nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒04‒11
76 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Guinea-Bissau Country Economic Memorandum : Terra Ranca! A Fresh Start By World Bank
  2. Lao Development Report 2014 : Expanding Productive Empoloyment for Broad-Based Growth By World Bank Group
  3. Bubbles and Central Banks: Historical Perspectives By Brunnermeier, Markus K; Schnabel, Isabel
  4. A Spectral Representation of the Phillips Curve in Australia By Debdulal Mallick
  5. Regional Collaboration on Education By Simon Thacker; Juan Manuel Moreno
  6. Forecasting Financial Market Vulnerability in the U.S.: A Factor Model Approach By Hyeongwoo Kim; Wen Shi
  7. Determinantes del tipo de interes del credito a empresas en la Eurozona By Jose Felix Izquierdo; Santiago Fernandez de Lis; Ana Rubio
  8. Trends in income and consumption inequality in Bolivia: A fairy tale of growing dwarfs and shrinking giants Draft - Public disclosure unauthorized By Werner L. Hernani-Limarino; Ahmed Eid; Rodrigo Aguirre
  9. Industrial structure and productivities in a two-sector growth model By Guo, Lu; Li, Fangfang
  10. Insurance in extended family networks By Orazio Attanasio; Costas Meghir; Corina Mommaerts
  11. Insurance in Extended Family Networks By Orazio Attanasio; Corina Mommaerts; Costas Meghir
  12. Robots at Work By Graetz, Georg; Michaels, Guy
  13. Employment and Hours over the Business Cycle in a Model with Search Frictions By Kudoh, Noritaka; Miyamoto, Hiroaki; Sasaki, Masaru
  14. Man-cessions, Fiscal Policy, and the Gender Composition of Employment By Bredemeier, Christian; Juessen, Falko; Winkler, Roland
  15. Do Phillips curves conditionally help to forecast inflation? By Dotsey, Michael; Fujita, Shigeru; Stark, Tom
  16. Nowcasting unemployment rates with Google searches: Evidence from the Visegrad Group countries By Pavlicek, Jaroslav; Kristoufek, Ladislav
  17. Underpricing, underperformance and overreaction in initial pubic offerings: Evidence from investor attention using online searches By Vakrman, Tomas; Kristoufek, Ladislav
  18. China and Global Macroeconomic Interdependence By Rod Tyers
  19. When No Bad Deed Goes Punished: A Relational Contracting Experiment in Ghana By Elwyn Davies; Marcel Fafchamps
  20. Fertility Shocks and Equilibrium Marriage-Rate Dynamics: Lessons from World War 1 in France By Knowles, John; Vandenbroucke, Guillaume
  21. Hysteresis and Persistent Long-Term Unemployment: Lessons from the Great Depression and World War II By Gabriel P. Mathy
  22. On the Stochastic Macro-equilibrium and a Microfoundation for the Production Function By HIRAGUCHI Ryoji
  23. A structural investigation of the Chinese economy with a hybrid monetary policy rule By Ran Li; Jiao Wang
  24. A 5-sector DSGE model of Russia By Sergey Ivashchenko
  25. Implementing the Golden Rule for Public Investment in Europe: Safeguarding Public Investment and Supporting the Recovery By Achim Truger
  26. Real-Time Forecasting with a MIDAS VAR By Heiner Mikosch; Stefan Neuwirth
  27. Unpleasant debt dynamics: Can fiscal consolidations raise debt ratios? By Gabriela Lopes de Castro; Ricardo Mourinho Félix; Paulo Júlio; José R. Maria
  28. Capital Regulation in a Macroeconomic Model with Three Layers of Default By Laurent Clerc; Alexis Derviz; Caterina Mendicino; Stephane Moyen; Kalin Nikolov; Livio Stracca; Javier Suarez; Alexandro Vardulakis
  29. CORE INFLATION INDICATORS FOR SAUDI ARABIA By William Barnett; Ryadh M. Alkhareif
  30. Factor Specificity and Real Rigidities By Carlos Viana de Carvalho; Fernanda Feitosa Nechio
  31. Capital Controls and Implications for Surveillance and coordination: Brazil and Latin America By Márcio Gomes Pinto Garcia
  32. Real Rigidities and the Cross-Sectional Distribution of Price Stickiness: Evidence from Micro and Macro Data Combined By Carlos Viana de Carvalho; Niels Arne Dam; Jae Won Lee
  33. Macroeconomic Effects of Credit Deepening in Latin America By Carlos Viana de Carvalho; Eduardo Zilberman; Laura Candido de Souza; Nilda Mercedes Cabrera Pasca
  34. FX interventions in Brazil: a synthetic control approach By Marcos Chamon; Laura Candido de Souza; Márcio Gomes Pinto Garcia
  35. Monetary News Shocks By Nadav Ben Zeev; Christopher M. Gunn; Hashmat U. Khan
  36. Macroeconomic Expectations and the Size, Value and Momentum Factors By Mikael C. Bergbrant; Patrick J. Kelly
  37. The rationality of expectations formation By DAVILA, Julio
  38. A dynamic quantitative macroeconomic model of bank runs By Mattana, Elena; Panetti, Ettore
  39. Financial stress indices and financial crises By Robert Vermeulen; Marco Hoeberichtsa; Borek Vašícekb; Diana Žigraiová; Katerina Šmídková; Jakob de Haan
  40. The Value of Payment Instruments: Estimating Willingness to Pay and Consumer Surplus By Tai Lam; Crystal Ossolinski
  41. Ants and crickets: arbitrary saving rates in an agent-based model with infinitely lived-agents By János Vincze; Gergely Varga
  42. Introduction of an Income Contingent Repayment Scheme for Non-Performing Mortgage Loans - Lessons from Hungary’s Case By Edina Berlinger; György Walter
  43. Long term funding and regulation: facilitating financial stability and development (low income developing countries) By Marianne, Ojo
  44. Oil Price Forecastability and Economic Uncertainty By Stelios Bekiros; Rangan Gupta; Alessia Paccagnini
  45. From Recession to Collapse: The Bush Administration and the Over-Valued Dollar By Dean Baker
  46. Evaluación institucional y de procesos con énfasis en el ciclo de proyectos del Sistema General de Regalías By Jairo Núñez; Felipe Castro; Nidia Rincón
  47. Business cycle synchronization: A regional perspective By Krzysztof Beck
  48. Resilient Growth, Persisting Inequality : Identifying Potential Factors Limiting Shared Prosperity in the Dominican Republic By Francisco Galrão Carneiro; Aleksandra Iwulska; José-Daniel Reyes; Miguel Eduardo Sánchez-Martín
  49. Solomon Islands : Towards Better Investment in Rural Communities By World Bank Group
  50. Lao PDR Investment Climate Assessment 2014 : Policy Uncertainty in the Midst of a Natural Resources Boom By World Bank Group
  51. Uzbekistan : Strengthening the Horticulture Value Chain By Donald F. Larson; Dilshod Khidirov; Irina Ramniceanu
  52. Investing in People to Fight Poverty in Haiti : Reflections for Evidence-based Policy Making By World Bank; Observatoire National de la Pauvreté et de l’Exclusion Sociale
  53. Product Differentiation, and the Composition of Trade Across Dissimilar Nations By Ahmad Lashkaripour
  54. Economic Policy Uncertainty and Economic Activity: A Focus on Infrequent Structural Shifts By Paraskevi Salamaliki
  55. A Global Vector Autoregression (GVAR) model for regional labour markets and its forecasting performance with leading indicators in Germany By Schanne, Norbert
  56. Do fiscal councils impact fiscal performance? By Giovanni Coletta; Carmen Graziano; Giancarlo Infantino
  57. Heterogeneity in Wage Setting Behavior in a New-Keynesian Model By Eijffinger, S.C.W.; Grajales Olarte, A.; Uras, R.B.
