nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒04‒02
97 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Credit, Financial Stability, and the Macroeconomy By Taylor, Alan M.
  2. Long-Run Growth Uncertainty By Pei Kuang; Kaushik Mitra
  3. Credit, Financial Stability, and the Macroeconomy By Alan M. Taylor
  4. The macroeconomic effects of the sovereign debt crisis in the euro area By Stefano Neri; Tiziano Ropele
  5. Capital Controls, Monetary Policy, and Balance Sheets in a Small Open Economy By Shigeto Kitano; Kenya Takaku
  6. Comparing fiscal multipliers across models and countries in Europe By Juha Kilponen, Massimiliano Pisani, Sebastian Schmidt, Vesna Corbo, Tibor Hledik, Josef Hollmayr, Samuel Hurtado, Paulo Júlio, Dmitry Kulikov, Matthieu Lemoine, Matija Lozej, Henrik Lundvall, José R. Maria, Brian Micallef, Dimitris Papageorgiou, Jakub Rysanek, Dimitrios Sideris, Carlos Thomas and Gregory de Walque
  7. Inflation surprises and inflation expectations in the euro area By Marcello Miccoli; Stefano Neri
  8. Comparing Inflation and Price Level Targeting: the Role of Forward Guidance and Transparency By Honkapohja, Seppo; Mitra, Kaushik
  9. Macroeconomic Uncertainty in South Africa By Chris Redl
  10. Fiscal Policy Matters A New DSGE Model for Slovakia By Zuzana Mucka; Michal Horvath
  11. Explaining the Strength and Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model By Jakub Mateju
  13. Government Spending Shocks and Private Acitivity: The Role of Sentiments By Bijie Jia; Hyeongwoo Kim
  14. Estimating Output Gap and Potential Output for Russia and Its Uselfulness by Forecasting Inflation By Kloudová Dana
  15. Detecting financial Imbalances: Monitoring Financial Imbalances through the Financial Activity Indexes (FAIXs) By Koji Nakamura; Yuichiro Ito
  16. Effects of Macroeconomic Uncertainty upon the Stock and Bond Markets By Hossein Asgharian; Charlotte Christiansen; Ai Jun Hou
  17. Cross-Border Banking and Business Cycles in Asymmetric Currency Unions By Lena Dräger; Christian R. Proaño
  18. Comparing the Forecasting Ability of Financial Conditions Indices: The Case of South Africa By Mehmet Balcilar; Rangan Gupta; Renee van Eyden; Kirsten Thompson; Anandamayee Majumdar
  19. What Measures Chinese Monetary Policy? By Rongrong Sun
  20. Escape routes from sovereign default risk in the euro area By Semmler, Willi; Proaño, Christian R.
  21. Monitoring the world business cycle By Maximo Camacho; Jaime Martinez-Martin
  22. Self-Fulfilling Credit Cycles By Azariadis, Costas; Kaas, Leo; Wen, Yi
  23. Systematic Errors in Growth Expectations over the Business Cycle By Jonas Dovern; Nils Jannsen
  24. Self-Fulfilling Credit Cycles By Costas Azariadis; Leo Kaas; Yi Wen
  25. Financial frictions and global spillovers By Metiu, Norbert; Hilberg, Björn; Grill, Michael
  26. Fiscal stimulus and labor market flexibility By Topal, Pinar
  27. Measuring Core Inflation in South Africa By Stan du Plessis, Gideon du Rand & Kevin Kotzé
  28. International spillovers from U.S. fiscal policy shocks By Nicar, Stephen
  29. A Fundamental Cause of Economic Crisis By Koji Akimoto
  30. The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes By Antonio Acconcia; Giancarlo Corsetti; Saverio Simonelli
  31. The Housing Sector over Business Cycles: Empirical Analysis and DSGE Modelling By Jan Bruha; Jiri Polansky
  33. Determinants of Credit Expansion in Brazil By Barbi, Fernando C.
  34. Tax Cuts For Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment By Owen M. Zidar
  35. Meta-Analysis of Chinese Business Cycle Correlation By Jarko Fidrmuc; Iikka Korhonen
  36. Immigration Policy and Macroeconomic Performance in France By Ekrame BOUBTANE; Dramane COULIBALY; Hippolyte D'ALBIS
  37. Wealth Inequality, Family Background, and Estate Taxation By Mariacristina De Nardi; Fang Yang
  38. House Prices and Job Losses By Gabor Pinter
  39. Fra Marx e List: sinistra, nazione e solidarietà internazionale By Sergio Cesaratto
  40. Banking and Currency Crises: Differential Diagnostics for Developed Countries By Mark Joy; Marek Rusnak; Katerina Smidkova; Borek Vasicek
  41. Revisiting the narrative approach of estimating tax multipliers By Hebous, Shafik; Zimmermann, Tom
  42. Has Household Indebtedness Hampered Consumption during the Recession? Evidence from Micro Data By Merike Kukk
  43. Disclosure of risk information in the European banking sector By Emilia Klepczarek
  44. TIPS and the VIX: Spillovers from Stock Market Panic to Breakeven Inflation in a Semi-automated, Non-linear Modeling Framework By Josh R. Stillwagon
  45. Indeterminacy and Sunspots in Two-Sector RBC Models with Generalized No-Income-Effect Preferences By Frédéric Dufourt; Kazuo Nishimura; Alain Venditti
  47. On the redistributive efficiency of fiscal policy By Kyriacou, Andreas; Muinelo-Gallo, Leonel; Roca-Sagalés, Oriol
  48. Fiscal targets. A guide to forecasters? By Joan Paredes; Javier J. Pérez; Gabriel Perez-Quirós
  49. Empirical Evidence on the Long-Run Money Demand Function in the GCC Countries By Hamdi, Helmi; Sbia, Rashid; said, ali
  50. The fruits of disaggregation: the general engineering industry in Italy, 1861-1913 By Stefano Fenoaltea
  51. Bilan de la dévaluation du Franc CFA et du Pacte de convergence dans l’UEMOA By Adama Diaw; Mamadou Diop
  52. Relationship between macroeconomic variables and stock market index: evidence from India By Pathan, Rubina; Masih, Mansur
  53. The European Youth Guarantee: Labor Market Context, Conditions and Opportunities in Italy By Pastore, Francesco
  54. 2008 Crises in Economies of Balkan Countries By Paunić, Alida
  55. The international bank lending channel of monetary policy rates and quantitative easing : credit supply, reach-for-yield, and real effects By Morais,Bernardo; Peydró,José-Luis; Ruiz Ortega,Claudia
  56. After the Fall: Euro Area Adjustment By N. Holinski; C.J.M. Kool; J. Piplack
  57. Determinants of non-cash payments By Łukasz Goczek; Bartosz Witkowski
  58. The Effects of Macroeconomic Shocks on the Distribution of Provincial Output in China: Estimates from a Restricted VAR Model By Anping Chen; Nicolaas Groenewold
  59. Advanced-country policies and emerging-market currencies : the impact of U.S. tapering on India's Rupee By Ikeda,Yuki; Medvedev,Denis; Rama,Martin G.
  60. Gender wage gap by occupational groups in Poland By Aleksandra Majchrowska; Pawel Strawinski; Karolina Konopczak; Agnieszka Skierska
  61. Labour Market Transitions of Young People during the Economic Crisis By Sebastian Leitner; Robert Stehrer
  62. Preços Relativos e Política Monetária no Brasil: Uma Discussão a Partir do Índice de Contribuição Para o Desvio da Meta de Inflação (ICMI) e da Desagregação do IPCA Por Natureza dos Produtos By Thiago Sevilhano Martinez
  63. Macroeconomic fluctuations, financial instability and institutions: the case of developing countries By Ichraf Ouechtati
  64. The different impact of conventional interest rates on Islamic stock market, Islamic banking and Islamic insurance: evidence from Malaysia By Othman, Arshad Nuval; Masih, Mansur
  65. Pessimism Shocks in a Model of Global Macroeconomic Interdependence By Rod Tyers
  66. Living (dangerously) without a fiscal union By Ashoka Mody
  67. Correlation, Consumption, Confusion, or Constraints: Why do Poor Children Perform so Poorly? By Elizabeth Caucutt; Lance Lochner; Youngmin Park
  68. Oil Price Forecastability and Economic Uncertainty By Stelios Bekiros; Rangan Gupta; Alessia Paccagnini
  69. Shaping the manufacturing industry performance in Turkey: MIDAS approach By Ibrahim Turhan; Ahmet Sensoy; Erk Hacihasanoglu
  70. Unemployment: Walras’s Voluntary and Keynes’s Involuntary By Ezra Davar
  72. Consumption Risk Sharing with Private Information and Limited Enforcement By Tobias Broer; Marek Kapièka; Paul Klein
  73. Inequality and the composition of taxes By Andrew Pickering; Sheraz Rajput
  74. Methodological Principles of Prediction of Tax Revenues of Budgetary System By P. A. Nazarov; Kazakova, Maria
  75. Modelling Inflation Volatility By Eric Eisenstat; Rodney Strachan
  76. Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data By Chihiro Shimizu; W. Erwin Diewert; Kiyohiko G. Nishimura; Tsutomu Watanabe
  77. A Matching Model of Endogenous Growth and Underground Firms By Lisi, Gaetano; Pugno, Maurizio
  78. May the Soul of the IFS Financial System Definition RIP in Developing Countries By Asongu, Simplice
  79. The influence of displaced commercial risk on bank profitability in Islamic banking institutions By Noraziah Che Arshad; Roza Hazli Zakaria; Ahmad Azam Sulaiman @ Mohamad
  80. Evolution of Approaches to Financing Government Spending: Tax and Debt Policy By Sokolov, Ilya
  81. Productivity and Business Policies By Isabelle Roland; Anna Valero
  82. The Decision to Produce Altcoins: Miners' Arbitrage in Cryptocurrency Markets By Adam Hayes
  83. Liquidity Squeeze, Abundant Funding and Macroeconomic Volatility By Enisse Kharroubi
  84. Dynamic Directed Search By Gabriele Camera; Jaehong Kim
  86. Pietele productiei intelectuale si eficienta lor operationala By Iancu, Victor
  87. Reaction Functions of the Participants in Colombia’s Large-value Payment System By Constanza Martínez; Freddy Cepeda
  88. Family background and university dropouts during the crisis: the case of Italy By Emanuela Ghignoni
  89. On the modeling of size distributions when technologies are complex By Jakub Growiec
  90. Sparse Graphical Vector Autoregression: A Bayesian Approach By Roberto Casarin; Daniel Felix Ahelegbey; Monica Billio
  91. A Cost of Production Model for Bitcoin By Adam Hayes
  92. Regional Variation of the Minimum Wages in China By Xing, Chunbing; Xu, Jianwei
  93. A dynamic approach to intraday liquidity needs By Freddy Cepeda L.; Fabio Ortega C.
  94. Profitability in India’s Organized Manufacturing Sector: The Role of Technology, Distribution, and Demand By Basu, Deepankar; Das, Debarshi
  95. Bank-Specific and Industry-Characteristic Determinants of Commercial Bank Profitability: Empirical Study for Indonesia By Abdul Manap Pulungan; Ahmad Erani Yustika
  96. Can ethnic-linguistic diversity explain cross-country differences in social capital formation? By Cong Wang; Bodo Steiner
  97. Political and administrative barriers of implementation of Cohesion policy in Slovakia By Miroslav Å ipikal

  1. By: Taylor, Alan M.
    Abstract: Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a lead set by a fast-growing empirical literature. Recent long-run historical work has uncovered a range of important stylized facts concerning financial instability and the role of credit in advanced economies, and this article provides an overview of the key findings.
    Keywords: banks; financial crisis; financial history; leverage; macroeconomic history; macroprudential policy; monetary policy; recessions
    JEL: E02 E31 E32 E42 E44 E51 E58 F32 F42 G01 G20 G28 N10 N20
    Date: 2015–03
  2. By: Pei Kuang; Kaushik Mitra
    Abstract: A model of business cycles in which households do not have knowledge of the long-run growth of endogenous variables and continually learn about this growth is presented. The model features comovement and mutual reinforcement of households' growth expectations and market outcomes and suggests a critical role for shifting long-run growth expectations in business cycle fluctuations. There are important implications for estimating the output gap and the derived cyclically-adjusted fiscal budget balance computed by policy making institutions.
    Keywords: Trend, Expectations, Business Cycle, Output Gap, Cyclically-Adjusted Budget Balance
    JEL: E32 E62 D84
  3. By: Alan M. Taylor
    Abstract: Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a lead set by a fast-growing empirical literature. Recent long-run historical work has uncovered a range of important stylized facts concerning financial instability and the role of credit in advanced economies, and this article provides an overview of the key findings.
