of housing and stock returns in the movements of the interest rate and their possible feedback effects over both time and horizon and across regimes. Empirical results from annual data on the US spanning the period from 1890 to 2012 indicate that the interest rate responds more strongly to asset returns during low-volatility (bull) regimes. While the bigger interest-rate effect of stock-return shocks occurs prior to the 1970s, the interest rate appears to respond more strongly to housing-return than stock return shocks after the 1970s. Similarly, a higher interest rate exerts a larger effect on both asset categories during low-volatility (bull) markets. Particularly, larger negative responses of housing return to interest-rate shocks occur after the 1980s, corresponding to the low-volatility (bull) regime in the housing market. Conversely, the stock-return effect of interest-rate shocks dominates before the 1980s, where stock-market booms achieved more importance.
    Keywords: Asset Prices, Monetary policy, housing return, stock return, TVP-VAR
    JEL: C32 E52 G10
    Date: 2014–12
  71. By: Ali Ozdagli (Federal Reserve Bank of Boston)
    Abstract: This paper reveals a new theoretical implication of the credit channel of monetary policy: the stock prices of financially more constrained firms are less responsive to monetary policy shocks. In order to study this implication, we use Enron scandal as an exogenous variation in the monitoring cost of the Arthur Andersen clients relative to other firms in a difference in differences framework. We find that Arthur Andersen clients have responded about 40 to 50 basis points less than other firms to a 10 basis point surprise reduction in federal funds target rate in the final days of the scandal, which is in line with the new implication of the credit channel.
    Date: 2014
  72. By: Beatrice D. Simo-Kengne (Department of Economics, University of Pretoria); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Rangan Gupta (Department of Economics, University of Pretoria); Goodness C. Aye (Department of Economics, University of Pretoria)
    Abstract: This paper applies a time-varying parameter vector autoregressive (TVP-VAR) approach to estimate the relative effects of housing and stock prices on US consumption over time. We use annual data from 1890 to 2012 and find that over different horizons and over time, generally the housing price positively affects consumption while the stock price negatively affects consumption. These opposite responses to changes in housing and stock prices suggest different mechanisms through which wealth affects consumption. Further, the housing price effect proves larger in absolute value than the stock price effect after 1980. Between 1980 and 2007, housing wealth generally exerted a larger effect on consumption. This sub-period includes the 1997/2002 asset price boom/bust where house prices continued to rise moderately as stock prices fell. Finally, the co-occurrence of the decline in both housing and stock prices during the 2007-2009 episode produced bigger effects of the housing price for the first five years of the impulse responses while the higher magnitude of the stock price effect appears in the 6-year horizon. These findings suggest that the magnitude of the relative price effects differs with both time and horizons and also depends on whether prices increase or decrease.
    Keywords: Asset Prices, Consumption, TVP-VAR
    JEL: C32 E21 G10
    Date: 2014–12
  73. By: Omri, Anis (University of Sfax); Daly, Saida (University of Sfax); Rault, Christophe (University of Orléans); Chaibi, Anissa (IPAG Business School)
    Abstract: This paper examines the relationship between financial development, CO2 emissions, trade and economic growth using simultaneous-equation panel data models for a panel of 12 MENA countries over the period 1990-2011. Our results indicate that there is evidence of bidirectional causality between CO2 emissions and economic growth. Economic growth and trade openness are interrelated i.e. bidirectional causality. Feedback hypothesis is validated between trade openness and financial development. Neutrality hypothesis is identified between CO2 emissions and financial development. Unidirectional causality running from financial development to economic growth and from trade openness to CO2 emissions is identified. Our empirical results also verified the existence of environmental Kuznets curve. These empirical insights are of particular interest to policymakers as they help build sound economic policies to sustain economic development and to improve the environmental quality.