  58. Wealth Distribution, Elasticity of Substitution, and Piketty: an anti-dual Pasinetti Economy. By Luca Zamparelli
  59. A Quantal Response Model of Firm Competition By Ellis Scharfenaker
  60. Thrift, stagnation and wealth distribution in a two class economy with applications to the United States By Rishabh Kumar
  61. Appropriate Technology and the Labour Share By Miguel A. Leon-Ledesma; Mathan Satchi
  62. Monetary Union with a Single Currency and Imperfect Credit Market Integration By Vincent Bignon; Régis Breton; Mariana Rojas Breu
  63. A Monetary Analysis of the Liquidity Trap By João Braz Pinto; João Sousa Andrade
  64. The Nexus of Macroprudential Supervision, Monetary Policy, and Financial Stability By Mester, Loretta J.
  65. Inflation targeting and the global financial crisis: successes and challenges By Williams, John C.
  66. Measuring the Connectedness of the Global Economy By Matthew Greenwood-Nimmo; Viet Hoang Nguyen
  67. The Protestant Fiscal Ethic: Religious Confession and Euro Skepticism in Germany By Adrian Chadi; Matthias Krapf
  68. A quarter century of economic reforms in Ukraine: too late, too slow, too little / Æwieræ wieku ukraiñskich reform: za ma³o, za póŸno i zbyt wolno By Oleh Havrylyshyn
  69. Transition from black to official markets for foreign exchange in Myanmar By Kubo, Koji
  70. Monetary Policy with Diverse Private Expectations By Mordecai Kurz; Maurizio Motolese; Giulia Piccillo; Howei Wu
  71. Integrated Estimates of Capital Stocks and Services for the United Kingdom: 1950-2013 By Nicholas Oulton; Gavin Wallis
  72. Challenges of price stability, growth and employment in Bangladesh : role of the Bangladesh Bank By Muqtada, Muhammed
  73. The design of fiscal consolidation measures in the European Union: Distributional effects and implications for macroeconomic recovery By Figari, Francesco; Paulus, Alari; Sutherland, Holly
  74. Scars of Recessions in a Rigid Labor Market By Bart Cockx; Corinna Ghirelli
  75. What Should Central Banks Target? Evidence on the Impact of Monetary Policy Regimes on Economic Growth By Chong, Terence Tai Leung; Wong, Kin Ming
  76. Does Monetary Policy Matter For Trade? By Chong, Terence Tai Leung; Wong, Kin Ming

  1. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Environmental Economics and Policies Economic Theory and Research Finance and Financial Sector Development - Debt Markets Governance - Governance Indicators Macroeconomics and Economic Growth Environment
    Date: 2015–01
  2. By: World Bank Group
    Keywords: Environmental Economics and Policies Banks and Banking Reform Economic Theory and Research Social Protections and Labor - Labor Policies Social Protections and Labor - Labor Markets Finance and Financial Sector Development Macroeconomics and Economic Growth Environment
    Date: 2014–10
  3. By: Brunnermeier, Markus K; Schnabel, Isabel
    Abstract: This paper reviews some of the most prominent asset price bubbles from the past 400 years and documents how central banks (or other institutions) reacted to those bubbles. The historical evidence suggests that the emergence of bubbles is often preceded or accompanied by an expansionary monetary policy, lending booms, capital inflows, and financial innovation or deregulation. We find that the severity of the economic crisis following the bursting of a bubble is less linked to the type of asset than to the financing of the bubble—crises are most severe when accompanied by a lending boom and high leverage of market players, and when financial institutions themselves are participating in the buying frenzy. Past experience also suggests that a purely passive “cleaning up the mess” stance toward the buildup of bubbles is, in many cases, costly. Monetary policy and macroprudential measures that lean against inflating bubbles can and sometimes have helped deflate bubbles and mitigate the associated economic crises. However, the correct implementation of such proactive policy approaches remains fraught with difficulties.
    Keywords: bubbles; capital flows; credit; macroprudential policy; monetary policy
    JEL: E44 E52 F34 G01 N10
    Date: 2015–04
  4. By: Debdulal Mallick
    Abstract: We present the Phillips curve in Australia in the frequency domain and document an evolving pattern in its slope at low frequencies under different monetary policy regimes and labor market regulations. The RBA adopted monetary targeting in 1976 and inflation targeting in 1993. There were important changes in the labor relations during mid-1980s-mid-1990s. We document an upward sloping medium-run Phillips curve in the pre-1977 period, a downward sloping long-run Phillips curve during 1977-1993, and a flattened Phillips curve from 1993 onwards. Inflation lagged unemployment during the first period but led during the second period. The Phillips curve at business-cycle frequencies is downward sloping in all periods. The flattened Phillips curve is also observed in several industrialized countries that adopted inflation targeting.
    Keywords: Phillips curve, Long-run, Business-cycle, Frequency, Spectral method
    JEL: E24 E31 E32 C49
    Date: 2015–04–02
  5. By: Simon Thacker; Juan Manuel Moreno
    Keywords: Teaching and Learning Access and Equity in Basic Education Education - Education For All Education - Primary Education Macroeconomics and Economic Growth - Regional Economic Development
    Date: 2015–03
  6. By: Hyeongwoo Kim; Wen Shi
    Abstract: This paper presents a factor-based forecasting model for the financial market vulnerability in the U.S. We estimate latent common factors via the method of the principal components from 170 monthly frequency macroeconomic data to out-of-sample forecast the Cleveland Financial Stress Index. Our factor models outperform both the random walk and the autoregressive benchmark models in out-of-sample predictability for short-term forecast horizons, which is a desirable feature since financial crises often come to a surprise realization. Interestingly, the first common factor, which plays a key role in predicting the financial vulnerability index, seems to be more closely related with real activity variables rather than nominal variables. The recursive and the rolling window approaches with a 50% split point perform similarly well.
    Keywords: Financial Stress Index; Method of the Principal Component; Out-of-Sample Forecast; Ratio of Root Mean Square Prediction Error; Diebold-Mariano-West Statistic
    JEL: E44 E47 G01 G17
    Date: 2015–04
  7. By: Jose Felix Izquierdo; Santiago Fernandez de Lis; Ana Rubio
    Abstract: La crisis financiera internacional se ha reflejado en un aumento de los tipos de interes del nuevo credito a las empresas, en particular en los paises perifericos y en el caso de las pymes. En este documento se analiza la formacion de los precios del credito en dos paises de la periferia, España e Italia, y un pais central, Francia.
    Keywords: Documento de Trabajo, Europa, Investigación
    JEL: E42 E43 E44 E51 E52 F36
    Date: 2015–04
  8. By: Werner L. Hernani-Limarino (Fundación ARU); Ahmed Eid (Fundación ARU); Rodrigo Aguirre (Fundación ARU)
    Abstract: This paper documents and describes the evolution of income and consumption inequality in Bolivia between 1999 and 2011. We find that income and consumption inequality measured by the Gini in- dex both dropped 22% during the period we analyze, making Bolivia the top performer in the Latin American region regarding income inequality reduction. To make a more complete description of this trend, we make separate analysis for the urban an rural area. Changes in urban inequality are driven by changes in the upper part of the distribution, as the 90-50 income and consumption percentile ra- tios fell 24%, as opposed to a 8% fall in the 50-10 ratio, for the subperiod 2005-2011. Changes in rural inequality occur through the entire distribution in similar fashion, but are more intense before 2005, when the 90-50 and 50-10 ratios fell 30 and 26% respectively.
    Keywords: Income, inequality, Consumption, inequality
    JEL: D63 E24
    Date: 2013–07
  9. By: Guo, Lu; Li, Fangfang
    Abstract: We set up a model of heterogeneous-producers based on the semi-rival technology to study how industrial structure transforms and different sectional productivities. In a fully market-oriented economy, the industrial structure is endogenous and sectional productivities are the same. Employing fiscal subsidies to different industries lead to changes in both industrial structure and productivities, while the growth rate and interest rate keep fixed. For plausible values of parameters, the benchmark model generates results consistent with the United States’ data, and the extension model partly explains China’s industrial transformation and changes of industrial productivities.
    Keywords: Industrial structure; Productivities; Two-sector growth model
    JEL: E13 H20
    Date: 2015–04–04
  10. By: Orazio Attanasio; Costas Meghir; Corina Mommaerts
    Abstract: We investigate partial insurance and group risk sharing in extended family networks. Our approach is based on decomposing income shocks into group aggregate and idiosyncratic components, allowing us to measure the extent to which each is insured, having accounted for public insurance programs. We apply our framework to extended family networks in the United States by exploiting the unique intergenerational structure of the PSID. We find that over 60% of shocks to household income are potentially insurable within family networks. However, we find little evidence that the extended family provides insurance for such idiosyncratic shocks.