    JEL: E02 E31 E42 E44 E51 E58 F32 F42 G01 G20 G28 N10 N20
    Date: 2015–03
  4. By: Stefano Neri (Bank of Italy); Tiziano Ropele (Bank of Italy)
    Abstract: This paper uses a Factor Augmented Vector Autoregressive model to assess the macroeconomic impact of the euro-area sovereign debt crisis and the effectiveness of the European Central Bank's conventional monetary policy. First, our results show that in the countries most affected by the crisis, the tensions in sovereign debt markets made credit conditions significantly worse and weighed on economic activity and unemployment. The disruptive effects of the sovereign tensions propagated to the core economies of the euro area through the trade and confidence channels. Second, "modest" (in the sense of Leeper and Zha, 2003) counterfactual simulations suggest that the accommodative monetary policy stance of the ECB helped to moderate the negative effects of the sovereign debt tensions.
    Keywords: sovereign debt crisis, FAVAR models, Bayesian methods, monetary policy
    JEL: C32 E44 E52 F41
    Date: 2015–03
  5. By: Shigeto Kitano (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kenya Takaku (Faculty of Business, Aichi Shukutoku University)
    Abstract: We develop a small open economy, New Keynesian model that incorporates a financial accelerator in combination with liability dollarization. Applying a Ramsey-type analysis, we compare the welfare implications of an optimal monetary policy under flexible exchange rates and an optimal capital control policy under fixed exchange rates. In an economy without the financial accelerator, an optimal monetary policy under flexible exchange rates is superior to an optimal capital control policy under fixed exchange rates. In contrast, in an economy with the financial accelerator, an optimal capital control under fixed exchange rates yields higher welfare than an optimal monetary policy under flexible exchange rates.
    Keywords: Capital control, Monetary policy, Balance sheets, Ramsey policy, Exchange rate regimes, Small open economy, Nominal rigidities, New keynesian, DSGE, Welfare comparison, Incomplete markets, Financial accelerator, Financial frictions
    JEL: E44 E52 F32 F41
    Date: 2015–03
  6. By: Juha Kilponen, Massimiliano Pisani, Sebastian Schmidt, Vesna Corbo, Tibor Hledik, Josef Hollmayr, Samuel Hurtado, Paulo Júlio, Dmitry Kulikov, Matthieu Lemoine, Matija Lozej, Henrik Lundvall, José R. Maria, Brian Micallef, Dimitris Papageorgiou, Jakub Rysanek, Dimitrios Sideris, Carlos Thomas and Gregory de Walque (Research Department, NBB)
    Abstract: This paper employs fifteen dynamic macroeconomic models maintained within the European System of Central Banks to assess the size of fiscal multipliers in European countries. Using a set of common simulations, we consider transitory and permanent shocks to government expenditures and different taxes. We investigate how the baseline multipliers change when monetary policy is transitorily constrained by the zero nominal interest rate bound, certain crisis-related structural features of the economy such as the share of liquidity-constrained households change, and the endogenous fiscal rule that ensures fiscal sustainability in the long run is specified in terms of labour income taxes instead of lump-sum taxes.
    Keywords: Fiscal policy, Output multipliers, Model comparison, Zero lower bound
    JEL: E12 E13 E17 E62 E63
    Date: 2015–03
  7. By: Marcello Miccoli (Bank of Italy); Stefano Neri (Bank of Italy)
    Abstract: Since 2013 the inflation rate in the euro area has fallen steadily, reaching all-time lows at the end of 2014. Market-based measures of inflation expectations (such as inflation swaps) have also declined to extremely low levels, which suggests increasing concern about the credibility of the ECB in maintaining price stability. Inflation releases have often surprised analysts on the downside. Our analysis shows that market-based inflation expectations, at medium-term maturities, are affected by these ‘surprises’, over and above the impact of changing macroeconomic conditions and oil prices.
    Keywords: inflation, inflation expectations, inflation swap contracts
    JEL: E31 E52 C22 C31
    Date: 2015–03
  8. By: Honkapohja, Seppo; Mitra, Kaushik
    Abstract: We examine global dynamics under learning in New Keynesian models with price level targeting that is subject to the zero lower bound. The role of forward guidance is analyzed under transparency about the policy rule. Properties of transparent and non-transparent regimes are compared to each other and to the corresponding cases of inflation targeting. Robustness properties for different regimes are examined in terms of the domain of attraction of the targeted steady state and volatility of inflation, output and interest rate. We analyze the effect of higher inflation targets and large expectational shocks for the performance of these policy regimes.
    Keywords: Adaptive learning; monetary policy; zero interest rate lower bound
    JEL: E52 E58 E63
    Date: 2015–03
  9. By: Chris Redl
    Abstract: This paper develops a new index of economic uncertainty for South Africa for the period 1990-2014 and analyses the macroeconomic impact of changes in this measure. The index is constructed from three sources: (1) Disagreement among professional forecasters about macroeconomic conditions using novel data from a forecasting competition run by a national newspaper, (2) a count of international and local newspaper articles discussing economic uncertainty in South Africa and (3) mentions of uncertainty in the quarterly economic review of the South African Reserve Bank. The index shows high levels of uncertainty around the period of democratic transition in 1992-4, the large depreciation of the currency in 2001 and the financial crisis of 2008. The uncertainty index is a leading indicator of a recession. An unanticipated increase in the index is associated with a fall in GDP, investment, industrial production and private sector employment. Contrary to evidence for the U.S.A and U.K., uncertainty shocks are inflationary. These results are robust to controlling for consumer confidence and a measure of financial stress. I show that these results are consistent with a simple New Keynesian model subject to volatility shocks in technology. In this model, nominal rigidities induce firms to raise prices as a precautionary measure when future demand becomes more uncertain.
    Keywords: economic uncertainty, Business cycles, Inflation, South Africa
    JEL: D80 E32 E31 E66 N17
    Date: 2015
  10. By: Zuzana Mucka (Council for Budget Responsibility); Michal Horvath (Council for Budget Responsibility)
    Abstract: The paper sets out a DSGE model designed and calibrated to match key stylized facts about the Slovak economy. The model includes a detailed fiscal policy block that allows a thorough analysis of fiscal policy measures. To evaluate the performance of the model, the response of the economy to a technology shock and to a foreign demand shock is considered under alternative fiscal adjustment scenarios. We find that a well-designed programme involving increases in transfers as well as taxes can stabilize the economy in the short run and improve longer-term growth prospects following a shock with adverse fiscal implications. We study the consequences of fiscal policy shocks in and away from the steady state of the model. The exercise yields implied fiscal multipliers that are large in spite of Slovakia being a small open economy. Cutting infrastructure spending or raising taxes on consumption and employment are particularly bad for the real economy in a recession.
    Keywords: dynamic stochastic general equilibrium model, simulations, fiscal rules, fiscal multipliers, fiscal consolidation
    JEL: E32 C61 C63 D58 E62 H63 H5
    Date: 2015–03
  11. By: Jakub Mateju
    Abstract: This paper analyzes both the cross-sectional and time variation in aggregate monetary policy transmission from nominal short-term interest rates to the price level. Using Bayesian TVP-VAR models where structural monetary policy shocks are identified by a mixture of short-term and sign restrictions, I show that monetary policy transmission has become stronger over the last few decades. This finding is robust across both developed and emerging economies. Monetary policy sacrifice ratios (the output costs of disinflation induced by monetary policy tightening) have decreased over the last four decades. Exploring the cross-country and time variation in monetary policy responses using panel regressions, I show that after a country adopted inflation targeting, monetary transmission became stronger and sacrifice ratios decreased. In periods of banking crises, the transmission from monetary policy interest rate shocks to prices is weaker and the related output costs are higher. Furthermore, countries with higher domestic private credit to GDP feature stronger transmission of interest rate shocks.
    Keywords: Monetary policy transmission, sign-restrictions, TVP-VAR
    JEL: C54 E52
    Date: 2014–04
  12. By: Marco Bernardini; Gert Peersman (-)
    Abstract: Using state-dependent local projection methods and historical U.S. data, we find that government spending multipliers are considerably larger in periods of private debt overhang. In particular, we find significant crowding-out of personal consumption and investment in low-debt states, resulting in multipliers that are significantly below one. Conversely, in periods of private debt overhang, there is a strong crowding-in effect, while multipliers are much larger than one. In high-debt states, more (less) government purchases also reduce (increase) the government debt-to-GDP ratio. These results are robust for the type of government spending shocks, and when we control for the business cycle, government debt overhang and the zero lower bound on the nominal interest rate. Our findings imply that spending multipliers were likely much larger than average during the Great Recession.
    Keywords: government spending multipliers, drivers, private debt
    JEL: C32 E32 E62 N12
    Date: 2015–02
  13. By: Bijie Jia; Hyeongwoo Kim
    Abstract: This paper studies the dynamic effects of the fiscal policy shock on private activity using an array of vector autoregressive models for the post-war US data. We are particularly interested in the role of consumer sentiment in the transmission of the government spending shock. Our major findings are as follows. Private consumption and investment fail to rise persistently in response to positive spending shocks, while they exhibit persistent and significant increases when the sentiment shock occurs. Employment and real wages in the private sector also respond significantly positively only to the sentiment shock. Consumer sentiment responds negatively to a positive fiscal shock, resulting in subsequent decreases in private activity. That is, our empirical findings imply that the government spending shock generates consumer pessimism, which then weakens the effectiveness of the fiscal policy.
    Keywords: Government Spending; Consumer Sentiment; Private Activity; Sentiment Channel; Vector Autoregressive; Expectational VAR
    JEL: E32 E62
    Date: 2015–03
  14. By: Kloudová Dana (University of Economics, Prague)
    Abstract: This paper deals with an estimation of output gap and potential output for Russian´s economy. Three methods of estimation have been used for estimating these two unobservable variables: Hodrick-Prescott filter, production function and SVAR model. All methods of estimation showed very similar course, although an obtained values were not identical. Then obtained values of the output gap were used to analyse the ability of output gap to forecast inflation. Two simple gap models were used for this purpose. The results showed that output gap could be used as useful indicator if inflation, according to all methods of estimation output gap.
    Keywords: output gap, HP filter, SVAR model, production function, Kalman filter, inflation
    JEL: C53 E31 E32
    Date: 2014–07
  15. By: Koji Nakamura (Bank of Japan); Yuichiro Ito (Bank of Japan)
    Abstract: This note explains the "Financial Activity Indexes (FAIXs)," a set of indicators developed by Bank of Japan staff which are used to detect financial imbalances.
    Keywords: Financial imbalances; bubble; early warning indicator; financial crisis
    JEL: E44 G01
    Date: 2015–03–19
  16. By: Hossein Asgharian (Lund University); Charlotte Christiansen (Aarhus University and CREATES); Ai Jun Hou (Stockholm University)
    Abstract: In this paper we show that the long-run stock and bond volatility and the long-run stock-bond correlation depend on macroeconomic uncertainty. We use the mixed data sampling (MIDAS) econometric approach. The findings are in accordance with the flight-to-quality phenomenon when macroeconomic uncertainty is high.
    Keywords: DCC-MIDAS model, GARCH-MIDAS model, Macroeconomic uncertainty index, Stock-bond correlation, Stock volatility, Bond volatility
    JEL: C32 C58 E32 E44 G11 G12
    Date: 2015–03–23
  17. By: Lena Dräger (Universität Hamburg (University of Hamburg)); Christian R. Proaño (The New School for Social Research)
    Abstract: Against the background of the recent housing boom and bust in countries such as Spain and Ireland, we investigate in this paper the macroeconomic consequences of cross-border banking in monetary unions such as the euro area. For this purpose, we incorporate in an otherwise standard two-region monetary union DSGE model a banking sector module along the lines of Gerali et al. (2010), accounting for borrowing constraints of entrepreneurs and an internal constraint on the bank’s leverage ratio. We illustrate in particular how different lending standards within the monetary union can translate into destabilizing spill-over effects between the regions, which can in turn result in a higher macroeconomic volatility. This mechanism is modelled by letting the loan-to-value (LTV) ratio that banks demand of entrepreneurs depend on either regional productivity shocks or on the productivity shock from one dominating region. Thereby, we demonstrate a channel through which the financial sector may have exacerbated the emergence of macroeconomic imbalances within the euro area. Additionally, we show the effects of a monetary policy rule augmented by the loan rate spread as in Cúrdia and Woodford (2010) in a two-country monetary union context.
    Keywords: Cross-border banking, euro area, monetary unions, DSGE
    JEL: F41 F34 E52
    Date: 2015–03
  18. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus, via Mersin 10, Turkey); Rangan Gupta (Department of Economics, University of Pretoria); Renee van Eyden (Department of Economics, University of Pretoria); Kirsten Thompson (Department of Economics, University of Pretoria); Anandamayee Majumdar (Center for Advanced Statistics and Econometrics, Soochow University, Suzhou, China)
    Abstract: In this paper we test the forecasting ability of three estimated financial conditions indices (FCIs) with respect to key macroeconomic variables of output growth, inflation and interest rates. We do this by forecasting the aforementioned macroeconomic variables based on the information contained in the three alternative FCIs using a Bayesian VAR (BVAR), nonlinear logistic vector smooth transition autoregression (VSTAR) and nonparametric (NP) and semi-parametric (SP) regressions, and compare the results with the standard benchmarks of random-walk, univariate autoregressive and classical VAR models. The three FCIs are constructed using rolling-window principal component analysis (PCA), dynamic model averaging (DMA) in the context of a time-varying parameter factor-augmented vector autoregressive (TVP-FAVAR) model, and a time-varying parameter vector autoregressive (TVP-VAR) model with constant factor loadings. Our results suggest that the VSTAR model performs best in the case of forecasting manufacturing production and inflation, while a SP specification proves to be the best for forecasting the interest rate. More importantly, statistics testing for significant differences in forecast errors across models corroborate the finding of superior predictive ability of the nonlinear models.