    Keywords: financial development, CO2 emissions, trade, economic growth, simultaneous-equation models
    JEL: E44 E58 F36 P26
    Date: 2015–02
  74. By: David Hernando Morales Álvarez
    Abstract: Este documento realiza una breve revisión de la literatura de ciclos económicos, metodologías usadas para identificarlos y lo que se ha escrito respecto a Colombia. Con el uso del filtro econométrico de Hodrick y Prescott aplicado al Producto Interno Bruto, se halló cuatro ciclos, sin embargo, aplicándolo al desempleo, el número de ciclos encontrados fueron tres. Entre factores internos y externos que tienen mayor relevancia en las fluctuaciones, se encuentran los términos de intercambio, flujos de capital y el gasto público, mostrando la vulnerabilidad del país a choques externos.
    Keywords: ciclos de negocio, impactos internacionales, filtro Hodrick y Prescott, crisis económica, auge económico, Colombia.
    JEL: E32 F43
    Date: 2015–03–11
  75. By: Aizenman, Joshua; Cavallo, Eduardo; Noy, Ilan
    Abstract: Why do people save? A strand of the literature has emphasized the role of ‘precautionary’ motives; i.e., private agents save in order to mitigate unexpected future income shocks. An implication is that in countries faced with more macroeconomic volatility and risk, private saving should be higher. From the observable data, however, we find a negative correlation between risk and private saving in cross-country comparisons, particularly in developing countries. We provide a plausible explanation for the disconnect between precautionary-saving theory and the empirical evidence that is based on a model with a richer account for the various modes of ‘precautionary’ behavior by private agents, in cases where institutions are weaker and labor informality is prevalent. In such environments, household saving decisions are intertwined with firms’ investment decisions. As a result, the interaction between saving behavior, broadly construed, and aggregate risk and uncertainty, may be more complex than is frequently assumed.
    Keywords: Precautionary savings, Macroeconomic risks, Informality, Family firms,
    Date: 2015
  76. By: Marta Lachowska (W.E. Upjohn Institute for Employment Research); Michal Myck (Centre for Economic Analysis)
    Abstract: In order to study whether public pension systems displace private saving, we use the quasi-experimental variation in pension wealth created by Poland’s 1999 pension reform. Using the 1997–2003 Polish Household Budget Surveys, we begin by estimating “difference-in-differences” regressions, where we compare household saving and expenditure across time and between cohorts affected and unaffected by the reform. Next, we estimate the extent of crowd-out by using two-stage least squares. We identify the effect of pension wealth on private saving by using the cohort-by-time variation in pension wealth that is explained by the reform. We find that one additional Polish zloty, or PLN, of pension wealth crowds out about 0.24 PLN in household saving. We also find heterogeneity in responses. For the middle-aged cohorts, we find a large public pension crowd-out of private saving (about 0.54 PLN of private saving for each 1 PLN of public pension wealth), while the crowd-out for younger cohorts equals about 0.30 PLN of private saving per 1 PLN. Finally, we find a close-to-complete crowd-out among highly-educated households.
    Keywords: Pension reforms, crowd-out effect, retirement saving, difference-in-differences, natural experiment
    JEL: E21 H55 I38 P35
    Date: 2015–02
  77. By: Ana Fostel (Dept. of Economics, George Washington University); John Geanakoplos (Cowles Foundation, Yale University)
    Abstract: Financial innovations that change how promises are collateralized can affect investment, even in the absence of any change in fundamentals. In C-models, the ability to leverage an asset always generates over-investment compared to Arrow Debreu. The introduction of CDS always leads to under-investment with respect to Arrow Debreu, and in some cases even robustly destroys competitive equilibrium. The need for collateral would seem to cause under-investment. Our analysis illustrates a countervailing force: goods that serve as collateral yield additional services and are therefore over-valued and over-produced. In models without cash flow problems there is never marginal under-investment on collateral.