    JEL: D12 D31 D91 E21 E24 H31
    Date: 2015–04
  11. By: Orazio Attanasio (University College London & Institute for Fiscal Studies); Corina Mommaerts (Dept. of Economics, Yale University); Costas Meghir (Cowles Foundation, Yale University)
    Abstract: We investigate partial insurance and group risk sharing in extended family networks. Our approach is based on decomposing income shocks into group aggregate and idiosyncratic components, allowing us to measure the extent to which each is insured, having accounted for public insurance programs. We apply our framework to extended family networks in the United States by exploiting the unique intergenerational structure of the PSID. We find that over 60% of shocks to household income are potentially insurable within family networks. However, we find little evidence that the extended family provides insurance for such idiosyncratic shocks.
    Keywords: Incomplete markets, Partial Insurance, Consumption smoothing, Extended Family Networks, Savings, Intergenerational transfers, Stochastic income processes
    JEL: D12 D31 D91 E21 E24 H31
    Date: 2015–03
  12. By: Graetz, Georg (Uppsala University); Michaels, Guy (London School of Economics)
    Abstract: Despite ubiquitous discussions of robots' potential impact, there is almost no systematic empirical evidence on their economic effects. In this paper we analyze for the first time the economic impact of industrial robots, using new data on a panel of industries in 17 countries from 1993-2007. We find that industrial robots increased both labor productivity and value added. Our panel identification is robust to numerous controls, and we find similar results instrumenting increased robot use with a measure of workers' replaceability by robots, which is based on the tasks prevalent in industries before robots were widely employed. We calculate that the increased use of robots raised countries' average growth rates by about 0.37 percentage points. We also find that robots increased both wages and total factor productivity. While robots had no significant effect on total hours worked, there is some evidence that they reduced the hours of both low-skilled and middle-skilled workers.
    Keywords: robots, productivity, technological change
    JEL: E23 J23 O30
    Date: 2015–03
  13. By: Kudoh, Noritaka (Hokkaido University); Miyamoto, Hiroaki (University of Tokyo); Sasaki, Masaru (Osaka University)
    Abstract: This paper studies a labor market search-matching model with multi-worker firms to investigate how firms utilize the extensive and intensive margins over the business cycle. The earnings function derived from the Stole-Zwiebel bargaining acts as an adjustment cost function for employment and hours. We calibrate the model to match the Japanese labor market, in which the intensive margin accounts for 79% of the variations in total working hours. The model replicates the observed cyclical behavior of hours of work, but fails to generate employment volatility of realistic magnitude. Additional penalties for longer hours of work do not resolve this issue. Wage rigidity and persistent shocks are promising lines of further investigations.
    Keywords: business cycles, hours of work, search, multi-worker firms
    JEL: E32 J20 J64
    Date: 2015–03
  14. By: Bredemeier, Christian (University of Cologne); Juessen, Falko (University of Wuppertal); Winkler, Roland (TU Dortmund)
    Abstract: In recessions, predominantly men lose their jobs, which has given rise to the term "man-cessions". We analyze whether fiscal expansions bring men back into jobs. To do so, we estimate vector-autoregressive models and identify the effects of fiscal shocks and non-fiscal shocks on the gender composition of employment. We show that contractionary non-fiscal shocks lead to man-cessions, i.e. employment falls and more strongly so for men. By contrast, an expansionary fiscal shock predominantly raises the employment of women. Taken together, these results imply a trade-off dilemma for policy that seeks to stabilize the level of employment along with its composition.
    Keywords: employment, gender, fiscal policy, business cycles
    JEL: E24 E32 J10 J21
    Date: 2015–03
  15. By: Dotsey, Michael (Federal Reserve Bank of Philadelphia); Fujita, Shigeru (Federal Reserve Bank of Philadelphia); Stark, Tom (Federal Reserve Bank of Philadelphia)
    Abstract: This paper reexamines the forecasting ability of Phillips curves from both an unconditional and conditional perspective by applying the method developed by Giacomini and White (2006). We find that forecasts from our Phillips curve models tend to be unconditionally inferior to those from our univariate forecasting models. We also find, however, that conditioning on the state of the economy sometimes does improve the performance of the Phillips curve model in a statistically significant manner. When we do find improvement, it is asymmetric -- Phillips curve forecasts tend to be more accurate when the economy is weak and less accurate when the economy is strong. Any improvement we find, however, vanished over the post-1984 period. Supersedes WP 11-40.
    Keywords: Phillips curve; unemployment gap; conditional predictive ability
    JEL: C53 E37
    Date: 2015–03–25
  16. By: Pavlicek, Jaroslav; Kristoufek, Ladislav
    Abstract: The online activity of Internet users has repeatedly been shown to provide a rich information set for various research fields. We focus on job-related searches on Google and their possible usefulness in the region of the Visegrad Group - the Czech Republic, Hungary, Poland and Slovakia. Even for rather small economies, the online searches of inhabitants can be successfully utilized for macroeconomic predictions. Specifically, we study unemployment rates and their interconnection with job-related searches. We show that Google searches enhance nowcasting models of unemployment rates for the Czech Republic and Hungary whereas for Poland and Slovakia, the results are mixed.
    Keywords: unemployment,Google Trends,nowcasting
    JEL: E24 E27 J64
    Date: 2015
  17. By: Vakrman, Tomas; Kristoufek, Ladislav
    Abstract: Online activity of Internet users has proven very useful in modeling various phenomena across wide range of scientific disciplines. In our study, we focus on two stylized facts or puzzles surrounding the initial public offerings (IPOs) - underpricing and long-term underperformance. Using the Internet searches on Google, we proxy the investor attention before and during the day of the offering to show that the high attention IPOs have different characteristics than the low attention ones. After controlling for various effects, we show that investor attention still remains a strong component of the high initial returns (underpricing), primarily for the high sentiment periods. Moreover, we demonstrate that the investor attention partially explains overoptimistic market reaction and thus also a part of the long-term underperformance.
    Keywords: initial public offerings,Google Trends,puzzles
    JEL: E44 G02
    Date: 2015
  18. By: Rod Tyers
    Abstract: China is transitioning toward more inward-focussed growth, causing adverse changes in the product and financial terms of trade in the advanced economies. At the same time, international financial markets tussle between tightening forces associated with the US recovery on the one hand and unconventional monetary expansion in Europe and Japan on the other. The way these shocks interact is examined in this paper using a global macro model with national portfolio rebalancing and asset differentiation and a representation of unconventional monetary policy. Results are found to be sensitive to the contributions of productivity and capital accumulation to China’s growth. When these are offered in realistic combination, the combined shocks are deflationary in the US and China, implying that contractionary US monetary policy is not imminent. Monetary responses in the US and China then combine with price targeting regimes in the EU and Japan to expand liquidity globally, amplifying impacts on financial markets and the global distribution of real investment.
    Keywords: Global performance, US recovery, China’s transition, macro interdependence, financial integration
    Date: 2015–04
  19. By: Elwyn Davies; Marcel Fafchamps
    Abstract: This paper uses experimental methods to study the impact of limited enforcement and reputation on employer-worker relations in labour markets in Ghana. Participants, students recruited from universities in Accra, Ghana are designated as either employers or workers and play a gift-exchange game on a tablet computer. In this game, employers make wage offers to workers, who can then choose to accept or reject and, after accepting, what effort level to exert. Five treatments were used to assess the impact of limited enforcement, competition between employers and reputation. Each participants plays four games, consisting of five trading periods. We find different results from earlier experiments in developed countries: while these experiments have found strong evidence for relational contracting and conditional reciprocity, we do not find evidence for this. We find that a subgroup of workers exerts very low effort levels, but that this low effort of the workers is not punished by employers, who are not responsive in their wage offers to what the workers did previously. As a result, on average, the workers capture most of the profits. Introducing competition or a multilateral reputation mechanism does not significantly improve this.
    Keywords: Relational contracting, conditional reciprocity, gift-exchange game, punishment strategies, Ghana
    JEL: C71 D2 D86 E24 O16
    Date: 2015
  20. By: Knowles, John (Federal Reserve Bank of St. Louis); Vandenbroucke, Guillaume (Federal Reserve Bank of St. Louis)
    Abstract: Low sex ratios are often equated with unfavorable marriage prospects for women, but in France after World War 1, the marriage probability of single females rose 50%, despite a massive drop in the male/female ratio. We conjecture that the war-time birth-rate bust induced an abnormal postwar abundance of singles with relatively high marriage propensities. We compute the equilibrium response, in a life-cycle matching model, of marriage hazards to war-time fertility and male-mortality shocks. Our results implicate two powerful forces: an abnormal abundance of marriageable men, and increased gains from marriage due to post-war pro-natalism.