    Keywords: Financial conditions index, dynamic model averaging, nonlinear logistic smooth transition vector autoregressive model
    JEL: C32 G01 E44 E32
    Date: 2015–03
  19. By: Rongrong Sun (University of Nottingham Ningbo China and Hong Kong Institute for Monetary Research)
    Abstract: This paper models the PBC's operating procedures in a two-stage vector autoregression framework. We decompose changes in policy variables into exogenous and endogenous components in order to find a "clean" monetary policy indicator whose changes are mainly policy induced. Our main findings are twofold. First, the PBC¡¦s procedures appear to have changed over time. Second, its operating procedures are neither pure interest rate targeting nor pure reserves targeting, but a mixture of the two. There are a variety of indicators that appear to contain information about the monetary policy stance. It is therefore preferable to use a composite measure to gauge the stance of Chinese monetary policy. We construct a new composite indicator of the overall policy stance, consistent with our model. A comparison with existing indicators suggests that the composite indices, rather than individual indicators, perform better in measuring the stance of Chinese monetary policy.
    Keywords: Monetary Policy, VAR, Operating Procedures, Exogenous (Endogenous) Components
    JEL: E52 E58
    Date: 2015–03
  20. By: Semmler, Willi; Proaño, Christian R.
    Abstract: The recent financial and sovereign debt crises around the world have sparked a growing literature on models and empirical estimates of defaultable debt. Frequently households and firms come under default threat, local governments can default, and recently sovereign default threats were eminent for Greece and Spain 2012-13. Moreover, Argentina experienced an actual default in 2001. What causes sovereign default risk, and what are the escape routes from default risk? Previous studies such as Arellano (2008), Roch and Uhlig (2013) and Arellano et al. (2014) have provided theoretical models to explore the main dynamics of sovereign defaults. These models can be characterized as threshold models in which there is a convergence toward a good no-default equilibrium below the threshold and a default equilibrium above the threshold. However, in these models aggregate output is exogenous, so that important macroeconomic feedback effects are not taken into account. In this paper, we 1) propose alternative model variants suitable for certain types of countries in the EU where aggregate output is endogenously determined and where financial stress plays a key role, 2) show how these model variants can be solved through the Nonlinear Model Predictive Control numerical technique, and 3) present some empirical evidence on the nonlinear dynamics of output, sovereign debt and financial stress in some euro area and other industrialized countries.
    Keywords: sovereign default risk,financial stress,macroeconomic dynamics,euro crisis
    JEL: E44 E62 H63
    Date: 2015
  21. By: Maximo Camacho (Universidad de Murcia); Jaime Martinez-Martin (Banco de España)
    Abstract: We propose a Markov-switching dynamic factor model to construct an index of global business cycle conditions, for performing short-term forecasts of quarterly world GDP growth in real time and computing real-time business cycle probabilities. To overcome the real-time forecasting challenges, the model takes into account mixed frequencies, asynchronous data publication and leading indicators. Our pseudo real-time results show that this approach provides reliable and timely inferences of quarterly world growth and of the state of the world business cycle on a monthly basis.
    Keywords: real-time forecasting, world economic indicators, business cycles, non-linear dynamic factor models
    JEL: E32 C22 E27
    Date: 2015–03
  22. By: Azariadis, Costas (Federal Reserve Bank of St. Louis); Kaas, Leo (University of Konstanz); Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing constraints, preventing an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation which is a forward-looking variable. We argue that self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated sunspot shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity and output. We show that these sunspot shocks are quantitatively important, accounting for around half of output volatility.
    Keywords: Unsecured firm credit; Credit cycles; Sunspots
    JEL: D92 E32
    Date: 2015–03–20
  23. By: Jonas Dovern; Nils Jannsen
    Abstract: Using real-time data, we analyze how the systematic expectation errors of professional forecasters in 19 advanced economies depend on the state of the business cycle. Our results indicate that the general result that forecasters systematically overestimate output growth (across all countries) masks considerable differences across different business-cycle states. We show that forecasts for recessions are subject to a large negative systematic forecast error (forecasters overestimate growth), while forecasts for recoveries are subject to a positive systematic forecast error. Forecasts made for expansions have, if anything, a small systematic forecast error for large forecast horizons. When we link information about the business-cycle state in the target year with quarterly information about its state in the forecasting period, we find that forecasters realize business-cycle turning points somewhat late. Using cross-country evidence, we demonstrate that the positive relationship between a change in trend growth rates and forecast bias, as suggested in the literature, breaks down when only focusing on forecasts made for expansions
    Keywords: Macroeconomic expectations, forecasting, forecast bias, survey data
    JEL: C5 E2 E3
    Date: 2015–02
  24. By: Costas Azariadis (Washington University in St. Louis and Federal Reserve Bank of St. Louis, USA); Leo Kaas (Department of Economics, University of Konstanz, Germany); Yi Wen (Federal Reserve Bank of St. Louis and Tsinghua University)
    Abstract: In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing constraints, preventing an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation which is a forward-looking variable. We argue that self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated sunspot shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity and output. We show that these sunspot shocks are quantitatively important, accounting for around half of output volatility.
    Keywords: Unsecured firm credit; Credit cycles; Sunspots ∗
    JEL: D92 E32
    Date: 2015–03–23
  25. By: Metiu, Norbert; Hilberg, Björn; Grill, Michael
    Abstract: We investigate whether frictions in US financial markets amplify the international propagation of US financial shocks. The dynamics of the US economy is modeled jointly with global macroeconomic and financial variables using a threshold vector autoregression that allows us to capture regime-dependent dynamics conditional on the tightness of US credit market conditions, measured by the excess bond premium on US corporate bonds. The US economy switches from a regime of unconstrained access to credit to one characterized by tight credit whenever the bond risk premium exceeds a critical threshold. US financial shocks have an insignificant effect on the global economy when borrowers have unconstrained access to credit. On the contrary, US financial shocks give rise to a worldwide economic contraction in the tight credit regime. Moreover, US financial shocks are a relatively more important driver of US and global business cycles in times of tight credit.
    Keywords: Financial frictions,Financial shocks,Nonlinear dynamics,Spillover
    JEL: C32 C34 E32 G01 F44
    Date: 2015
  26. By: Topal, Pinar
    Abstract: This paper investigates whether a fiscal stimulus implies a different impact for flexible and rigid labour markets. The analysis is done for 11 advanced OECD economies. Using quarterly data from 1999 to 2013, I estimate a panel threshold structural VAR model in which regime switches are determined by OECD's employment protection legislation index. My empirical results indicate significant differences between rigid and flexible labour markets regarding the impact of the fiscal stimulus on output and unemployment. While the impulse response of real GDP to a government spending shock is positive and more effective in flexible labour markets, it has less impact in the rigid ones. Moreover, it is found that a fiscal stimulus leads to higher overall unemployment in highly regulated countries.
    Keywords: fiscal policy,labour economics,labour market policies,panel VAR,non-linear VAR,impulse response analysis
    JEL: E62 H30 J01 J08
    Date: 2015
  27. By: Stan du Plessis, Gideon du Rand & Kevin Kotzé
    Abstract: Measures of core inflation convey critical information about an economy. They have a direct effect on the policy-making process, particularly in inflation-targeting countries, and are utilized in forecasting and modelling exercises. In South a Africa the prices indices on which inflation is based have been subject to important structural breaks following changes to the underlying basket of goods and the methodology for constructing price indices. This paper seeks to identify a consistent measure of core inflation for South Africa using trimmed-means estimates, measures that exclude changes in food and energy prices, dynamic factor models and wavelet decompositions. After considering the forecasting ability of these measures, which provide an indication of expected second-round inflationary effects, traditional in-sample criteria were used for further comparative purposes. The results suggest that wavelet decompositions provided a useful measure of this critical variable.
    Keywords: wavelets, trimmed means, dynamic factor mdoels, forecasting, core inflation
    JEL: C43 E31 F31 E52
    Date: 2015
  28. By: Nicar, Stephen
    Abstract: I estimate the effect of U.S. government spending and tax shocks on Canada, Japan, and the U.K. for the period 1974 through 2007. Spending and tax shocks are identified using sign restrictions on the impulse responses from a vector autoregression (VAR). I find that while spillover effects of expansionary fiscal shocks are not uniform in direction or magnitude across countries, for Canada and Japan they result in economically significant GDP increases over some portion of the response horizon. For all three countries, government spending shocks generally have larger effects than net tax shocks. Altogether, the results support the idea that some countries may benefit significantly from expansionary U.S. fiscal policy.
    Keywords: Fiscal policy, International Transmission, Spillovers, VAR models, Sign Restriction
    JEL: C32 E62 F42
    Date: 2014–08
  29. By: Koji Akimoto (Kurume University in Japan)
    Abstract: The purpose of this paper is to study a fundamental cause of the economic crisis which suffers the current capitalism economy. The basic approach we adopt is as follows.Firstly, we show that the capitalism economy cannot largely deviate from the balance which is defined by natural economy. Our attentions are focused on the balance between the real economic sector which produces GDP and the monetary sector which invests capital to the production of GDP. For the balance to be kept, there exists a rigorous range of the interest rate which the monetary sector can require from the real economic sector. The fundamental cause of economic crisis is the large deviation from this balance. Secondly, the capitalism economy is constructed by the economic agents who necessary accomplish their decision makings. Therefore, we construct our model by macro- economic game. Players of the game are the agents who are selected by the real economic sector and the monetary sector. Thirdly, we show that the deviation from the solution of the game is considered as the one from natural economy. Therefore, we conclude that the large deviation from the solution of the game is a fundamental cause of economic crisis.The game is defined by the macro-economic differential game with infinite horizon. In the usual cases, the solution of the game is defined by the stable steady point, or an equilibrium. However, our game has no stable steady point. Therefore, it is shown that the aid of financial policy is necessary for the game to have its solution. The aid is defined by controlling the distribution rate of GDP to the monetary sector. The financial policy is defined as the policy rule. This distribution rate has the rigorous restriction for the game to have its solution. It is shown that the solution of the game has the character of natural economy. The policy rule plays an important role to keep the balance of the economy and hence to prevent the economy from deviate from natural economy. In the final section, we investigate the actual transitions of distribution rate in USA, Euro area and Japan and analyze the fundamental cause of financial crisis.
    Keywords: Balance of real economic and monetary sector, natural distribution rate to monetary sector, deviation from natural economy financial policy rule, differential game
    JEL: E00 E10 E60
    Date: 2014–10
  30. By: Antonio Acconcia (Università di Napoli Federico II and CSEF); Giancarlo Corsetti (Cambridge University and CEPR.); Saverio Simonelli (University of Naples "Federico II" and CSEF)
    Abstract: Exploiting three earthquakes in Italy as quasi-experiments, we analyze the response of homeowners’ consumption to transfers targeted to finance housing repair and reconstruction. To the extent that funds are made available up-front, these transfers are akin to loans, mainly affecting the liquidity of households’ wealth. We show that these transfers have little effect over a multi-year horizon—they are not a windfall. Yet, access to reconstruction transfers has a strong and significant effect on non-durable consumption on impact, especially for households with a low level of liquid wealth and bank debt. In contrast, we find no significant consumption change in response to the in-kind equivalent of cash transfers. Our study contributes to the recent literature on the dynamics of the consumption demand by the wealthy handto- mouth, providing micro-evidence in line with the main predictions of the theory.
    Keywords: Consumption, Liquidity, Fiscal transfer, Quasi-experiment
    JEL: E21 E62
    Date: 2015–03–25
  31. By: Jan Bruha; Jiri Polansky
    Abstract: In this paper, we analyse the dynamics of the housing sector over business cycles. First, we provide an empirical analysis of the relationships between housing sector data and the main macroeconomic variables both on Czech data and on a sample of advanced economies. We document that in most countries the housing sector co-moves with the rest of the economy. In the past, the Czech housing market showed temporary episodes during which the housing sector was seemingly disconnected, but since 2005 the housing sector has become more cyclical. Second, we develop a cascade of increasingly complex DSGE models to assess the relative merits of each additional mechanism. Contrary to the popular framework with collateral constraints, we concentrate on the housing sector as an additional production sector via the standard supply and demand mechanisms. Our results confirm that these standard mechanisms are sufficient to replicate the observed comovements of housing market variables.