    Keywords: Financial innovation, Collateral, Investment, Repayment enforceability problems, Cash flow problems, Leverage, CDS, Non-existence, Marginal efficiency
    JEL: D52 D53 E44 G01 G11 G12
    Date: 2013–07
  78. By: Martha A. Starr
    Abstract: Although there has been little economic research on 'ethical consumption' in a general sense, work on its various aspects is growing. This paper reviews economic research on ethical consumption, examining both demand-and supply-side aspects. It is argued that the most promising way to see ethical consumption through an economic lens is via models with heterogeneous consumers, in which some have strong intrinsic motivation to adopt ethical-consumption practices, others will adopt if they perceive a practice to be becoming a social norm and its extra costs are moderate, and others still will be impervious to it. Implications for the spread of ethical consumption and its ability to affect change are considered.
    Keywords: ethical consumption, consumption ethics, socially responsible consumption, corporate social responsibility, sustainable consumption, consumer behavior, pro-social behavior, consumer economics
    JEL: E21 D11 D12 A13 A12 Q5
    Date: 2015
  79. By: Maia Güell (University of Edinburgh, CEPR, FEDEA and IZA.); Michele Pellizzari (UUniversity of Geneva, CEPR, fRDB and IZA.); Giovanni Pica (Università di Salerno, CSEF, Paolo Baffi Centre and Centro Luca D’Agliano); José V. Rodríguez Mora (University of Edinburgh and CEPR.)
    Abstract: We apply a novel measure of intergenerational mobility (IM) developed by Güell, Rodríguez Mora, and Telmer (2014) to a rich combination of Italian data allowing us to produce comparable measures of IM of income for 103 Italian provinces. We then exploit the large heterogeneity across Italian provinces in terms of economic and social outcomes to explore how IM correlates with a variety of outcomes. We find that (i) higher IM is positively associated with a variety of \good" economic outcomes, such as higher value added per capita, higher employment, lower unemployment, higher schooling and higher openness and (ii) that also within Italy the "the Great Gatsby Curve" exists: in provinces in which mobility is lower cross-sectional income inequality is larger. We finally explore the correlation between IM and several socio-political outcomes, such as crime and life expectancy, but we do not find any clear systematic relationship on this respect.
    Keywords: Surnames, intergenerational mobility, cross-sectional data analysis.
    JEL: C31 E24 R10
    Date: 2015–03–07
  80. By: Pau Rabanal; Juan F. Rubio-Ramírez
    Abstract: Real exchange rates exhibit important low-frequency fluctuations. This makes the analysis of real exchange rates at all frequencies a more sound exercise than the typical business cycle one, which compares actual and simulated data after the Hodrick- Prescott filter is applied to both. A simple two-country, two-good, international real business cycle model can explain the volatility of the real exchange rate when all frequencies are studied. The puzzle is that the model generates too much persistence of the real exchange rate instead of too little, as the business cycle analysis asserts. We show that the introduction of input adjustment costs in production, cointegrated productivity shocks across countries, and lower home bias allows us to reconcile theory and this feature of the data.
    Date: 2015–04
  81. By: Peter Heemeijer; Ronald Heijmans
    Abstract: This experimental study investigates the behavior of banks in a large value payment system. More specifically, we look at 1) the reactions of banks to disruptions in the payment system and 2) the way banks behavior changes to incentives of the central bank. The game used in this experiment is a stylized version of a model of Bech and Garratt (2006) in which each bank can choose between paying in the morning (efficient) or in the afternoon (inefficient) and builds on the game by Abbink et al. (2010). The results show that a positive (bail out) or negative (punishment) incentive steers payments to the inefficient or efficient equilibrium, respectively. In contrast to our expectation, providing detailed information on disruptions steers payments towards the inefficient equilibrium.