    Keywords: Family Economics; Household Formation; Marriage; Fertility.
    JEL: D10 E13 J12 J13 O11
    Date: 2015–03–01
  21. By: Gabriel P. Mathy
    Abstract: Long-term unemployment was a problem both during the Great Depression and today. As employers view the long-term unemployed as lower-quality employees, this reduces their prospects for reemployment long after the end of a recession, a phenomenon which has been previously described as "hysteresis in unemployment." I find that hysteresis was a significant problem during the Great Depression as the number of long-term unemployed rose, but that the essentially unlimited labor demand during the Second World War provided jobs even to the long-term unemployed. As a result, the hysteresis effect was reversed and labor market conditions in the 1950s resembled those of the 1920s prior to the Great Depression. The Beveridge Curve has also shifted out during the Great Recession as long-term unemployment has risen. Both of these shifts are also evident during the Great Depression. I provide some rough estimates of the costs of this hysteresis effect through a counterfactual simulation where the unemployed are matched to new jobs during the Great Recession and its aftermath just as easily as they were before the Great Recession. Without the pernicious effect of hysteresis, there could be over 12 million more employed Americans today.
    JEL: N12 J60 E32
    Date: 2015
  22. By: HIRAGUCHI Ryoji
    Abstract: We provide a microfoundation for the production function by using the concept of stochastic macro-equilibrium in Yoshikawa ("Stochastic Macro-equilibrium and Microfoundations for Keynesian Economics," RIETI Discussion Paper, 2013). We consider an economy with multiple firms, with each firm possessing Leontief technology. We assume that the allocation of labor is determined by entropy maximization. We show that for selected productivity distribution, aggregate production is described by the popular Cobb-Douglas type.
    Date: 2015–04
  23. By: Ran Li; Jiao Wang
    Abstract: In this paper, we aim to understand how monetary policy is conducted in China and what the main sources of fluctuations in China’s business cycle are. To this end, we extend a standard New Keynesian dynamic stochastic general equilibrium model with financial frictions and investment-specific technology shocks. We incorporate a hybrid form of monetary policy rule and employ a Bayesian estimation strategy using Chinese data. We find that the People’s Bank of China conducts monetary policy by adjusting the policy rate in response to inflation, output growth as well as real money growth. We also find that neutral technology shocks are the main drivers of the fluctuations in output and consumption while the investment-specific technology shock is the primary source of the variation in investment. This paper offers a new way of examining the rule of China’s monetary policy and indicates a structural break of the neutral technology development that may have caused the slowing down of GDP growth since 2010.
    Keywords: Monetary policy, business fluctuation, Bayesian estimation, dynamic stochastic general equilibrium model, China
    JEL: E32 E43 E52
    Date: 2015–04
  24. By: Sergey Ivashchenko
    Abstract: We build a dynamic stochastic general equilibrium model with five sectors (1 - mining; 2 - manufacturing; 3 - electricity, gas and water; 4 - trade, transport and communication; 5 - other). The model is estimated on 29 time-series of Russia statistical data. We analyse the out-of-sample forecasting prowess of the model and derive implications for economic policy.
    Keywords: DSGE, industries, out of sample forecasts
    JEL: E23 E27 E32 E37 E60
    Date: 2015–03–06
  25. By: Achim Truger
    Abstract: Most parts of the Euro area have seen seven years of deep economic crisis. The strategy of tightening the fiscal constraints of the SGP has driven many member states into austerity. In contrast, the golden rule of public investment proposed in this study would be one important element of the necessary institutional reform. The rule is widely accepted in traditional public finance and would allow financing net public investment by government deficits thus promoting intergenerational fairness as well as economic growth. A pragmatic version focusing on net public investment as defined in the national accounts minus military expenditures plus investment grants for the private sector could quickly be implemented. Net public investment should be deducted from the relevant deficit measures of the Stability and Growth Pact and the fiscal compact. Over time it could be technically and statistically refined and potentially include other – more intangible – types of investment like education expenditures. As political implementation would probably take some time, the golden rule would have to be complemented by expansionary fiscal policy to provide the urgently needed boost to the European economy in the short term. This could be done by a short term European Investment Programme similar to the 2008 European Economic Recovery Programme during the Great Recession. Such a programme could also allow for investment needs beyond the narrow national accounts definition to contribute to public investment in a broader sense, e.g. for expenditure related to the currently neglected Europe 2020 goals such as social inclusion.
    Keywords: Public Investment, Golden Rule, Reform of the Stability and Growth Pact, Fiscal Policy and Macroeconomic Performance, Austerity
    JEL: E61 E62 E65 H54 H62
    Date: 2015–03
  26. By: Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Stefan Neuwirth (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper presents a MIDAS type mixed frequency VAR forecasting model. First, we propose a general and compact mixed frequency VAR framework using a stacked vector approach. Second, we integrate the mixed frequency VAR with a MIDAS type Almon lag polynomial scheme which is designed to reduce the parameter space while keeping models flexible. We show how to recast the resulting non-linear MIDAS type mixed frequency VAR into a linear equation system that can be easily estimated. A pseudo out-of-sample forecasting exercise with US real-time data yields that mixed frequency VAR substantially improves predictive accuracy upon a standard VAR for different VAR specifications. Forecast errors for, e.g., GDP growth decrease by 30 to 60 percent for forecast horizons up to six months and by around 20 percent for a forecast horizon of one year.
    Keywords: Forecasting, mixed frequency data, MIDAS, VAR, real time
    JEL: C53 E27
    Date: 2015–04
  27. By: Gabriela Lopes de Castro; Ricardo Mourinho Félix; Paulo Júlio; José R. Maria
    Abstract: Using PESSOA, a medium-scale DSGE model for a small euro-area economy, we evaluate how scal adjustments impact short- and medium-term debt dynamics and output for alternative policy options, and budgetary and economic conditions. Fiscal djustments may increase the public debt-to-GDP ratio in the short run, even forconsolidations carried out in normal times in economies characterized by moderateindebtedness levels. Financial turmoils and hikes in the nationwide risk premia, coupledwith high indebtedness levels and sti scal measures, boost the output costs ofscal consolidations and severely aect their eectiveness in bringing the public debtto-GDP ratio down in the short term. In the medium run credible scal adjustments entail a decline in the public debt ratio, though at potentially very large output losseswhen carried out under unfavorable budgetary and economic conditions.
    JEL: E12 E30 E62 H60
    Date: 2015
  28. By: Laurent Clerc; Alexis Derviz; Caterina Mendicino; Stephane Moyen; Kalin Nikolov; Livio Stracca; Javier Suarez; Alexandro Vardulakis
    Abstract: We develop a dynamic general equilibrium model for the positive and normativeanalysis of macroprudential policies. Optimizing financial intermediaries allocate theirscarce net worth together with funds raised from saving households across two lendingactivities, mortgage and corporate lending. For all borrowers (households, firms, andbanks) external financing takes the form of debt which is subject to default risk. This“3D model” shows the interplay between three interconnected net worth channels thatcause financial amplification and the distortions due to deposit insurance. We apply itto the analysis of capital regulation.
    JEL: E3 E44 G01 G21
    Date: 2015
  29. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Ryadh M. Alkhareif (Economic Research Department, Saudi Arabian Monetary Agency)
    Abstract: This paper constructs and analyzes core inflation indicators for Saudi Arabia for the period of March 2012 to May 2014 using two alternative approaches: the Exclusion Method (ex food and housing/rent) and the Statistical Method. The findings of the analysis suggest that the ex food and housing/rent inflation is more volatile than the overall CPI inflation over the sample period. In contrast, the statistical core inflation is relatively more stable and less volatile. Moreover, the ex food and housing/rent inflation is only weakly correlated with headline inflation, whereas the statistical core inflation exhibits a stronger correlation. This combination of lower volatility and higher correlation with headline inflation makes the statistical method a much better choice for policymakers. From a monetary policy standpoint, using a bundle of core inflation measures, including both properly constructed Exclusion and Statistical methods, is more desirable, especially when variation across measures is widespread, as is the case in Saudi Arabia.
    Keywords: consumer price index, core inflation, generalized dynamic factor model, monetary policy.