    Keywords: Business cycles, DSGE, housing sector
    JEL: E32 R21 R31
    Date: 2014–12
  32. By: Kalu E. Uma (Department of Economics and Development Studies, Federal University, Ndufu-Alike, Ikwo, Ebonyi State); Benson M. Ogbonna (Department of Economics, Abia State University, Uturu, Abia State); Paul Obidike (Department of Accountancy, Management & Entrepreneurial Studies, Federal University Ndufu Alike Ikwo)
    Abstract: The paper highlights monetary policy transmission mechanism in Nigeria focusing on empirical studies and happenings in the country that retarded the efficiency of the Central Bank of Nigeria over the years in the pursuant of effective transmission mechanism. The empirical reviews from studies show that interest rate, credit channels and exchange rate are among the channels of monetary policy transmission to the economy. It also highlights some of the problems that imposed a serious debility to effective transmission in Nigeria. The authors made some suggestions for improvement, among which includes: the Central Bank must persevere legally, morally and otherwise to make the economy a cashless one. The low patronage of banking services by many Nigerians is a stumbling block in effective control of money supply and has contributed to incessant inflation in the country; any form of disguise or indirect interference by the government has to be put to an end; and the instruments of monetary policy such as interest rate and exchange that are known to be effective in some sectors should be properly managed and monitored.
    Keywords: Mechanism, monetary, overview, policy, transmission
    JEL: E52
    Date: 2014–10
  33. By: Barbi, Fernando C.
    Abstract: Brazilian economy has experienced a major boost in leverage in the first decade of 2000 as a result of a set factors ranging from macroeconomic stability to the abundant liquidity in international financial markets before 2008 and a set of deliberate decisions taken by President Lula's to expand credit, boost consumption and gain political support from the lower social strata. This paper analyzes the determinants of credit using an extensive bank level panel dataset. As relevant conclusions to our investigation we verify that: credit expansion relied on the reduction of the monetary policy rate, international financial markets are an important source of funds, payroll-guaranteed credit and investment grade status affected positively credit supply. We were not able to confirm the importance of financial inclusion efforts. The importance of financial sector sanity indicators of credit conditions cannot be underestimated. These results raise questions over the sustainability of this expansion process and financial stability in the future.
    Keywords: bank credit, public credit, emerging markets, financial stability
    JEL: E44 G18 G21 H21
    Date: 2014–04–08
  34. By: Owen M. Zidar
    Abstract: This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER's TAXSIM. I aggregate each tax change by income group and state. Variation in the income distribution across U.S. states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10% on employment growth is small.
    JEL: E32 E62 H2 H20 H31 N12
    Date: 2015–03
  35. By: Jarko Fidrmuc (Zeppelin University Friedrichshafen); Iikka Korhonen (Bank of Finland Institute for Economies in Transition and Hong Kong Institute for Monetary Research)
    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
  36. By: Ekrame BOUBTANE (Centre d'Etudes et de Recherches sur le Développement International); Dramane COULIBALY; Hippolyte D'ALBIS
    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 flow 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 flow 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: J61 F22 E20
    Date: 2015–03
  37. By: Mariacristina De Nardi; Fang Yang
    Abstract: This paper provides two main contributions. First, it provides a new theory of wealth inequality that merges two forces generating inequality: bequests motives and inheritance of ability of across generations; and an earnings process that allows for more earnings risk for the richest. Second, it uses a calibrated framework to study the effects of changing estate taxation on inequality, aggregate capital accumulation and output, the economic advantage of being born to a given parental background, and welfare. Our calibrated model generates realistically skewed distributions for wealth, earnings, and bequests, and implies that parental background is a crucial determinant of one’s expected lifetime utility. We find that increasing the estate tax rate would significantly reduce wealth concentration in the hands of the richest few, and would reduce the economic advantage of being born to a super-rich family, but also would lower aggregate capital and output. Lastly, it would also generate a significant welfare gain from the ex-ante standpoint of a newborn under the veil of ignorance.
    JEL: D1 D14 D31 E21 E6 H2
    Date: 2015–03
  38. By: Gabor Pinter (Bank of England; Centre for Macroeconomics (CFM))
    Abstract: Why are house prices -80% correlated with job losses over the UK business cycle? My paper studies this striking fact together with the strong comovements between house prices and labour market variables in general. First, a regional panel is estimated to quantify the impact of house prices on the unemployment, job finding and job separation rates, whereby rejection rates of planning applications are used as instruments to find exogenous variation in house prices. Second, an orthogonalised VAR is used to estimate the aggregate impact of house price shocks. Both methods confirm the large impact of house price shocks on labour market variables and credit supply. To understand the mechanism, a general equilibrium model with collateral constraints, endogenous job separation and housing shocks is confronted with macroeconomic data via Bayesian methods. The results suggest that shocks to house prices (i) explain about 10% of output fluctuations and about 20% of fluctuations in corporate credit, unemployment and job separation rates via the collateral channel over the forecast horizon, and (ii) were a major cause in triggering the 1990 and 2008 recessions in the UK.
    Keywords: business cycle, house prices, financial frictions, labour market frictions
    Date: 2015–03
  39. By: Sergio Cesaratto (University of Siena)
    Abstract: In questo breve saggio esaminiamo l’importanza attribuita da Friedrich List allo Stato nazionale nell’emancipazione economica di un paese a fronte della visione cosmopolita del capitalismo e degli interessi dei lavoratori che Marx gli contrappone. Rifacendoci a uno spunto di Massimo Pivetti sosteniamo che lo Stato nazionale sia lo spazio più prossimo in cui una classe lavoratrice nazionale può legittimamente sperare di modificare a proprio vantaggio i rapporti di forza. Nell'aver sostenuto lo svuotamento della sovranità nazionale in nome di un europeismo tanto ingenuo quanto superficiale, la sinistra ha contribuito a far mancare a sé stessa e ai propri ceti di riferimento il terreno su cui espletare efficacemente l’azione politica contribuendo in tal modo allo sbandamento democratico del paese.
    Keywords: Socialist Marxian Sraffian, Central banks and their policies, Current account adjustment, International lending and debt problems, Macroeconomics issues of monetary unions.
    JEL: B51 E58 F32 F34
    Date: 2015–03
  40. By: Mark Joy; Marek Rusnak; Katerina Smidkova; Borek Vasicek
    Abstract: We identify a set of "rules of thumb" that characterise economic, financial and structural conditions preceding the onset of banking and currency crises in 36 advanced economies over 1970–2010. We use the Classification and Regression Tree methodology (CART) and its Random Forest (RF) extension, which permits the detection of key variables driving binary crisis outcomes, allows for interactions among key variables and determines critical tipping points. We distinguish between basic country conditions, country structural characteristics and international developments. We find that crises are more varied than they are similar. For banking crises we find that low net interest rate spreads in the banking sector and a shallow or inverted yield curve are their most important forerunners in the short term, whereas in the longer term it is high house price inflation. For currency crises, high domestic short-term rates coupled with overvalued exchange rates are the most powerful short-term predictors. We find that both country structural characteristics and international developments are relevant banking crisis predictors. Currency crises, however, seem to be driven more by country idiosyncratic, short-term developments. We find that some variables, such as the domestic credit gap, provide important unconditional signals, but it is difficult to use them as conditional signals and, more importantly, to find relevant threshold values.
    Keywords: Banking crises, binary classification tree, currency crises, early warning indicators
    JEL: C14 E44 F37 F47 G01
    Date: 2014–12
  41. By: Hebous, Shafik; Zimmermann, Tom
    Abstract: A number of recent studies regress a "narratively" identified measure of a macroeconomic shock directly on an outcome variable. In this note, we argue that this approach can be viewed as the reduced-form regression of an instrumental variable approach in which the narrative time series is used as an instrument for an endogenous series of interest. This motivates evaluating the validity of narrative measures through the lens of a randomized experiment. We apply our framework to four recently constructed narrative measures of tax shocks by Romer and Romer (2010), Cloyne (2013), and Mertens and Ravn (2012). All of them turn out to be weak instruments for observable measures of taxes. After correcting for weak instruments, we find that using any of the considered narrative tax measures as an instrument for cyclically adjusted tax revenues yields tax multiplier estimates that are indistinguishable from zero. We conclude that the literature currently understates the uncertainty associated with quantifying the tax multiplier.
    Keywords: Narrative Approach,Fiscal Stabilization,Tax Multiplier,Weak Instruments
    JEL: E62 H30 E69 C54
    Date: 2015
  42. By: Merike Kukk (Tallinn University of Technology)
    Abstract: This paper investigates the impact of household debt on the consumption during the last reces-sion. The total financial debt has been raising markedly during the past three decades in ad-vanced economies and the discussion about economic implications of household debt has re-ceived high attention recently. Although several theoretical studies rely on the amplification effect of household debt when explaining the recent macroeconomic developments, there are only very few studies utilising micro data to confirm the underlying assumptions. Considering the increasing usage of household debt in macroeconomic models, there is a strong need for microeconomic evidence on the behaviour of indebted households. The current paper contrib-utes to filling the gap. This paper examines the implications of indebtedness in Estonia, a country which experienced the most vigorous increase in household debt burden among European countries during 2000-2007. The paper uses a database of a commercial bank that entails detailed information about financial liabilities and assets of individuals in a quarterly interval. The database is unique as it includes frequent financial information of ca 100,000 individuals for 7 years, 2005-2011 and enables to compare the consumption pattern of individuals in different periods of the business cycle. The paper estimates a conventional consumption model in which the debt variable is incorpo-rated. The indebtedness is measured by two variables, by debt-to-yearly income ratio and by yearly debt service ratio. Household indebtedness, either measured as debt-to-income ratio or debt service ratio, show significant negative impact on their consumption change over the whole period of 2006-2011. However, debt-to-income ratio expresses slightly decreasing neg-ative impact over the business cycle, the negative effect during the recession is no stronger than during the pre-crises period. On the other hand, the debt service ratio induces different consumption response during dif-ferent business cycle period. There is significant negative impact of debt service ratio on con-sumption during the recession period, i.e. in 2008-2009. Before and after the recession the negative impact is weaker. Hence amplifying effect of debt service ratio is detected for the recession. The upshot of the results is that it is not debt-to-income ratio but debt service ratio that cap-tures the amplification effect of indebtedness on consumption during the recession. In the literature the importance of the measure of debt-to-asset ratio is emphasized. The results of the paper suggest that debt service ratio contains interesting information about the link between indebtedness and consumption.
    Keywords: household indebtedness, debt repayment burden, debt-to-income ratio, amplification effect, recession
    JEL: E21 D14 E32
    Date: 2014–05
  43. By: Emilia Klepczarek (Uniwersytet £odzki)
    Abstract: The debate on the scope of bank information disclosures seems to be an essential issue, especially after the 2007-2010 financial crisis. The adequate number of data provided to the public domain is the condition of transparency of the banking sector, which should assure the optimization of market participants’ decisions. There is also a tendency to unify the global accountancy standards and they are expected to ensure the same scope of disclosed information for the global financial market. The aim of the study is to check if the accounting standards required by the European countries influence the number of risk disclosures and if more stable banking sectors tend to report wider scope of data. Finding out the nature of disclosures’ determinants is an important aspect in terms of working out the procedures increasing the transparency and stability of the financial markets.
    Keywords: risk disclosures, financial statements, accounting standards, GAAP, IFRS
    JEL: E44 E52 E58 F33 G18 G21 G28
    Date: 2015–03
  44. By: Josh R. Stillwagon (Department of Economics, Trinity College)
    Abstract: This paper examines the determinants of the breakeven inflation rate (BEI) on 5 and 10 year US Treasury inflation protected securities (TIPS). The estimation is conducted using a bias-corrected, automated model selection algorithm with indicator saturation and non-linearities. The vast majority of the variation in BEI, over 70%, is attributable not to changes in inflation expectations or liquidity itself but rather a changing preference for liquidity driven by financial market uncertainty. The degree of financial panic is proxied for with the CBOE Volatility Index (VIX). The effect of the VIX on BEI is significant at the 0.1% level, holds even after controlling for inflation expectations and liquidity, and is robust to numerous specifications. Further, a rising VIX is associated with increases in the liquidity premium on TIPS at an increasing rate. Significant effects can also be found under certain specifications for inflation expectations, inflation forecast dispersion, liquidity, and an interaction term between the VIX and liquidity.
    Keywords: TIPS, breakeven inflation, VIX, liquidity premia, inflation expectations, automated model selection, non-linearities
    JEL: E43 G12 G01 C22 C52
    Date: 2015–02
  45. By: Frédéric Dufourt (Aix-Marseille UniversitÈ (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS and Institut Universitaire de France); Kazuo Nishimura (RIEB, Kobe University & KIER, Kyoto University); Alain Venditti (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC)
    Abstract: We analyze sunspot-driven fluctuations in the standard two-sector RBC model with moderate increasing returns to scale and generalized no-income-effect preferences à la Greenwood, Hercovitz and Huffman [13]. We provide a detailed theoretical analysis enabling us to derive relevant bifurcation loci and to characterize the steady-state local stability properties as a function of various structural parameters. We show that local indeterminacy occurs through flip and Hopf bifurcations for a large set of values for the elasticity of intertemporal substitution in consumption, provided that the labor supply is sufficiently inelastic. Finally, we provide a detailed quantitative analysis of the model. Computing, on a quarterly basis, a new set of empirical moments related to two broadly defined consumption and investment sectors, we are able to identify, among the set of admissible calibrations consistent with sunspot equilibria, the ones that provide the best fit of the data. The model properly calibrated solves several empirical puzzles traditionally associated with two-sector RBC models.