    Keywords: payment systems; financial stability; experiment; decision making; central bank intervention
    JEL: C92 D70 D78 E58
    Date: 2015–03
  82. By: Antón Arturo; Leal-Ordoñez Julio C.
    Abstract: In a typical developing country, coverage of the contributory social security system is low. We analyze the aggregate effects of a revenue-neutral fiscal-cum-social policy reform that consists of: 1) the implementation of universal social insurance to replace the system with low coverage; and 2) the elimination of the social security payroll tax to replace it with a generalized VAT. We find that this reform increases productivity by 2 percent and output by 3 percent as it improves the allocation of resources across firms and sectors, and generates a substantial change in occupational choices. Thus, wages (before transfers) increase for all employees. Also, due to the reconfiguration of transfers, earnings (wages after transfers) for informal employees increase relative to the earnings of formal employees, which decreases inequality. However, the reform could affect some groups in the population, given the regressive nature of VAT and heterogeneity in the valuation of transfers across workers.
    Keywords: Universal Social Insurance;Fiscal Reform;Inequality;VAT;Allocation of Resources across Firms and Sectors.
    JEL: E62 H55 O17 O47
    Date: 2015–02
  83. By: Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: We apply the novel approach of Siliverstovs (2015) to modelling data sampled at different frequencies in order to scrutinise the composition of one of the most influential economic indicators in Switzerland. The Purchasing Managers' Index consists of eight sub-indices out of which only five enter the total index with differentiated weights, which were specified for its American counterpart about thirty years ago. In this paper, we address the question whether the current fixed weighting scheme of the PMI components is supported by the data. We find that the relative weights of the PMI components are generally supported by the data, except the fact that one component, found very informative for explaining GDP growth, is currently omitted from the PMI composition.
    Keywords: LASSO, GDP growth, MIDASSO, PMI, Switzerland, Real-time data, real-time data, MIDAS
    JEL: C22 C53
    Date: 2015–03
  84. By: Ernesto Screpanti
    Abstract: Marx’s theory of labour value is flawed. This note summarizes the main reasons why this is so. At the same time, it claims that the theory of exploitation does not depend on a labour embodied valuation and can be expounded by resorting to the theory of production prices. Almost all Marxists have now accepted this truth. Most of them have been convinced by a ‘new interpretation’ which has been able to translate the price of net output into an amount of ‘living labour’ and the rate of exploitation into a ratio between unpaid and paid labour. What produced such a surprising result is the use of labour productivity as a numeraire
    Keywords: Marxian Economics, Labour Values, Prices of Production, Theory of Exploitation
    JEL: B14 E11
    Date: 2015–03
  85. By: Soldatos, Gerasimos T.
    Abstract: High taxation is found to lead not to less labor supply but to more tax evasion and/or black labor. Investigating next what this implies for the course of the tax revenue and subsequently for the shape of the Laffer curve, this curve is found to change with the tax induced change of taxpayer preferences over tax compliance and tax aversion. Hence, the relevant Laffer curve when contemplating tax cuts should be the one after the last tax increase and cannot thereby be fully self-financed.
    Keywords: Laffer curve, Tax evasion/black labor, Self-financing tax cuts
    JEL: E62 H26 J22
    Date: 2015–05
  86. By: Armin Steinbach (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: This study identifies commonalities between two historical incidents of debt assumption – in the United States in 1791 and in present-day Europe. By comparing the interests and behaviour of key players in these two incidents, we find three major parallels: First, in their strategic interactions, parties both for and against debt mutualisation raise arguments based on notions of fairness and morality. Second, in both historical episodes we find harsh rhetoric levelled against private creditors, who are derided as greedy speculators. Third, bargaining is an essential element of the debt assumption process. Bargaining is directed towards limiting or expanding the scope of debt assumption. Further, bargaining typically leads to some form of conditionality imposed in order to increase the chances of the debts being repaid or to ensure benefits accrue to the parties assuming the debt.