    JEL: C51 E31 E58
    Date: 2015–03
  30. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); Fernanda Feitosa Nechio (Federal Reserve Bank of San Francisco)
    Date: 2015–03
  31. By: Márcio Gomes Pinto Garcia (Department of Economics PUC-Rio)
    Date: 2015–02–27
  32. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); Niels Arne Dam (Danmarks Nationalbank); Jae Won Lee (Seoul National University)
    Date: 2014–12
  33. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); Eduardo Zilberman (Department of Economics PUC-Rio); Laura Candido de Souza (Department of Economics PUC-Rio); Nilda Mercedes Cabrera Pasca (Department of Economics PUC-Rio)
    Date: 2014–09
  34. By: Marcos Chamon (IMF); Laura Candido de Souza (Department of Economics PUC-Rio); Márcio Gomes Pinto Garcia (Department of Economics PUC-Rio)
    Date: 2015–02
  35. By: Nadav Ben Zeev (Ben-Gurion University of the Negev); Christopher M. Gunn; Hashmat U. Khan (Department of Economics, Carleton University)
    JEL: E32 E52 E58
    Date: 2015–03–17
  36. By: Mikael C. Bergbrant (St. Johns University); Patrick J. Kelly (New Economic School)
    Abstract: One of the challenges facing the prior literature when examining the link between macroeconomic risks and the size (SMB), value (HML) and momentum (WML) factors is the difficulty of obtaining direct measures of macroeconomic expectations. We re-examine these relations using direct measures of investor expectations across 20 developed markets. While local and global market returns are robustly related to measures of economic activity, unlike the prior literature we find only a weak relation between HML and changes in expectations about macroeconomic activity. SMB and WML are either unrelated to or act as hedges against macroeconomic risk. This is inconsistent with HML, SMB and WML being priced because they proxy for macroeconomic risks. These findings are not the result of low power tests but rather from the fact that the individual portfolios, which make up the factors, have economically and statistically similar sensitivity to the macroeconomic risks we examine.
    Date: 2015–03
  37. By: DAVILA, Julio (Université catholique de Louvain, CORE, Belgium)
    Abstract: Rational expectations do not require beliefs to be consistent with history and with what agents can conclude from it. Actually, at a rational expectations equilibrium agents may hold beliefs that explain poorly the history they observe, even when restricted to only those rationalizing their choices. This paper shows that if agents hold rationally formed expectations instead —in the sense of following from beliefs that explain history better than any other beliefs justifying their choices— then additional allocations unsupported by rational expectations can be shown to be equilibrium outcomes. By means of this result, it is established too that adding common knowledge of the rationality of the formation of expectations —on top of that of rationality of choices and market clearing— does not suffice either to guarantee rational expectations. Interestingly, the rationally formed expectations equilibria produced in this paper exhibit a sunspot-like volatility that do not rely on an explicit sunspot mechanism.
    Keywords: rationality, expectations, overlapping generations
    JEL: D84 D5 E3
    Date: 2014–11–05
  38. By: Mattana, Elena (Université catholique de Louvain, CORE, Belgium); Panetti, Ettore (Banco de Portugal, Economics and Research Department)
    Abstract: We study the macroeconomic effects of systemic bank runs in a neoclassical model with a microfounded banking system. In every period, the banks provide insurance against some idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In a quantitative exercise, we find that the banks, when the probability of a run is sufficiently low, choose a contract that is not run-proof, and satisfy an equal service constraint. In equilibrium, a shock to the probability of a run leads to a maximum drop in GDP of 5.6 percent, and a maximum welfare loss of 0.17 percent.To what extent do income taxation systems decrease poverty? We raise this question under the assumption that well beings is defined in line with the ethics of responsibility. It requires considering that not all inequalities are unjust. Here, we do consider that inequalities stemming from labor time differences are not unjust. To compare households of different sizes, we introduce a labor time equivalence scale. We apply the resulting method to the Belgian tax system
    Keywords: financial intermediation, bank runs, welfare costs, calibration
    JEL: E21 E44 G01 G20
    Date: 2014–09–30
  39. By: Robert Vermeulen; Marco Hoeberichtsa; Borek Vašícekb; Diana Žigraiová; Katerina Šmídková; Jakob de Haan
    Abstract: This paper develops a Financial Stress Index (FSI) for 28 OECD countries and examines its relationship to crises using a novel database for financial crises. A stress index measures the current state of stress in the financial system and summarizes it in a single statistic. Our results suggest that even though our FSI is clearly related to the occurrence of crises, there is only a weak relationship between the FSI and the onset of a crisis, notably the onset of a banking crisis. Policymakers should therefore be aware of the limited usefulness of FSIs as an early warning indicator.
    Keywords: financial stress index; financial crises; developed countries; early warning indicators
    JEL: E5 G10
    Date: 2015–03
  40. By: Tai Lam (Reserve Bank of Australia); Crystal Ossolinski (Reserve Bank of Australia)
    Abstract: This paper draws on a survey of consumers' willingness to pay surcharges to use debit cards and credit cards, rather than cash. Just as the price a consumer is willing to pay for a good or service is indicative of the value he/she places on that item, the willingness to pay a surcharge to use a payment method reflects that method's value to that customer, relative to any alternatives. We find a wide dispersion in the willingness to pay for the use of cards. Around 60 per cent of consumers are unwilling to pay a 0.1 per cent surcharge, which suggests that for these individuals, the net benefits of cards are very small or that cash is actually preferred. At the other end of the distribution, some individuals (around 5 per cent) are willing to pay more than a 4 per cent surcharge, indicating they place a substantial value on paying using cards. On average, consumers have a higher willingness to pay for the use of credit cards than debit cards. This difference can be viewed as the additional value placed on the non-payment functions – rewards and the interest-free period – of credit cards. We estimate that on average credit card holders place a value of 0.6 basis points on every 1 basis point of effective rewards rebate. Based on the survey data and information on the costs to merchants of accepting payment methods, we can predict the mix of cash, debit card and credit card payments chosen by consumers under different levels of surcharging and explore the implications for the efficiency of the payments system. In particular, the consumer surplus in a scenario where merchants do not surcharge and the costs of all payment methods are built into retail prices can be compared with that where merchants surcharge based on payment costs and retail prices are correspondingly lower. Our findings suggest that cost-based surcharging leads to some consumers switching to less costly payment methods, resulting in greater efficiency of the payment system and an increase in consumer surplus of 13 basis points per transaction.
    Keywords: discrete choice experiment; consumer payment choice; consumer surplus; retail payment systems
    JEL: C83 D12 D61 E42
    Date: 2015–03
  41. By: János Vincze (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest); Gergely Varga (Corvinus University of Budapest)
    Abstract: Savings behaviour seems to exhibit heterogeneity across nations, and within nations, too. Large changes in saving rates have been observed in the last decades that can be viewed as signs of the arbitrariness of saving. There is a long tradition in the savings literature that separates people into two groups: those who behave soberly (ants), and those who act in an extremely short-sighted fashion (crickets). A puzzle remains: why does an apparently inferior behavioural pattern persist? Our aim is to provide a model that exhibits the arbitrariness of savings by exploring the two-types idea, and also makes intelligible why both types can coexist in the long run. Our approach consists in setting up an agent-based model starting from a traditional production and factor market framework. The model features an evolutionary mechanism that promotes the behaviour conducive to the highest satisfaction of the consumption goal. Our main findings include the prevalence of non-ergodicity, and the genericity of non-stationarity. The model becomes stationary when the selection pressure is very high, and crickets are eliminated. Though in general ants have somewhat higher per capita consumption than crickets, and are less indebted, we have found cases where the total average consumption is higher with many crickets than without them.
    Keywords: E03, E14, E27
    Date: 2015–01
  42. By: Edina Berlinger (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Department of Finance, Corvinus University of Budapest); György Walter (Department of Finance, Corvinus University of Budapest)
    Abstract: In Hungary, more than 22% of the FX mortgage portfolio is non-performing and the tendency is worsening. In this paper we propose a solution to effectively reduce the credit and systemic risk inherent to this portfolio, but the proposed model can be applied to other mortgage portfolios in trouble, as well. The main element of our proposal is the income contingent repayment complemented with effective incentives to motivate debtors to repay their debt in a highly flexible way. We show that the proposed scheme is attractive both for the debtors and the lenders; therefore, contrary to some recent policy measures, in this case there is no need for direct state intervention to force modifications to the existing legal contracts. In order to evaluate the possible effects, we simulated a realistic population of borrowers with different age, debt, LTV and income. Then we calculated the expected income paths and the repayments of the borrowers, and also the profit of the lenders on the basis of the non-perforing FX mortgage portfolio. The results underpin that the proposed scheme creates significant value added, and most importantly it can effectively reduce the vulnerability of the whole economy to future shocks.