    Keywords: Indeterminacy, sunspots, two-sector model, sector-specific externalities, real business cycles
    JEL: C62 E32 O41
    Date: 2015–03
    Abstract: ABSTRACTThe paper highlighted monetary policy transmission mechanism in Nigeria focusing on empirical studies and happenings in the country that retarded the efficiency of the Central Bank of Nigeria over the years in the pursuant of effective transmission mechanism. The empirical reviews from studies show that interest rate, credit channels and exchange rate are among the channels of monetary policy transmission to the economy. It also highlighted some of the problems that imposed a serious debility to effective transmission in Nigeria. The authors made some suggestions for improvement, among which include: the Central Bank must persevere legally, morally and otherwise to make the economy a cashless one. The low patronage of banking services by many Nigerians is a stumbling block in effective control of money supply which has contributed to incessant inflation in the country; any form of disguise or indirect interference by the government has to be put to an end; and the instruments of monetary policy such as interest rate and exchange that are known to be effective in some sectors should be properly managed and monitored.
    Date: 2014–10
  47. By: Kyriacou, Andreas; Muinelo-Gallo, Leonel; Roca-Sagalés, Oriol
    Abstract: This article analyses the redistributive efficiency of public spending and taxation in a panel of both advanced and developing economies during the last three decades (1984-2012). In order to explore how redistribution is achieved through fiscal policies, a two-stage approach is applied. First, we evaluate the redistributive efficiency of public spending and taxes by using Data Envelopment Analysis (DEA) and obtain considerable variation in redistributive efficiency scores across countries. Second, we use panel truncated and OLS regression analysis to identify the determinants of these differences and reveal the crucial role of economic development, government quality and demographic factors.
    Keywords: government efficiency, redistribution, fiscal policy, data envelopment analysis, panel data
    JEL: E02 E62 H11 H53
    Date: 2015–03–27
  48. By: Joan Paredes (European Central Bank); Javier J. Pérez (Banco de España); Gabriel Perez-Quirós (Banco de España, AIREF and CEPR)
    Abstract: Should rational agents take into consideration government policy announcements? A skilled agent (an econometrician) could set up a model to combine the following two pieces of information in order to anticipate the future course of fiscal policy in real-time: (i) the ex-ante path of policy as published/announced by the government; (ii) incoming, observed data on the actual degree of implementation of ongoing plans. We formulate and estimate empirical models for a number of EU countries (Germany, France, Italy and Spain) to show that government (consumption) targets convey useful information about ex-post policy developments when policy changes significantly (even if past credibility is low) and when there is limited information about the implementation of plans (e.g. at the beginning of a fiscal year). In addition, our models are instrumental in unveiling the current course of policy in real time. Our approach complements a well-established branch of the literature that finds politically motivated biases in policy targets.
    Keywords: policy credibility, fiscal policy, forecasting
    JEL: C54 H30 H68 E61 E62
    Date: 2015–03
  49. By: Hamdi, Helmi; Sbia, Rashid; said, ali
    Abstract: The broad aim of this paper is to estimate the money demand function for the case of six Gulf Cooperation Council countries. By applying panel cointegration tests, the empirical results reveal strong evidence of cointegration between the variables of the model for individual countries as well as for the panel. Moreover, the results support the existence of a stable money function in the long-run estimation. The Granger non-causality test due to Toda and Yamamoto (1995) procedure shows evidence of a bidirectional causal relationship between money demand and income for panel estimation. At an individual level, the results change from one country to another one.
    Keywords: Money Demand; GCC, Panel Cointegration; Toda-Yamamoto
    JEL: C22 C23 E41 E42 E52
    Date: 2014
  50. By: Stefano Fenoaltea
    Abstract: In post-Unification Italy the cyclical movements of the economy largely reflected those in the production of durable goods. The engineering industry has been seen as one that transformed metal into machines: its metal consumption suggests that investment in machinery followed the Kuznets-cycle long swing, as construction did, that domestic production ever dominated the domestic market, and that changes in protection didn’t matter. New, disaggregated timeseries estimates force a radical revision of these long-held views. Far more metal was turned into (ever-protected) hardware than into machines: the long cycle in aggregate “engineering†was not so much parallel to, as simply part of, the cycle in construction. Investment in machinery grew altogether more steadily than investment in infrastructure, with more numerous but far more modest cycles (and a heretofore unrecognized peak in 1907). All the extant interpretations of Italy’s industrial progress in the period at hand turn on the nonexistent long swing in industrial investment, and they all collapse together. The domestic production of machinery, initially very small, reacted strongly to increases in net protection: the conventional view of the impact of the tariff is also to be jettisoned.
    Keywords: method, engineering, Italy
    JEL: E01 N13 N63
    Date: 2014
  51. By: Adama Diaw (GERSEG, Université Gaston Berger, Sénégal); Mamadou Diop (Chercheur associé au CREM CNRS, UMR 6211 (Université de Rennes 1), France)
    Abstract: This article is an extension of former empirical studies on fiscal policy and economic stabilization in the UEMOA area (DIOP M. and DIAW A., 2014). It presents the results of the first decade of macroeconomic policies following the devaluation of the CFA franc in 1994 and the adoption of the convergence pact by the UEMOA countries in 1999. The goal is to assess through national macroeconomic accounts and public finances the contribution of different sectors to the economic growth of this area, mainly the public and the commercial sectors, and then measure the results of the convergence pact. This paper states that the devaluation did not have the expected effects on the Union countries because it ended up with a negative contribution of the commercial sector to the economic growth from 1994 to 2003 except in the Ivory Coasts. This situation has its origins in the managerial policy of the public sector. The fiscal measures defined in the Convergence Pact caused pro-cyclical fiscal policies that led to a malfunction of the automatic stabilizers despite the perfect management of the public debt evolution.
    Keywords: dévaluation, Franc CFA, Pacte de convergence, UEMOA, Croissance
    JEL: E6 F4
    Date: 2015–02
  52. By: Pathan, Rubina; Masih, Mansur
    Abstract: The purpose of this paper is to study the direction of causality between the stock market and macroeconomic variables. India is taken as a case study. Although, there have been many studies which attempted to find out the relationship between Indian stock market and economic variables, this paper is a fresh attempt to investigate the cointegrating relationship and Granger-causality between the variables. The paper considers the monthly data of major macroeconomic variables which are interest rate, money supply, wholesale price index, and exchange rate and also an important variable for any stock market and economy which is Foreign Institutional investment. Our findings provide evidence of a stable long run equilibrium relationship between the stock market and economic growth in India. The study reconfirms the traditional belief that the real economic variables continue to affect the stock market in the post-reform era in India and also highlights the insignificance of certain variables with respect to stock market. The study also discerns the Granger-causal chain among the variables. This has an important policy implication for the national policy makers, researchers, corporate managers and regulators.
    Keywords: stock market, macrovariables, India
    JEL: C22 C58 E44
    Date: 2013–07–10
  53. By: Pastore, Francesco (University of Naples II)
    Abstract: This essay aims to discuss the conditions for a successful implementation of the European Youth Guarantee in Italy. In principle, the program should be able to affect the frictional and mismatch components of unemployment, if not the Keynesian and neoclassical ones, as also the experience of Scandinavian countries suggests. However, this requires an in-depth transformation of the entire school-to-work transition system, involving not only public employment services, but also educational and training systems. To tackle the Keynesian and neoclassical components of unemployment, instead, it is vital to rethink the European austerity and reduce the labor wedge.
    Keywords: European Youth Guarantee, European Social Model, school-to-work transition, youth unemployment, youth experience gap, Keynesian unemployment, neoclassical unemployment, mismatch and frictional unemployment, Italy
    JEL: E12 E62 H52 J13 J24
    Date: 2015–03
  54. By: Paunić, Alida
    Abstract: Balkan countries, block of Albania, Serbia, Bosnia, Bulgaria, Romania, Montenegro, Macedonia have somewhat specific path toward future economic growth . Although some of them are part of EU community ( Bulgaria Romania ) and they have experienced the highest GDP growth rate 2014/2000 , significant number of countries still wait to become member of EU and to be able to further form a bridge toward Asia, Middle East, Africa. Ways to make further progress in such a heterogeneous environment, consequences of 2008 crises and ways how to incorporate predictions in GDP reasoning are some of points that this paper tackles.
    Keywords: GDP growth, crises, cooperation,region
    JEL: E00 E1 E17 F00 G00
    Date: 2015–03–25
  55. By: Morais,Bernardo; Peydró,José-Luis; Ruiz Ortega,Claudia
    Abstract: This paper identifies the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. The paper finds that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than quantitative easing. Moreover, low foreign monetary policy rates and expansive quantitative easing increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates -- reach-for-yield -- and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign quantitative easing increases risk-taking in emerging markets more than it improves the real outcomes of firms.
    Keywords: Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Economic Stabilization
    Date: 2015–03–19
  56. By: N. Holinski; C.J.M. Kool; J. Piplack
    Abstract: Macroeconomic adjustment in the Southern countries of the euro area after the financial crisis appears well under way as external imbalances in these countries have almost disappeared. However, in this paper, we argue the underlying strctural problems persist and recovery is fragile. Both sovereign debt and external debt are approaching sustainability thresholds and indications of substantial structural reform are insufficient yet for the Southern countries. Prospects for higher growth in the near future are dim, due to lack of economic reforms, private and public debt overhang and imposed austerity programs. Moreover, the observed adjustment is strongly asymmetric and leads to more rather than less divergence. Overall, we feel the chosen approach will prove to be unsustainable and infeasible in the near future. To defend the euro and the euro area, a new approach is urgently needed.
    Keywords: macroeconomic imbalances, current account, competitiveness, economic integration, optimum currency area
    Date: 2014
  57. By: Łukasz Goczek; Bartosz Witkowski
    Abstract: The development of the card payment system allows for lowering the costs of money emission and circulation and thereby leads to significant economic gains. Yet relatively small amount of research has been dedicated to the analysis of the determinants of these developments. Therefore, the aim of the article is to seek cross-country determinants of retail card payments. The focus of was put on two econometric models. One was constructed using survey data for Poland, the second model was based on panel data from the EU countries in the years 2000-2012. Based on the results from the second model forecasts for the number of cards and the value of card transactions per person were compiled.
    Keywords: card payments, noncash transactions, retail payments
    JEL: E42 E58
    Date: 2015
  58. By: Anping Chen (School of Economics, Jinan University China); Nicolaas Groenewold (Business School, University of Western Australia)
    Abstract: The extent of inter-regional disparities is an important policy issue in China and the sources of these disparities have been subject to considerable empirical research. Yet we have relatively little empirical knowledge of the effects on the regional distribution of output of shocks to national macroeconomic variables such as GDP and investment. This is an important gap in the empirical literature since much government policy seeks to influence variables such as GDP or uses variables such as investment expenditure as a macroeconomic instrument. It is likely that national shocks will have differential regional impacts and policy-makers need to know the sign, size and timing of such effects before making policy decisions at the national level. We simulate the effects of aggregate shocks on individual provinces’ GDP within the framework of a vector autoregressive (VAR) model restricted in a manner following Lastrapes (Economics Letters, 2005). We use annual data from 1953 to 2012 to estimate the model which includes 28 of China’s provinces and simulate the effects of shocks to aggregate output and investment on provincial outputs. We find great diversity of effects across the provinces and also variability across the effects of different aggregate shocks but little evidence of a systematic influence of aggregate shocks on the distribution of their effects across the provinces.
    Date: 2014
  59. By: Ikeda,Yuki; Medvedev,Denis; Rama,Martin G.
    Abstract: The global financial crisis and its aftermath have triggered extraordinary policy responses in advanced countries. The impacts of these policy responses?from asset price bubbles to currency depreciations?have often been felt in the developing world. As tapering talk evolves into actual withdrawal of quantitative easing in the United States, and as the Euro Zone launches its own quantitative easing program, there are good reasons to be concerned about the financial stability of emerging economies. India's experience with U.S. tapering offers insights into what to expect. This paper estimates the contribution of external and domestic factors to short-term fluctuations in the value of the Indian rupee between 2004 and 2014, using a rich dynamic model that controls for a large number of exchange rate determinants. The paper finds that a global surprise factor, more than domestic vulnerabilities, was the main driver of the large rupee depreciation in summer 2013. With the surprise factor gone, further normalization of U.S. monetary policy is unlikely to have significant effects on the rupee exchange rate.