    JEL: H63 F55 N11 E62
    Date: 2015–01
  87. By: Tsangyao Chang (Department of Finance, Feng Chia University); Xiao-lin Li (Department of Finance, Wuhan University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This study applies wavelet analysis to examine the relationship between the U.S. real estate and stock markets over the period 1890-2012. Wavelet analysis allows the simultaneous examination of co-movement and causality between the two markets in both the time and frequency domains. Our findings provide robust evidence that co-movement and causality vary across frequencies and evolve with time. Examining market co-movement in the time domain, the two markets exhibit positive co-movement over recent past decades, exception for 1998-2002 when a high negative co-movement emerged. In the frequency domain, the two markets correlate with each other mainly at low frequencies (longer term), except in the second half of the 1900s as well as in 1998-2002, when the two markets correlate at high frequencies (shorter term). In addition, we find that the causal effects between the markets in the frequency domain occur generally at low frequencies (longer term). In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two markets. These findings provide a more complete picture of the relationship between the U.S. real estate and stock markets over time and frequency, offering important implications for policymakers and practitioners.
    Keywords: stock market; real estate market; wavelet analysis; frequency domain; time domain
    JEL: C49 E44 G11
    Date: 2014–12
  88. By: Geloso, Vincent; Kufenko, Vadim
    Abstract: In this paper we study Malthusian pressures in a frontier economy. Using the empirical data on the real prices and demographic variables from 1688 to 1860 for Quebec and Montreal, we test for the existence of Malthusian pressures. Bearing in mind the particularities of frontier economies and the development of the Canadian economy, we conduct cointegration tests and VARs in order to identify positive and preventive checks. The cointegration test reveals absence of long-run equilibrium relationship between real wheat prices, birth and death rates. Using the Bai-Perron test we find a structural break in 1767 and divide the sample in pre- and post-conquest periods. We find that the positive checks were operating in the years prior to the conquest but that they faded during the nineteenth century. In the short-run, we find that wheat prices Granger-cause fluctuations in death rates in the pre-conquest period.
    Keywords: Malthusian economy,preventive check,positive check,Canadian history,empirical analysis
    JEL: J11 N11 E32
    Date: 2015
  89. By: Eijffinger, S.C.W. (Tilburg University, Center For Economic Research); Mahieu, R.J. (Tilburg University, Center For Economic Research); Raes, L.B.D. (Tilburg University, Center For Economic Research)
    Abstract: In this paper we estimate ideal points of Bank Presidents and Board Governors at the FOMC. We use stated preferences from FOMC transcripts 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.<br/>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; transcripts; ideal points; FOMC
    JEL: E58 E59 C11
    Date: 2015
  90. By: Carluccio, Juan (Banque de France); Fougère, Denis (CREST); Gautier, Erwan (LEMNA - University of Nantes)
    Abstract: We estimate the impact of international trade on wages using data for French manufacturing firms. We instrument firm-level trade flows with firm-specific instrumental variables based on world demand and supply shocks. Both export and offshoring shocks have a positive effect on wages. Exports increase wages for all occupational categories while offshoring has heterogeneous effects. The impact of trade on wages varies across bargaining regimes. In firms with collective bargaining, the elasticity of wages with respect to exports and offshoring is higher than in firms with no collective bargaining. Wage gains associated with collective bargaining are similar across worker categories. Keywords: exports, offshoring, firm-level wages, collective bargaining.
    Keywords: exports, offshoring, firm-level wages, collective bargaining
    JEL: F16 J51 E24
    Date: 2015–02
  91. By: Bebel, Arkadiusz
    Abstract: Disputes whether financial structure can create value or not were started more than 50 years ago with Modigliani Miller theorem. In this paper I would like to present my own view on level of debt in value creation process. What I am going to prove is that due to expansion option companies with low level of debt are outperforming highly leveraged companies in the long run. I have created a new factor LVH (low versus high leverage) to quantitatively prove that being long in companies with below median net debt/EBITDA and being short in companies with above net debt/EBITDA can bring abnormal returns (with Sharpe ratio even higher than 0.9 and statistically significant alfa of around 7.7% yearly). As shown in chapter IV.II. such strategy might be supplemented by Momentum, Betting against Beta or High minus Low Devil strategies.