    Keywords: FX mortgage loans, emerging markets, management of credit and systemic risk, PTI, income contingent repayment, micro-simulation
    JEL: E42 G17 G21 G28
    Date: 2015–01
  43. By: Marianne, Ojo
    Abstract: Basic and fundamental issues which link financing and funding activities to financial regulation involve the problems of systemic risks and asymmetric information. In addition to addressing these issues, this paper will also consider other issues related to long term funding, which affect financial stability and development in Low Income Developing Countries (LIDCs) - namely inadequate regulatory frameworks, as well as constraints and accessibility to long term funding. By considering the recent developments with the Basel framework, it will seek to illustrate, by way of reference to studies, why low income developing countries, as well as selected emerging economies are still lagging behind in terms of the implementation of regulatory standards. It will also aim to demonstrate how these countries would largely benefit from effective implementation of these standards. Whilst aiming to facilitate means whereby sources of longer term funding could be enhanced, it will also consider the disadvantages and risks associated with longer term funding, challenges imposed by debt sustainability and propose alternative sources of funding. Transparency and disclosure, it will be highlighted, continue to generate severe obstacles to financial development and growth, as will be reflected from results of certain investigations.
    Keywords: liquidity risk; long term funding; financial stability; Low Income Countries (LICs);information disclosure
    JEL: E6 F3 G2 G28 K2 M4
    Date: 2015–02–23
  44. By: Stelios Bekiros; Rangan Gupta; Alessia Paccagnini
    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 coe¢ cient 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: 2015–04
  45. By: Dean Baker
    Abstract: This paper explores the potential impact of the Federal Reserve Board’s decision on interest rates on the budget deficit. The first part recounts the history of the 1990s surplus, correcting the widely held misunderstanding that this surplus was achieved by the Clinton administration’s tax increases and spending cuts. The second part examines the direct and indirect impact of Fed rate hikes on the federal budget deficit. The third part examines the impact of Fed rate hikes on state budgets.
    Keywords: economic policy, Bush administration, George W. Bush, dollar, housing bubble, trade deficit
    JEL: E
    Date: 2015–03
  46. By: Jairo Núñez; Felipe Castro; Nidia Rincón
    Abstract: En 2011 a través de la creación del Sistema General de Regalías –SGR- se modificó la manera como se distribuyen los recursos de regalías en Colombia, permitiendo que participaran de manera equitativa todas las entidades territoriales del país. Después de varios años de entrada en vigencia de este nuevo sistema es necesario evaluar su diseño, gestión e implementación y su capacidad para el cumplimiento de los objetivos propuestos. Este documento evalúa la institucionalidad y los procesos del nuevo sistema, con un particular énfasis sobre el ciclo de proyectos. La evaluación se desarrolló a través de la recolección y análisis de información primaria y secundaria, de carácter cualitativo y cuantitativo, incluyendo un extenso trabajo de campo en ocho departamentos del país. La evaluación concluye que el esquema general planteado sigue un modelo institucional que supera el funcionamiento del sistema anterior, sin embargo advierte que el modelo es vulnerable al mal funcionamiento de sus eslabones los cuales en muchas ocasiones trascienden al SGR.
    Keywords: Regalías, Sistema General de Regalías, Recursos naturales no Renovables, Evaluación Institucional, Evaluación de Procesos, Desarrollo Regional
    JEL: E62 H27 H76 Q32
    Date: 2014–09–30
  47. By: Krzysztof Beck (Uczelnia £azarskiego w Warszawie)
    Abstract: Turmoil in euro area once more forces EU authorities to rethink future of further monetary integration. One of the most commonly used criterions for successful monetary in contemporary research is business cycle synchronization (BCS). Though BCS has been vastly described at country level, not as much attention has been put on the degree of BSC at regional level. Topic is important for 2 main reasons. The first is that determining degree of BCS at regional level can help in assessment of monetary policy effectiveness at country level, as well as giving point of reference for evaluation of perspective costs of participation in monetary union. The second is that there is theoretical dispute within the optimum currency areas literature between ‘European Commission’ and “Krugman” view that can be resolve a great deal trough regional analysis. In order to assess BCS in EU Hodrick-Prescott, as well as Christiano and Fitzgerald filter to time series of real GDP for 24 countries, 82 NUTS 1, 242 NUTS 2 and 1264 NUTS 3 regions over the period of 1998-2010. Data was later used to create bilateral measures of BSC, which gave 276 observations on country level, 3321 on NUTS 1, 29161 on NUTS 2 and 798216 on NUTS 3 level. Results of the analysis support “European Commission” view and show very high degree of BSC within EU countries. Country level analysis also reveals that within the EU there exist group of countries that could form effectively working monetary union based on BCS criterion.
    Keywords: business cycle synchronization, regional economics, optimum currency area theory, Hodrick-Prescott filter, European integration
    JEL: E32 E50 F44 R10
    Date: 2015–04
  48. By: Francisco Galrão Carneiro; Aleksandra Iwulska; José-Daniel Reyes; Miguel Eduardo Sánchez-Martín
    Keywords: Banks Banking Reform Poverty Reduction - Achieving Shared Growth Social Protections and Labor - Labor Policies Economic Theory Research Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth
    Date: 2015–01
  49. By: World Bank Group
    Keywords: Poverty Reduction - Rural Poverty Reduction Public Sector Expenditure Policy Housing and Human Habitats Development Economics and Aid Effectiveness Macroeconomics and Economic Growth - Subnational Economic Development Public Sector Development Communities and Human Settlements
    Date: 2014–05
  50. By: World Bank Group
    Keywords: Environmental Economics Policies Banks Banking Reform Social Protections and Labor - Labor Policies Economic Theory Research Private Sector Development - E-Business Finance and Financial Sector Development Macroeconomics and Economic Growth Environment International Economics and Trade - Foreign Direct Investment Macroeconomics and Economic Growth - Investment and Investment Climate
    Date: 2014–12
  51. By: Donald F. Larson; Dilshod Khidirov; Irina Ramniceanu
    Keywords: Crops and Crop Management Systems Agriculture and Farming Systems Economic Theory and Research Rural Development Knowledge and Information Systems Environmental Economics and Policies Environment Agriculture Rural Development Macroeconomics and Economic Growth
    Date: 2015–01
  52. By: World Bank; Observatoire National de la Pauvreté et de l’Exclusion Sociale
    Keywords: Poverty Reduction - Rural Poverty Reduction Macroeconomics and Economic Growth - Regional Economic Development Health, Nutrition and Population - Population Policies Poverty Reduction - Achieving Shared Growth
    Date: 2014
  53. By: Ahmad Lashkaripour (Indiana University)
    Abstract: I develop a novel view of comparative advantage that collectively explains (i) the effect of distance and GDP per capita on the price composition of trade, and (ii) the systematically higher trade-to-GDP ratio of rich countries. There are two types of goods, which offer different scopes for product differentiation. In equilibrium, rich and remote countries have (endogenously determined) comparative advantage in the highly-differentiated type, whereas poor countries have comparative advantage in the less-differentiated type. I combine the new channel of comparative advantage with National Product Differentiation to construct a unified model of trade. The unified model extends beyond standard gravity models as it characterizes both the volume and the product composition of foreign trade. Remarkably, in the unified model, despite homothetic preferences rich and poor countries have systematically different consumption structures, and iceberg (ad-valorem) trade costs distort the price composition of exports across space. I estimate the unified model using bilateral trade data on 100 countries and compare it to a special case, which delivers the standard gravity equation. The unified model fits the data significantly better than the standard gravity model. The estimated gains from trade are substantially larger than the standard model, and more unequally distributed across nations. Importantly, when accounting for the role of composition, further liberalization of trade systematically favors poor and remote countries.