    Keywords: Economic Theory&Research,Debt Markets,Currencies and Exchange Rates,Economic Stabilization,Emerging Markets
    Date: 2015–03–23
  60. By: Aleksandra Majchrowska (Faculty of Economics and Sociology, University of Lodz); Pawel Strawinski (Faculty of Economic Sciences, University of Warsaw, Poland); Karolina Konopczak (Collegium of Economic Analysis, Warsaw School of Economics, Poland); Agnieszka Skierska (Faculty of Economic Sciences, University of Warsaw, Poland)
    Abstract: The purpose of this paper is to analyse the gender wage gap in Poland in different occupational groups. The authors aim to investigate how much of the raw differences in wages can be explained by differences in personal characteristics and in which occupational groups the unexplained part of wage gap is the highest. The authors use the individual data from employers’ statistics with detailed information about wages and personal characteristics of workers. The authors use base salaries per hour as the dependent variable. After controlling for differences in the gender composition of occupational groups the authors choose 24 occupational groups at 3-digit level and perform Oaxaca-Blinder two-component decomposition. The authors are the first to analyse the differences in gender wage gap in Poland by occupational groups. Another original contribution is that the wage gap is analysed not for the whole sample but after controlling for the segregation effect. The results indicate that firstly, the raw differences by gender in base wages per hour are smaller than the ones in average wages per hour. Secondly, after controlling for differences in the gender composition of occupational groups the raw wage gap in Poland increases from 6.7% to 10.8%. Thirdly, in most of the analysed occupational groups the differences in characteristics explain only a minor part of the wage gap. The highest share of the unexplained part was among managers and in groups in which the specific vocational skills are required.
    Keywords: Gender wage gap, Oaxaca-Blinder decomposition, occupational groups, Poland
    JEL: E44 E52 E58
    Date: 2015–03
  61. By: Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Abstract This paper analyses the impacts of the crisis on various groups in the labour market, providing a comparison across groups of EU countries and individual Central and East European new EU Member States. Particularly it reports how the crisis affected the transitions of people between different states in the labour market employment, unemployment, education and inactivity. Based on EU SILC data, a descriptive overview concerning the changes in transition rates is provided by estimating Markov transition probabilities. This is complemented by a set of probit regression results pointing towards significant changes in the various transitions triggered by the crisis. This is particularly the case for the younger age cohorts and low-educated workers.
    Keywords: labour market transitions, crisis effects, young cohorts
    JEL: E24 J23 J63
    Date: 2014–11
  62. By: Thiago Sevilhano Martinez
    Abstract: O objetivo do texto é apresentar as contribuições de diferentes setores aos desvios em relação ao centro da meta de inflação de 2000 a 2013, além de discutir implicações para o quadro recente da política monetária. As contribuições são medidas pelo Índice de Contribuição para o Desvio da Meta de Inflação (ICMI), que é uma versão aprimorada do índice apresentado em Martinez e Cerqueira (2013). O ICMI é aplicado a uma desagregação do Índice Nacional de Preços ao Consumidor Amplo (IPCA) por natureza dos produtos, em três níveis. As tendências observadas, particularmente a recente elevação da inflação de serviços, são comentadas à luz da literatura novo-keynesiana de política monetária ótima sob heterogeneidade setorial na rigidez de preços. The objective of this paper is to present the contributions of different sectors to deviations of the inflation target center from 2000 to 2013, and discuss implications for monetary policy. The contributions are measured by the Inflation Targeting deviation Contribution Index (ITCI), which is an enhanced version of the index presented in Martinez and Cerqueira (2013). ITCI is applied to a disaggregation by type of product of the National Consumer Price Index (IPCA), in three levels. The observed trends, particularly the recent rise in services inflation, are discussed in the light of the new-Keynesian literature on optimal monetary policy under sectorial heterogeneity in price rigidity.
    Date: 2015–03
  63. By: Ichraf Ouechtati (Faculty of Economic Sciences and Management of Tunis)
    Abstract: This study employs dynamic panel generalized method of moment (GMM) technique to empirically examine the role of institutions in explaining the causal relationship between macroeconomic fluctuations and financial instability for a sample of 44 emerging and developing countries over the 1996- 2010 period. In this work, Granger causality tests will be performed with panel data. Similar to Chamberlain (1984) and Holtz- Eakin and al. (1988), we test the non causality hypothesis by examining whether the coefficients of the lagged or the lagged difference of independent variables are zero, that is, (Wald test). We use, in this analysis, the method of GMM system proposed by Arellano and Bover (1995) and Blundell and Bond (1998). Their estimator augments Arellano and Bond (1991) by establishing an additional assumption, that first differences of instrumenting variables are uncorrelated with the fixed effects. It builds a system of two equations- the original equation as well as the transformed one- and is known as “system GMMâ€. As an empirical matter, the significance of the test for AR(2) in first differences is necessary in order to detect autocorrelation in levels. The validity of the additional instruments can be tested using standard Sargan/ Hansen tests of over- identifiying restrictions, or using Difference Sargan or Hansen comparisons between the first differenced GMM and system GMM results. We find a bidirectional causality going from financial instability to macroeconomic volatility. The impact of financial sector fluctuations is extremely high compared to macroeconomic fluctuations. Financial instability has an effect of 1.623% on real sector volatility, while the opposite effect is only 0.004%. Taking into account the institutional framework in the estimation of our causal relationship, we find that : (1) the insignificance of institutional interaction terms in most estimation cases can be explained by the deficiency of institutions in developing countries, (2) the market- oriented regulations reinforce the volatile effects of financial structures and macroeconomic fluctuations. However, the positive impact of financial instability on macroeconomic volatility is reduced by a high governance performance. Our results show the importance of the regulatory framework for a better financial and economic stability.
    Keywords: Macroeconomic fluctuations, financial structure, institutions
    JEL: E32 G01 K20
    Date: 2014–05
  64. By: Othman, Arshad Nuval; Masih, Mansur
    Abstract: This paper seeks to close the gap of the lack of empirical evidence surrounding the different impact of conventional interest rates on Islamic finance components – Islamic stock markets, Islamic banking and Islamic insurance (called takaful). Such evidence remains imperative in order for the Islamic finance system to formulate effective countermeasures against changes in conventional interest rates. Using Malaysia as a case in point, this paper employs time-series techniques to establish long-run and causal relationships among an Islamic stock market, an Islamic bank stock, an Islamic insurance company stock, the overnight conventional interbank money market rate and several control variables. Results suggest the distinct interaction of each Islamic finance component with conventional interest rates – the positive long-run relationship and bidirectional causality between Islamic stock markets and conventional interest rates, the negative long-run relationship and bidirectional causality between Islamic banking and conventional interest rates, and the negative long-run relationship and unidirectional causality from Islamic insurance to conventional interest rates. Policymakers should remain concerned primarily with the impact of conventional interest rates on Islamic stock markets and Islamic banking due to the negative income gap of Islamic banks which expose the Islamic finance system to higher financial risk. Thus, policymakers should incentivize Islamic banks to convert the negative income gap into a positive income gap through imposing higher capital requirements on fixed-rate nominal assets.
    Keywords: Islamic stock market, Islamic banking, Islamic insurance, interest rates, Granger-causality
    JEL: C22 C58 E44
    Date: 2014–07–10
  65. By: Rod Tyers (Business School, University of Western Australia)
    Abstract: Insights into the four-region strategic behaviour that drives global economic performance can be derived from applications of the elemental multi-region, macroeconomic simulation model introduced in this paper. It has a global general equilibrium structure that embodies bilateral linkages between represented regions via both trade and investment. Its behaviour is illustrated with an application to strategic monetary policy during the post-GFC period, which has been characterised by pessimistic expectations over prices, disposable income levels and capital returns in the US, the EU and Japan. The retention of full employment in the pessimistic regions is shown to require very considerable monetary expansions and these tend to flood the other regions with liquidity, temporarily raising their terms of trade, real consumption and investment while appreciating their real exchange rates. The results further suggest elements of coordination game structure amongst the big four economies in which equilibria are characterised by collective monetary responses, at least when subjected to pessimism shocks.
    Date: 2014
  66. By: Ashoka Mody
    Abstract: The euro areaâ??s political contract requires member nations to rely principally on their own resources when confronted with severe economic distress. Since monetary policy is the same for all, national fiscal austerity is the default response to counter national fiscal stress. Moreover, the monetary policy was itself stodgy in countering the crisis, and banking-sector problems were allowed to fester. And it was considered inappropriate to impose losses on private sector creditors. Thus, the nature of the incomplete monetary union and the self-imposed taboos led deep and persistent fiscal austerity to become the norm. As a consequence, growth was hurt, which undermined the primary objective of lowering the debt burden. To prevent a meltdown, distressed nations were given official loans to repay private creditors. But the stress and instability continued and soon it became necessary to ease the repayment terms on official loans. When even that proved insufficient, the German-inspired fiscal austerity was combined with the deep pockets of the European Central Bank. The ECBâ??s safety net for insolvent or near-insolvent banks and sovereigns, in effect, substituted for the absent fiscal union and drew the central bank into the political process.
    Date: 2015–03
  67. By: Elizabeth Caucutt (Western University Canada); Lance Lochner (University of Western Ontario); Youngmin Park (University of Western Ontario)
    Abstract: The economic and social mobility of a generation may be largely determined by the time it enters school given early developing and persistent gaps in child achievement by family income and the importance of adolescent skill levels for educational attainment and lifetime earnings. After providing new evidence of important differences in early child investments by family income, we study four leading mechanisms thought to explain these gaps: an intergenerational correlation in ability, a consumption value of investment, information frictions, and credit constraints. In order to better determine which of these mechanisms influence family investments in children, we evaluate the extent to which these mechanisms also explain other important stylized facts related to the marginal returns on investments and the effects of parental income on child investments and skills.
    Keywords: social mobility, achievement gap, family investments
    JEL: J60 I00 E24
    Date: 2015–03
  68. By: Stelios Bekiros (IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France); Rangan Gupta (Department of Economics, University of Pretoria); Alessia Paccagnini (Department of Economics, Università degli Studi di Milano - Bicocca - Milan)
    Abstract: Information on economic policy uncertainty (EPU) does matter in predicting oil returns especially when accounting for omitted nonlinearities in the relationship between these two variables via a time-varying coefficient approach. In this work, we compare the forecastability of standard, Bayesian and TVP-VAR models against the random-walk and benchmark AR models. Our results indicate that over the period 1900:1-2014:2 the time-varying VAR model with stochastic volatility outranks all alternative models.
    Keywords: Oil prices, economic policy uncertainty, forecasting
    JEL: C22 C32 C53 E60 Q41
    Date: 2015–03
  69. By: Ibrahim Turhan; Ahmet Sensoy; Erk Hacihasanoglu
    Abstract: We aim to and out whether the exchange rate (against US dollar) or the interest rate (in local currency) is a better variable in predicting the capacity utilization rate of manufacturing industry (CUR) of Turkey after the 2008 global financial crisis. In that manner, we implement dynamic mixed data sampling (MIDAS) regression model to forecast monthly changes in CUR by using daily changes in the exchange rate and the interest rate separately. The results show that exchange rate has a better forecast performance suggesting that it is a stronger determinant in shaping the manufacturing industry.
    Keywords: MIDAS, forecasting, capacity utilization rate, exchange rate, interest rate
    JEL: C53 E47 E61 F31 O40
    Date: 2015–03
  70. By: Ezra Davar
    Abstract: This paper shows that Keynes’s involuntary unemployment derived from Walras’s voluntary unemployment by means of changing of the characteristic of the aggregate supply curve (function) of labour. On the one hand, when the original aggregate supply function is a strongly increasing function, as in Walras’s approach, there might be only voluntary unemployment, and its magnitude is the difference between the available quantity of labour and the equilibrium point. At the other hand, if the supply curve of labour is a weakly increasing, which means that the supply function may has a horizontal segment then there might be involuntary unemployment if the equilibrium point locates between boundary points of the horizontal segment, and the magnitude of involuntary unemployment is the difference between the right boundary point of the horizontal segment and an equilibrium point. According to Walras’s approach also might be considered “forced unemployment” which is the result of an intervention of external forces (government, monopoly, trade unions, and so on) into the market, and therefore, it is a disequilibrium phenomenon. Finally, in reality there are many types of labour, hence a suggested comprehensive approach of employment might be a useful tool for policy making and planning of economics.
    Keywords: Walras, Keynes, Voluntary Unemployment, Involuntary Unemployment, Aggregate Supply function
    JEL: B3 C6 D5 E0
    Date: 2015–03
  71. By: Mustafa Tahir Demirsel (Selcuk University); Adem Öğüt (Selcuk University); Mehmet Mucuk (Selcuk University)
    Abstract: In developing countries adequate and necessary investment cannot be realized since their domestic savings rate is low and foreign savings rate is very low. Here FDI helps diminish domestic and foreign savings deficits. Capital account liberalization in Turkey was initiated in conjunction with the process of economic and financial reforms that started in 1980, and was fully completed in 1989. In this paper, the objective is to analyze the relationship between FDI and economic growth in Turkey by using the data covering the time period between 2002:Q1 and 2014:Q1. For this purpose unit root test, Johansen cointegration test, and variance decomposition were applied. According to the findings there is no relationship between these variables in the long run.