    Keywords: factor investing, quantitative strategy, net debt, leverage, Modigliani-Miller, value creation, alfa
    JEL: G10 G11 G12 G15
    Date: 2014–11–08
  92. By: Fabrizio Perri (University of Minnesota)
    Abstract: The paper shows that inequality in private income among US households is, in the aftermath of the Great Recession, at its postwar highs, both at the bottom and at the top of the distribution. The increase in inequality at the bottom seems to be tightly linked to the historically high level of long term unemployment, which depresses the income of the bottom part of the distribution. The paper also shows that, exactly during the Great Recession, the redistributive scope of government policies (tax and transfers) has increased to historical highs, again both at the bottom and at the top of the distribution, so disparities in disposable income have not grown much over the past 10 years. <P> More specific to the recession recovery cycle, we compare the Great Recession and its aftermath with the recession of 1980-82 and its aftermath and found that the distributional impact of the recent recession has been much smaller, precisely because of stronger role played by redistributive policies. Five years after the start of the 1980-82 recession, incomes at the top of the distribution were growing, and incomes at the bottom were falling, so society was much more unequal that it was at the start of the recession. Five years after the onset of the Great Recession, most segments of the disposable income distribution are still well below the pre-recession level; the society is poorer, but only marginally more unequal, due to redistribution. <P> This generalized stagnation is apparent also in the distribution of expenditures, which have been falling uniformly across the entire distribution. In the final part of the paper we have followed households through time to ask whether redistribution can also shield individual households from adverse shocks to private resources. The answer to the question is no. As the Great Recession has progressed there has been more redistribution, but at the same time households have lost the ability of self insure against shocks, and shocks to their disposable resources have affected their expenditures.
    Date: 2014
  93. By: Tumen, Semih
    Abstract: Informal jobs offer skill acquisition opportunities that may facilitate a future switch to formal employment for young workers. In this sense, informal training on the job may be a viable alternative to formal schooling in an economy with a large and diverse informal sector. In this paper, I investigate if these considerations are relevant for the schooling decisions of young individuals using panel data on 17 Latin American countries as well as micro-level data for Turkey. Specifically, I ask if the prevalence of informal jobs distort schooling attainment. I concentrate on three measures of schooling outcomes: (1) secondary education enrollment rate, (2) out-of-school rate for lower secondary school, and (3) tertiary education graduation rate. I find that the secondary education enrollment rate is negatively correlated with the size of the informal economy, while the out-of-school rate is positively correlated. This means that informal training on the job may be crowding out school education in developing countries. The tertiary education graduation rate, however, is positively correlated with the size of informal sector, which implies that a large informal economy induces college attendance for those who are more likely to succeed. Policies that can potentially affect the size of the informal sector should take into consideration these second-round effects on aggregate schooling outcomes.
    Keywords: Informal economy; skill acquisition; schooling outcomes; Latin America; Turkey.
    JEL: E26 I21 J24 O17
    Date: 2015–03–16
  94. By: Judzik, Dario
    Abstract: This paper analyzes labor demand at the sector level in the U.S., Germany and Sweden in two ways: by providing new computations of the sector elasticity of labor demand, and by evaluating the employment effects of trade in manufactures, services, agriculture and fuel. The elasticity is computed through a standard fixedeffects model and then by taking a semi-pooling sector-level approach (i.e., by flexibilizing the coefficient homogeneity assumption). Most sector-level elasticities differ largely from the aggregate estimate in all three countries. The employment effect of openness to trade is generally positive, although it varies according to country particularities. The employment effect of technical change may help in understanding Germany’s remarkable employment performance over the last decade.
    Keywords: sector-level, labor demand, elasticity, wage, trade, technical change
    JEL: E60 F16 J23 O33
    Date: 2014–05

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