    Keywords: trade, gravity, composition, price, Washington Apples, trade-to-GDP, gains, rich, poor
    Date: 2015–06
  54. By: Paraskevi Salamaliki (Zukunftskolleg and Department of Economics, University of Konstanz, Germany)
    Abstract: We provide new evidence on the role of economic policy uncertainty (EPU) in aggregate real economic activity in the US using a multiple-horizon Granger causality framework, while allowing for infrequent shifts in mean levels and growth rates of the system variables. Our empirical investigation shows that the predictive ability of EPU for economic activity significantly depends on the presence (or absence) of infrequent structural shifts and the absence from the information set of a forward looking variable such as the stock market level. We do not find economic policy uncertainty effects on industrial production once we control for stock prices irrespective of segmented trends removal. There is some evidence that EPU anticipates employment in the short-run, yet, after re-moving rare events, EPU does not anticipate employment at any horizon. In contrast, the stock market level is found to contain strong predictive direct and indirect information for economic activity that is robust to the presence of infrequent trend breaks
    Keywords: Economic policy uncertainty; real economic activity; Granger causality; Multi-horizon causality; Level shifts; Trend breaks; Vector autoregression
    JEL: E30 E32 C32
    Date: 2015–03–31
  55. By: Schanne, Norbert (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "It is broadly accepted that two aspects regarding the modeling strategy are essential for the accuracy of forecast: a parsimonious model focusing on the important structures, and the quality of prospective information. Here, we establish a Global VAR framework, a technique that considers a variety of spatio-temporal dynamics in a multivariate setting, that allows for spatially heterogeneous slope coefficients, and that is nevertheless feasible for data without extremely long time dimension. Second, we use this framework to analyse the prospective information regarding the economy due to spatial co-development of regional labour markets in Germany. The predictive content of the spatially interdependent variables is compared with the information content of various leading indicators which describe the general economic situation, the tightness of labour markets and environmental impacts like weather. The forecasting accuracy of these indicators is investigated for German regional labour-market data in simulated forecasts at different horizons and for several periods. Germany turns out to have no economically dominant region (which reflects the polycentric structure of the country). The regions do not follow a joint stable long run trend which could be used to implement cointegration. Accounting for spatial dependence improves the forecast accuracy compared to a model without spatial linkages while using the same leading indicator. Amongst the tested leading indicators, only few produce more accurate forecasts when included in a GVAR model, than the GVAR without indicator. IAB-" (Author's abstract, IAB-Doku) ((en))
    Keywords: Prognosegenauigkeit, Prognosemodell, regionale Faktoren, Indikatorenbildung
    JEL: C23 E24 E27 R12
    Date: 2015–03–30
  56. By: Giovanni Coletta; Carmen Graziano; Giancarlo Infantino
    Abstract: The lack of budget transparency and projections accuracy have been among the determinants of the last four decades high deficit and debt, as the recent 2008-2009 economic crisis has highlighted. In order to improve fiscal policy process and budget transparency, the European Union (EU) stated more stringent fiscal rules monitored by Independent Fiscal Bodies, that have the capacity to “tie the hands” of policymakers tempted by deviations from socially optimal choices according to the academic circles. The present paper aims at empirically verifying if Fiscal Councils (FCs) in Europe (as a complement or substitute for the Fiscal Rules - FRs) have an impact on Governments’ fiscal decisions and if this impact exists and is positive which feature of their functioning is relevant for their effectiveness. The data elaborated with a panel regression model are the actual and foreseen (one year ahead) public finance and economic data of eleven European Countries1. The yearly planned change of the Cyclically Adjusted Budget Balance (CAB) 2 is interpreted as the discretionary fiscal policy and data about FCs and FRs are those of the European Commission (EC) Database on Fiscal Governance (data on fiscal institutions of the European database were opportunely adjusted, controlled and rebuilt for the missing years to construct the Fiscal Council Index - FCI). This work (with the caveats related to the used data) provides empirical support for the hypothesis of a positive impact of FCs on fiscal performance; leading to the conclusion that if there are clear and strong FRs, the presence of fiscal institutions with solid basis in national institutional framework (strong legal basis) could positively affect political decisions.
    Keywords: Financial crisis, fiscal policy, fiscal institutions, stability programs and convergence programs
    JEL: C33 E61 E62 H68
    Date: 2015–03
  57. By: Eijffinger, S.C.W. (Tilburg University, Center For Economic Research); Grajales Olarte, A. (Tilburg University, Center For Economic Research); Uras, R.B. (Tilburg University, Center For Economic Research)
    Abstract: In this paper we estimate a New-Keynesian DSGE model with heterogeneity in price and wage setting behavior. In a recent study, Coibion and Gorodnichenko (2011) develop a DSGE model, in which firms follow four different types of price setting schemes: sticky prices, sticky information, rule of thumb, or flexible prices. We enrich Coibion and Gorodnichenko (2011) framework by incorporating heterogeneity in nominal wage setting behavior among households. We solve this DSGE model and estimate it using Bayesian techniques<br/>for the United States economy for the period of 1955-2014. Our results confirm the previous findings in the literature regarding the importance of nominal rigidity in wages to better match the macroeconomic data. More importantly, we identify qualitative as well as quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and the wage inflation, which a standard New Keynesian model with only Calvo-type wage rigidity fails to achieve. We also show that modelling wage rigidity heterogeneity - as oppose to standard-Calvo-wages - amplifies the macroeconomic output fluctuations resulting from a technology shock whereas it mitigates the output fluctuations following a monetary tightening.
    Keywords: Heterogeneity; price; wage and information stickiness; Bayesian estimation
    JEL: C11 E24 E31 E32 E52
    Date: 2015
  58. By: Luca Zamparelli (Sapienza, University of Rome)
    Abstract: This paper examines the evolution of wealth distribution between workers and capitalists. It shows that under competitive conditions, and when factors elasticity of substitution is high enough to ensure endogenous growth, capitalists' share of total wealth asymptotically tends to one if they have a higher propensity to save than workers. It is also shown that a tax on capital income shifts wealth distribution in workers' favor and makes any level of wealth concentration feasible.
    Keywords: Wealth distribution, elasticity of substitution, Pasinetti two-class equilibrium, Piketty
    JEL: E12 E13 E25
    Date: 2015–01
  59. By: Ellis Scharfenaker (Department of Economics, New School for Social Research)
    Abstract: The distribution of prot rates in the U.S. economy for 21,714 rms from 1962 - 2012 appears to be highly organized in a Laplace-like distribution. Pos- itive prot rate deviations from the mode appear to be remarkably stationary over time displaying little parametric changes while negative prot rate devi- ations introduce an asymmetry into the distribution that appears to uctuate over time. In this paper I propose a model of \classically" competitive rms facing informational entropy constraints in their decisions to potentially enter or exit markets based on prot rate dierentials. The result is a three parameter logit quantal response distribution for rm entry and exit decisions. Bayesian methods are used for inference into the the distribution of entry and exit deci- sions conditional on prot rate deviations and rm level data from Compustat is used to test these predictions. The model parameters show a uctuating asymmetry in rm exit decisions, an increase in dispersion of negative prot rate dierentials, and a falling general rate of prot.
    Keywords: Firm competition, Laplace distribution, Gibbs sampler, prot rate, statistical equilibrium, rational inattention, information theory, quantal response
    JEL: C10 C15 D20 D22 E10 L11
    Date: 2015–03
  60. By: Rishabh Kumar (Department of Economics, New School for Social Research)
    Abstract: A two class (rentiers and workers) model of growth and distri- bution is applied to the study of long run stagnation in aggregate demand. The theoretical framework shows the same forces which lead to concentration of wealth and income amongst the class of rentiers, also constrain the aggregate economy's output capital ratio in the long run. We conjecture that this model addresses the secular stagnation argument that has gained prominence recently. For the period 1979- 2010, we nd the US economy represents the kind of stylized economy which would be prone to falling output capital ratios due to increased savings rate dierentials in its income and wealth ranking. A rst approximation suggests the long decline in the rate of saving in the US maybe a consequence of a distributional paradox of thrift.
    Keywords: Distribution, Economic Growth, Stagnation, Paradox of Thrift
    JEL: D3 E21 O4
    Date: 2015–03
  61. By: Miguel A. Leon-Ledesma; Mathan Satchi
    Abstract: We provide a general theoretical characterization of how technology choice affects the long-run elasticity of substitution between capital and labour. While the shape of the technology frontier determines the long-run growth path and the long-run elasticity, adjustment costs in technology choice allow capital labour complementarity in the short run. We develop a class of production functions that are consistent with balanced growth even in the presence of permanent investment-specific or other kinds of biased technical progress but where, consistent with empirical evidence, short-run dynamics are characterized by complementarity. Importantly, the approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of the new production technology provides a good match for the short and medium run behavior of the US labour share.