    Keywords: Foreign Direct Investment, Economic Performance, Economic Growth
    JEL: A10 E00 F30
    Date: 2014–10
  72. By: Tobias Broer; Marek Kapièka; Paul Klein
    Abstract: In this paper, we study consumption risk sharing when individual income shocks are persistent and not publicly observable, and individuals can default on contracts at the price of financial autarky. We find that, in contrast to a model where the only friction is limited enforcement, our model has observable implications that are similar to those of an Aiyagari (1994) self-insurance model and therefore broadly consistent with empirical observations. However, some of the implied effects of changes in policy or the economic environment are noticeably different in our model compared to self-insurance.
    Keywords: risk sharing; private information; limited enforcement;
    JEL: D8 E6
    Date: 2015–02
  73. By: Andrew Pickering; Sheraz Rajput
    Abstract: This paper analyzes the political economics of the composition of taxes. Taxes may be levied on income, or on expenditure, and the median voter is pivotal in the theoretical framework analyzed. As in Meltzer and Richard (1981) income taxes increase with inequality. Conversely expenditure taxes first increase and then decrease with increasing inequality. The extent to which taxes are levied on income relative to expenditure unambiguously rises with inequality. Cross-country data exhibit a robust positive correlation between the extent to which taxes are levied on income relative to expenditure, and inequality. Consistent with the theory this relationship holds most significantly in stronger democracies.
    Keywords: tax structure, inequality
    JEL: D78 E62 H20
    Date: 2015–03
  74. By: P. A. Nazarov (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Kazakova, Maria (Gaidar Institute for Economic Policy; Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Analysis of the dynamics of the main parameters of the federal budget in 2005-2007 and in 2008-2009 shows that a significant part of the changes of these parameters is explained by the state of the world's foreign economic conditions, while the identification of stable relationships between the dynamics of the budget parameters and the basic macroeconomic indicators is a task that requires extra special analysis. In this regard, relevant to the study is the relationship between these parameters and the main macroeconomic variables. The aim of this work is to study the methodological problems in predicting the basic parameters of the budgetary system, including revenues from the main taxes and government spending, in order to use these results when making decisions in the area of ??fiscal policy, as well as the publication of forecasts on a regular basis.
    Keywords: budget, Russia, fiscal policy
    Date: 2014–06
  75. By: Eric Eisenstat (University of Bucharest, Romania; RIMIR); Rodney Strachan (School of Economics, and Centre for Applied Macroeconomic Analysis, University of Queensland; The Rimini Centre for Economic Analysis, Italy)
    Abstract: This paper discusses estimation of US inflation volatility using time varying parameter models, in particular whether it should be modelled as a stationary or random walk stochastic process. Specifying inflation volatility as an unbounded process, as implied by the random walk, conflicts with priors beliefs, yet a stationary process cannot capture the low frequency behaviour commonly observed in estimates of volatility. We therefore propose an alternative model with a change-point process in the volatility that allows for switches between stationary models to capture changes in the level and dynamics over the past forty years. To accommodate the stationarity restriction, we develop a new representation that is equivalent to our model but is computationally more efficient. All models produce effectively identical estimates of volatility, but the change-point model provides more information on the level and persistence of volatility and the probabilities of changes. For example, we find a few well defined switches in the volatility process and, interestingly, these switches line up well with economic slowdowns or changes of the Federal Reserve Chair. Moreover, a decomposition of inflation shocks into permanent and transitory components shows that a spike in volatility in the late 2000s was entirely on the transitory side and a characterized by a rise above its long run mean level during a period of higher persistence.
    Date: 2014–12
  76. By: Chihiro Shimizu (Reitaku University); W. Erwin Diewert (University of British Columbia); Kiyohiko G. Nishimura (University of Tokyo); Tsutomu Watanabe (University of Tokyo)
    Abstract: We propose a new method to estimate quality adjusted commercial property price indexes using real estate investment trust (REIT) data. Our method is based on the present value approach, but the way the denominator (i.e., the discount rate) and the numerator (i.e., cash flows from properties) are estimated differs from the traditional method. We run a hedonic regression to estimate the quality adjusted discount rate based on the share prices of REITs, which can be regarded as the stock market’s valuation of the set of properties owned by the REITs. As for the numerator, we use rental prices associated only with new rental contracts rather than those associated with all existing contracts. Using a dataset with prices and cash flows for about 400 commercial properties included in Japanese REITs for the period 2001 to 2013, we find that our price index signals turning points much earlier than an appraisal-based price index; specifically, our index peaks in the second quarter of 2007, while the appraisal-based price index exhibits a turnaround only in the third quarter of 2008. Our results suggest that the share prices of REITs provide useful information in constructing commercial property price indexes.
    Keywords: REIT; quality adjusted price index; hedonic regression; Tobin’s q; risk premium
    JEL: E3 G19
    Date: 2015–02
  77. By: Lisi, Gaetano; Pugno, Maurizio
    Abstract: Economic growth and unemployment exhibit an ambiguous relationship – according to empirical studies. This ambiguity can be investigated by observing the role of the underground economy in shaping the productivity of firms. Indeed, unemployment may be absorbed by underground firms, which adopt backward technology, at the cost of reduced economic growth. Alternatively, unemployment diminishes because productivity grows by employing workers who prefer to become skilled, and thus not to work in underground firms. This paper develops these arguments by using a matching model with underground firms and heterogeneous entrepreneurial ability, and by assuming skill-driven growth. Economic growth thus becomes endogenous, and both the underground sector and unemployment become persistent. The main result is that, under conditions of strict monitoring of the regularity of firms, the underground economy is squeezed, unemployment is reduced, and growth is high, whereas in the case of lax monitoring, the underground economy expands, unemployment is absorbed, and growth is low.
    Keywords: unemployment, underground firms, entrepreneurship, endogenous growth, human capital, education, matching models.
    JEL: E26 J24 J64 L26
    Date: 2015–02–16
  78. By: Asongu, Simplice
    Abstract: In this paper, we dissect with great acuteness contemporary insufficiencies of the IFS (2008) definition of the financial system and conclude from sound theoretical underpinnings and empirical justifications that the foundation, on which it is based, while solid for developed countries, holds less ground in developing countries. Perhaps one of the deepest empirical hollows in the financial development literature has been the equation of financial depth in the perspective of money supply to liquid liabilities. This equation has put on the margin (and skewed) burgeoning phenomena of mobile banking, knowledge economy (KE), inequality…etc. We conclude that the informal financial sector, a previously missing component in the IFS conception and definition of the financial system can only be marginalized at the cost of misunderstanding recent burgeoning trends in mobile phone penetration, KE and poverty. Hence, the IFS definition has incontrovertibly fought its final dead battle and lost in the face of soaring trends highlighted above. Despite the plethora of econometric and policy-making sins the definition has committed in developing countries through bias estimates and misleading inferences, may its soul RIP.
    Keywords: Banking; Mobile Phones; Shadow Economy; Financial Development; Poverty
    JEL: E00 G20 I30 O17 O33
    Date: 2014–01–11
  79. By: Noraziah Che Arshad (Universiti Utara Malaysia); Roza Hazli Zakaria (University of Malaya); Ahmad Azam Sulaiman @ Mohamad (University of Malaya)
    Abstract: Islamic banks are exposed to a unique risk such as Displaced Commercial Risk (DCR). DCR arises from the assets managed on behalf of the investment account holders which may be borne by the Islamic bank’s own capital, when the Islamic banks forgo part or all of its share of profits on the investment account holders funds, in order to increase the return to the investment account holders. In a dual banking system, DCR could be a threat to the Islamic banks given the competition of fixed and higher return from the conventional banks. However, DCR would not be a threat to Islamic banks if their account holders choose Islamic banks due to religious obligatory factor. Pertaining to this issue, this paper aims to examine whether DCR is a threat to Islamic banks’ profitability in the case of Malaysia. For that purpose, a model is set up to estimate bank profitability. The model includes other bank specific characteristics and macroeconomic variables as control variables to avoid omitted variables bias. We find that DCR is one of the factor that affects bank profitability, at least in the case of Malaysian Islamic banks. This empirical evidence implies that Islamic banks operating in a dual banking system are affected by displaced commercial risk. Hence, it should be one of the banks’ risk management concern.
    Keywords: Islamic Banks; Return On Assets; Displaced Commercial Risk; Bank Profitability; Investment Account Holders; Profit Sharing Investment Account.
    JEL: C23 E30 G21
    Date: 2014–05
  80. By: Sokolov, Ilya (Gaidar Institute for Economic Policy; Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The research of evolution and proportion of tax and debt financing of government expenditures allowed to systemize factors and conditions impacting on the government option: whether to finance expenditures with a government debt or taxes. Following research step was devoted to the detailed consideration of the government debt influence on macroeconomic indicators mainly on the GDP. Examination of the world experience concerning the possible government debt level revealed the absence of the recognized common free of risk level due to the unique country’s macroeconomic performance and credit history. Moreover it was examined the world trends of financing government expenditures which reflected both the direct relationship between fiscal sustainability and economic growth and current excessive amount of the government debt. At last hypothesis empirical test was carried out to identify the tax pressure and government debt influence on fiscal sustainability.
    Keywords: tax, debt, government, GDP
    Date: 2014–06
  81. By: Isabelle Roland; Anna Valero
    Abstract: UK productivity stagnated after the Great Recession of 2008-09 and remains about 15 percent below historical trends. This 'productivity puzzle' is due to a mixture of cyclical and structural effects - the fall is not entirely permanent; and has led to a widening of the longstanding gap with other countries. UK GDP per hour is now about 17 percent below the G7 average. Chronically low investment especially in infrastructure and innovation, poor management and weak intermediate skills can explain this. Government policy on tax, regulation, business support and funding for science and research can create help businesses invest and become more productive. The main parties emphasise the importance of a long term framework for investment and innovation, with a focus on support for small firms (particularly in accessing finance and expertise), key sectors and technologies. Some differences are emerging on corporate tax, regulation and corporate governance.
    Keywords: R&D, productivity, Great Recession, government economic policy, austerity, business, management, UK economic performance
    Date: 2015–03
  82. By: Adam Hayes (Department of Economics, New School for Social Research)
    Abstract: Bitcoin has become the de facto 'gold' standard among cryptocurrencies as it is the most widely accepted in commerce, has the largest mining network, and greatest volume of transactions. Because of this, miners of other SHA-256 cryptocurrencies will tend to convert those altcoins into bitcoin in order to transact in a meaningful way with the real economy. The result is that bitcoin mining regulates that of all other SHA-256 blockchains. Specifically, what matters is the expected number of bitcoins produced per day given a unit of hashing (mining) power, whatever the equivalence in the coin being mined. If mining for a different coin would yield a greater return in bitcoins at the margin (per day) for a miner, an apparent arbitrage opportunity will exist to direct mining effort at that cryptocurrency and subsequently exchange those for bitcoin. These opportunities, once taken, quickly eliminate the profitable arbitrage and appear to operate in a fairly efficient and predictable manner. A model is developed in this paper to formalize this process where cryptocurrency miners seeking to maximize production in terms of bitcoins earned in a day will exploit any such opportunities. If no such opportunities exist, they will simply revert to mining bitcoins directly. There are some important implications to this process, such as a tendency for cryptocurrencies to fall in price relative to bitcoin over time, and for changes in bitcoin mining difficulty to indirectly influence the market prices of altcoins. Finally, it seems that those undertaking this process of miners' arbitrage do so at the expense of speculators and noise traders who make decisions regarding buy and sell trades without the use of fundamental data. These participants generally have poor timing, follow trends, and over-react to good and bad news. Altcoins are produced by miners and subsequently offered for sale in the market in order to obtain bitcoins; meanwhile noise traders serve as the only bid-side to the market, on average.
    Keywords: Bitcoin, cryptocurrency, altcoins, arbitrage, equilibrium models, currency exchanges
    JEL: D58 E42 E47 G1 L17 L86
    Date: 2015–03
  83. By: Enisse Kharroubi
    Abstract: This paper studies the choice between building liquidity buffers and raising funding ex post, to deal with liquidity shocks. We uncover the possibility of an inefficient liquidity squeeze equilibrium. Agents typically choose to build smaller liquidity buffers when they expect cheap funding. However, when agents hold smaller liquidity buffers, they can raise less funding because of limited pledgeability, which in the aggregate depresses the funding cost. This incentive structure yields multiple equilibria, one being an inefficient liquidity squeeze equilibrium where agents do not build any liquidity buffer. Comparative statics show that this inefficient equilibrium is more likely when the supply of funding is large, and/or when aggregate shocks display low volatility. Last, the effectiveness of policy options to restore efficiency is limited because the net gain to intervention decreases with the availability of funding. In other words, policy becomes ineffective when the equilibrium becomes inefficient.
    Keywords: Liquidity, Monetary Policy, Pledgeable Income, Reinvestment, Self-Insurance
    Date: 2015–03
  84. By: Gabriele Camera (Chapman University, University of Basel); Jaehong Kim (Chapman University)
    Abstract: The directed search model (Peters, 1984) is static; its dynamic extensions typically restrict strategies, often assuming price or match commitments. We lift such restrictions to study equilibrium when search can be directed over time, without constraints and at no cost. In equilibrium trade frictions arise endogenously, and price commitments, if they do exist, are self-enforcing. In contrast to the typical model, there exists a continuum of equilibria that exhibit trade frictions. These equilibria support any price above the static price, including monopoly pricing in arbitrarily large markets. Dispersion in posted prices can naturally arise as temporary or permanent phenomenon despite the absence of pre-existing heterogeneity.
    Keywords: frictions, matching, price dispersion, search
    JEL: C70 D39 D49 E39
    Date: 2015
  85. By: utku altunöz (Social Science);
    Abstract: Dominant neo classical system is criticized for not solving the problems of current economics. In other words, it is seen the reason of current economic issues. And also it is believed that unsolved problems come with global crisis were developed by dominant classical thought. In 2000’s Post Autistic economic movement came to the scene with published declaration by pupils of Ecole Normale Superieure in France. According to declaration dominant economic thought turn into the autistic characteristic. Due to this fact, economic science is vanished by intense mathematical formulas. So that had broken of connection with real life. In this paper first, basic hypothesis of neo classical thought will be examined. Following that, solving suggestion for problematic area in the light of autistic movement will be explained. In the other words, especially in the course of time, the current economic system remains incapable to meet society’s expectations, demands, and requirements, the system and method debate has been increasing. Recently, the basic reason that led to criticism by focusing the global economic crisis has developed in the direction of the Neo-classical system. Another purpose of this study is to open discussion of last 2008 global crisis to Turkey’s assessment from the view point of Post Autistic Economics.
    Keywords: The Post Autistic Economics Movement, Neo-classical Economics, The 2008 Global Economic Crisis
    JEL: E13 P16 P51
    Date: 2014–06
  86. By: Iancu, Victor (Institutul de Economie Nationala, Academia Româna)
    Abstract: Knowledge, generally regarded as the creative output of human mind, can be traded under specific market conditions as any other tangible asset. The process is affected by several specificities linked mainly to the intangible nature of the object of the commercial endeavour. This may pose, at least in theory, certain operational challenges. This paper aims at investigating various theoretical frameworks analyzed and/or proposed by the economic literature with regard to harnessing of knowledge in a market context. We attempt to achieve a clearer image on the relevant economic research results on the subject to date, and, subsequently, to formulate additional aspects/areas for future research.
    Keywords: market of ideas, commercialization, knowledge, innovation
    JEL: O31 O32 D8 E22
    Date: 2015–03
  87. By: Constanza Martínez; Freddy Cepeda
    Abstract: Large value payment flows can be disrupted by several types of failures such as operational incidents, problems experienced by the administrator of the payments settlement system, outages in the communications networks and the inability of a participant to submit payments due to insufficient liquidity. During any of these incidents, the participants of the system can either decide to stop, delay or continue sending payment orders, which fundamentally depends on the elements that originated the disruption, as well as on the alternative liquidity sources available to each entity. By means of Tobit models with random effects we evaluated the payments activity of Colombian financial institutions. Our results suggest that participants’ reaction vary in accordance with the type of incident, along with the type of entity and its role in the market.
    Keywords: Payment system, operational incidents, payment reaction function.
    JEL: G21 E42 C24
    Date: 2015–03–24
  88. By: Emanuela Ghignoni
    Abstract: The Italian university system has long been characterized by high non-completion rates, though aggregate data show a slight reduction of dropouts in recent years. The most straightforward theoretical explanation for this lies in the lowering opportunity cost of studying due to the financial and economic crisis. Nonetheless, this interpretation is likely to be partly misleading. Indeed, when the crisis hit Italy, enrolment rates had been declining for years and the sample of freshmen has become increasingly selected according to family ‘social class’. Since a good family background significantly increases students’ probability of succeeding, the recent decline in dropouts could partly depend on sample selection. By applying probit selection models and decomposition techniques to a sample of Italian university students enrolled in different periods of time, I find that the change in students’ background characteristics plays a major role in the recent reduction of the dropout rate.
    Keywords: dropout, enrolment, selection, social class
    JEL: I21 I24 E32
  89. By: Jakub Growiec
    Abstract: The study considers a stochastic R&D process where the invented production technologies consist of a large number n of complementary components. The degree of complementarity is captured by the elasticity of substitution of the CES aggregator function. Drawing from the Central Limit Theorem and the Extreme Value Theory we find, under very general assumptions, that the cross-sectional distributions of technological productivity are well-approximated either by the lognormal, Weibull, or a novel “CES/Normal” distribution, depending on the underlying elasticity of substitution between technology components. We find the tail of the “CES/Normal” distribution to be fatter than the Weibull tail but thinner than the Pareto (power law) one. We numerically assess the rate of convergence of the true technological productivity distribution to the theoretical limit with n.
    Keywords: technological productivity distribution, stochastic R&D, CES, Weibull distribution, lognormal distribution, limiting distribution
    JEL: E23 L11 O47
    Date: 2015
  90. By: Roberto Casarin (Department of Economics, University of Venice Cà Foscari); Daniel Felix Ahelegbey (Department of Economics, University of Venice Cà Foscari); Monica Billio (Department of Economics, University of Venice Cà Foscari)
    Abstract: In high-dimensional vector autoregressive (VAR) models, it is natural to have large number of predictors relative to the number of observations, and a lack of efficiency in estimation and forecasting. In this context, model selection is a difficult issue and standard procedures may often be inefficient. In this paper we aim to provide a solution to these problems. We introduce sparsity on the structure of temporal dependence of a graphical VAR and develop an efficient model selection approach. We follow a Bayesian approach and introduce prior restrictions to control the maximal number of explanatory variables for VAR models. We discuss the joint inference of the temporal dependence, the maximum lag order and the parameters of the model, and provide an efficient Markov chain Monte Carlo procedure. The efficiency of the proposed approach is showed on simulated experiments and real data to model and forecast selected US macroeconomic variables with many predictors.
    Keywords: High-dimensional Models, Large Vector Autoregression, Model Selection, Prior Distribution, Sparse Graphical Models.
    JEL: C11 C15 C52 E17 G17
    Date: 2014
  91. By: Adam Hayes (Department of Economics, New School for Social Research)
    Abstract: As bitcoin becomes more important as a worldwide financial phenomenon, it also becomes important to understand its sources of value formation. There are three ways to obtain bitcoins: buy them outright, accept them in exchange, or else produce them by 'mining'. Mining employs computational effort which requires electrical consumption for operation. The cost of electricity per kWh, the efficiency of mining as measured by watts per unit of mining effort, the market price of bitcoin, and the difficulty of mining all matter in making the decision to produce. Bitcoin production seems to resemble a competitive market, so in theory miners will produce until their marginal costs equal their marginal product. Break-even points are modeled for market price, energy cost, efficiency and difficulty to produce. The cost of production price may represent a theoretical value around which market prices tend to gravitate. As the average efficiency increases over time due to competition driving technological progress – as inefficient capital becomes obsolete it is removed while new capital replaces them – the break-even production cost of bitcoins denominated in dollars will fall. Increased efficiency, although necessary to maintain competitive advantage over other miners could serve to drive the value of bitcoin down, however adjustments in the mining difficulty and the regular halving of the block reward throughout time will tend to counteract a decreasing tendency in cost of production.
    Keywords: Bitcoin, cryptocurrencies, asset pricing, cost of production models, valuation models, competitive markets
    JEL: C51 D58 E42 E47 G12
    Date: 2015–03
  92. By: Xing, Chunbing (Beijing Normal University); Xu, Jianwei (Beijing Normal University)
    Abstract: This paper analyzes the regional variation of minimum wage in China. We first introduce the institutional background of China's minimum wage policy, and then describe the regional variation of the minimum wages using detailed minimum wage data since the late 1990s. Large regional variation exists in the period studied, and the regional variation has been declining since the late 1990s. Economic factors, including GDP, economic structure, consumption level, are the main determinants for the large regional variation in the minimum wages. There is weak evidence suggesting that the regional variation is influenced by political factors, such as competition of local officials.
    Keywords: minimum wage, regional variation, China
    JEL: J3 E2
    Date: 2015–03
  93. By: Freddy Cepeda L.; Fabio Ortega C.
    Abstract: This paper presents a methodology to estimate the intraday liquidity that systemically important entities (SIE) need to fulfill all its obligations in a timely fashion, when a simulated failure-to-pay from its main liquidity supplier by discretionary concepts of payment occurs. Using the Bank of Finland’s simulator and the fund transfer data from Colombian large value payment system, we achieve a dynamic estimation measuring three types of effects (direct, second round and feedback). The results validate the existence of a non-linear relationship between the initial failure-to-pay of a specific institution and extended failures-to-pay to the rest of system. An Intraday Liquidity Sufficiency Index is proposed to quantify the average amount of additional liquidity needed to fulfill timely all SIE’s obligations without generating second-round effects. Our methodology and recommendations contribute to the international discussion on management intraday liquidity risk, to efficiency and security of the payment system, and ultimately to financial stability.
    Keywords: Large value payment system, intraday liquidity, counterparty stress test, discretionary payments, simulation, direct effect, second-round effect, feedback effect, network topology.
    JEL: D53 D85 E51 C63 G21 G23
    Date: 2015–03–30
  94. By: Basu, Deepankar (Department of Economics, University of Massachusetts); Das, Debarshi (Indian Institute of Technology, Gowahati; )
    Abstract: Using aggregate data from the Annual Survey of Industries, we analyze profitability in India’s organized manufacturing sector from 1982-83 to 2012-13. Over the whole period of analysis, the rate of profit grew at about 1 percent per annum, primarily driven by a rising share of profits. We use structural break tests to identify medium and short run regimes. We find two medium run regimes, one of declining profitability (1982-83 to 2001-02), and another of growing profitability (2001-02 to 2012-13). We find six short run regimes, of which only two are periods of rising profitability, 1987-88 to 1996-97, and 2001-02 to 2007-08. All other short run periods have witnessed declining profitability. Profit rate decomposition analysis shows that both in the medium and short run, technological factors have been the most important determinants of changes in profitability.
    Keywords: Organized manufacturing; India; profitability; technology and distribution
    JEL: B51 E11
    Date: 2015
  95. By: Abdul Manap Pulungan (Supervisory Board of Bank Indonesia); Ahmad Erani Yustika (Supervisory Board of Bank Indonesia)
    Abstract: This study discusses the influence of a series of bank-specific factors such as CAR (Capital Adequacy Ratio), OEOI (Operations Expences to Operations Income), NPL (Non Performing Loan), and FBI (Fee-based Income) on ROA as a profitability proxy. Also studied whether commercial banks probability affected by the concentration (Structure Conduct Performance, SCP) or efficiency (Efficiency Hypothesis, HE). Share of Third Party Funds (STPF) is variable proxy of SCP, while the OEOI proxy of HE. By using panel data procedures of the 111 commercial banks during 2005 to 2011, this research concludes that CAR and FBI have significant effect with positive sign on ROA, while OEIO and NPL significant with negative sign. STPF does not significantly affect on ROA so SCP theory as a proxy for the concentration is rejected, on the other hand, this research accepts the HE theory that focuses on the efficiency.
    Keywords: profitability; structure conduct performance; efficiency hypothesis
    JEL: E50
    Date: 2014–10
  96. By: Cong Wang (Department of Border Region Studies, University of Southern Denmark); Bodo Steiner (Department of Border Region Studies, University of Southern Denmark)
    Abstract: Motivated by theoretical arguments that assert a negative impact of ethnolinguistic diversity on social capital, this paper aims to provide some empirical evidence on the relationship between the two variables. In particular, using a cross section sample of 68 developed and developing countries, this paper has found a significant negative effect of ethnolinguistic diversity on social capital. Countries with fractionalized ethnic and linguistic groups as captured by both log number of languages and Desmet et al. (2012) and La Porta et al. (1999)’s measures on linguistic diversity tend to have lower levels of social trust, fewer memberships in social organizations, deteriorated social norms and structure, hence, lower overall social capital stock.
    Keywords: Ethnic and Linguistic Diversity, Social Capital, Economic Growth
    JEL: E0 D72 Z10
    Date: 2015–03
  97. By: Miroslav Å ipikal (University of Economics in Bratislava)
    Abstract: We can observe an increase assessment of cohesion policy. It is linked with the growing amount of support spend on this policy as well as need for greater efficiency in the use of these resources due to the crisis in government spending . Evaluations are dedicated to a large number of areas a including assessing the impact of aid, its effectiveness at reducing regional disparities or procedural aspects of implementation of the support. Only a limited number of studies is devoted to political and administrative burdens and their influence on cohesion policy. That impact is difficult to measure, although it greatly affects the ability of cohesion policy to achieve its objectives. The most significant problems should be considered e.g. the way the procurement of evaluation is done, methods of making the criteria for project evaluation and their control or non-publication of results and poor feedback for applicants. The article also analyzes the factors affecting the speed of the whole evaluation process, where the most significant factor seems election and not the number of projects or their content.
    Keywords: structural funds, cohesion policy, political influence, Slovakia
    JEL: R58 E61 H00
    Date: 2014–12

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