    Keywords: Balanced growth; appropriate technology; elasticity of substitution
    JEL: E25 O33 O40
    Date: 2015–03
  62. By: Vincent Bignon; Régis Breton; Mariana Rojas Breu
    Abstract: This paper shows that currency arrangements impact on credit available through default incentives. To this end we build a symmetric two-country model with money and imperfect credit market integration. With the Euro Area context in mind, we capture differences in credit market integration by variations in the cost for banks to grant credit for cross-border purchases. We show that for a high enough level of this cost, currency integration may magnify default incentives, leading to more stringent credit rationing and lower welfare than in a regime of two currencies. The integration of credit markets restores the optimality of the currency union.
    Keywords: banks, currency union, monetary union, credit, default
    JEL: E50 F3 G21
    Date: 2015–03
  63. By: João Braz Pinto (Deloitte Touche Tohmatsu Limited, Portugal); João Sousa Andrade (Faculty of Economics, University of Coimbra and GEMF, Portugal)
    Abstract: Keynes has emphasized a particular situation in which the liquidity preference becomes absolute, leading to monetary policy ineffectiveness: the near zero nominal rate of interest does not allow negative values of the real interest rate. This situation is termed liquidity trap (LT) and although popularized by the IS-LM Hicks-Hansen framework it was authored by Robertson. It was also elected as the Keynesian case against the classical one. In 1998 Krugman recovered the name by applying it to the Japanese episode of the 1990's. The “lowflation” environment in USA and Europe brought again the LT to the forefront. The quantitative easing monetary policy was followed in Japan and is now applied in the USA and EMU as a solution to overcome the LT. But the LT has been erroneously considered as a money demand problem and at the same time denied as a “banking problem” in the words of Krugman. We contend that the current situation should be interpreted as a “banking problem” that impedes the transformation of the monetary base into money supply. In order to prove our thesis we study the behavior of the USA money multiplier and the income velocity of money before the beginning of the current crisis and during the crisis and by forecasting and estimating a VAR and a VECM model we compare the normal situation of monetary policy efficiency with the situation of LT monetary policy inefficiency.
    Keywords: Liquidity Trap, Money Supply, Monetary Base Multiplier, ARIMA, VAR and VECM models.
    JEL: E12 E3 E4 E51 E6
    Date: 2015–03
  64. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: Good morning. I am very pleased to participate in this conference co-organized by the Federal Reserve Bank of Cleveland and the Office of Financial Research. I want to thank Stephen Ong and Joe Haubrich from the Cleveland Fed and Mark Flood and Greg Feldberg from the OFR for putting together such an interesting program. I also thank the editors of the Journal of Financial Stability, which will be publishing a special volume of the journal with some of the papers from the conference. This is the second in what I hope is a series of conferences co-sponsored by the Cleveland Fed and the OFR. I very much value the collaboration between our institutions, which share a similar mission of fostering financial stability in our nation. I believe avenues such as this conference, which bring together researchers, financial sector supervisors, and policymakers from around the globe, provide important ways for us to share different perspectives on the complex subject of financial stability. This dialogue can lead to a better understanding of what we know and what we still need to learn, a crucial step on the road to more effective policymaking.
    Date: 2015–03–30
  65. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Essay presentation to the South African Reserve Bank Conference on Fourteen Years of Inflation Targeting in South Africa and the Challenge of a Changing Mandate
    Date: 2014–10–31
  66. By: Matthew Greenwood-Nimmo (Department of Economics, The University of Melbourne); Viet Hoang Nguyen (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne Yongcheol Shin Department of Economics and Related Studies, University of York)
    Abstract: We develop a technique to evaluate macroeconomic connectedness in any multi-country macroeconomic model with an approximate VAR representation. We apply our technique to a large Global VAR covering 25 countries and derive vivid representations of the connectedness of the system. We show that the US, the Eurozone and the crude oil market exert a dominant influence in the global economy and that the Chinese and Brazilian economies are also globally significant. Recursive analysis over the period of the global financial crisis shows that shocks to global equity markets are rapidly and forcefully transmitted to real trade flows and real GDP.
    Keywords: Generalised Connectedness Measures (GCMs), international linkages, network analysis, macroeconomic connectedness
    JEL: C32 C53 E17
    Date: 2015–03
  67. By: Adrian Chadi; Matthias Krapf
    Abstract: During the European sovereign debt crisis, most countries that ran into fiscal trouble had Catholic majorities, whereas countries with Protestant majorities were able to avoid fiscal problems. Survey data show that, within Germany, views on the euro differ between Protestants and Non-Protestants, too. Among Protestants, concerns about the euro have, compared to Non-Protestants, increased during the crisis, and significantly reduce their subjective wellbeing only. We use the timing of survey interviews and news events in 2011 to account for the endogeneity of euro concerns. Emphasis on moral hazard concerns in Protestant theology may, thus, still shape economic preferences.
    Keywords: Protestantism; euro crisis; subjective wellbeing; media coverage
    JEL: E00 I31 L82 Z12
    Date: 2015–03
  68. By: Oleh Havrylyshyn
    Abstract: The first aim of this paper is to describe the main developments in the Ukrainian economy since its independence in 1991, focusing on the evolution of output, and the path of economic reforms — that is, to simply show what happened. The bottom line on that is well known: Ukraine’s economy performed very poorly, and its reforms moved quite slowly, lagging behind most of Central Europe and the Baltic, and even behind some FSU (Former Soviet Union) countries. This first task is a relatively easy one, though some measurement issues do need discussion. In comparison, the second aim — explaining why it happened, identifying the explanatory, causal factors — is much more difficult and contentious. Indeed, causation here means two dynamics: the relationship between performance and reform pace, and the underlying determinants of the slow reforms. The paper’s main effort will be to argue and present evidence that the poor economic performance is primarily due to the late and slow start on economic reforms. However, it only begins to point to the explanations for slow reforms and suggest a modeling approach to analyze this econometrically in future work. Contents of this publication were first presented by Oleh Havrylyshyn during the 135th mBank-CASE Seminar "A quarter century of economic reforms in Ukraine: too late, too slow, too little". / Niniejsze opracowanie ma na celu opisaæ g³ówne zmiany, jakie zasz³y w ukraiñskiej gospodarce od momentu odzyskania niepodleg³oœci w 1991 roku, równoczeœnie zwracaj¹c uwagê na rozwój produkcji i œcie¿ki reform gospodarczych. Dobrze znanym faktem jest, i¿ gospodarka Ukrainy funkcjonowa³a bardzo s³abo, a proces jej reformowania przebiega³ doœæ powoli, znacznie wolniej ni¿ w wiêkszoœci krajów Europy Œrodkowej i pañstw Ba³tyckich, a nawet niektórych krajów by³ego Zwi¹zku Radzieckiego. Kolejnym, o wiele bardziej problematycznym i kontrowersyjnym celem opracowania jest wyjaœnienie, dlaczego tak siê sta³o. W tym przypadku zwi¹zek przyczynowy powi¹zany jest z dwoma relacjami: zale¿noœci¹ miêdzy wydajnoœci¹ gospodarki i tempem reform, oraz czynnikami bêd¹cymi przyczyn¹ wolnego tempa reform. Najwa¿niejszym celem niniejszej pracy jest natomiast wykazanie oraz udowodnienie, ¿e s³abe wyniki gospodarcze s¹ przede wszystkim wynikiem póŸnego rozpoczêcia procesu reform oraz ich wolnego tempa. Jest ona jednak jedynie wstêpem do pe³nej analizy przyczyn opiesza³oœci we wprowadzaniu zmian oraz propozycja sposobów zastosowania metod ekonometrycznych do zbadania tego problemu w przysz³oœci. Treœæ Zeszytu zosta³a po raz pierwszy zaprezentowana przez Oleha Havrylyshyna podczas 135. Seminarium mBank-CASE: "Æwieræ wieku ukraiñskich reform: za ma³o, za póŸno i zbyt wolno".
    Keywords: banking and finance, competition, financial services, Ukraine, economic growth, economic development
    JEL: F5 P2 P26 P21 D02 E02 G2
    Date: 2015–03
  69. By: Kubo, Koji
    Abstract: We address the puzzle why the black market for foreign exchange thrives in Myanmar despite the successful unification of multiple exchange rates. A closer look at the black market reveals that its enduring competitiveness stems from its lower transaction costs. A question arising from this observation is how the official market, namely banks, can compete with and replace the black market. Our empirical analysis based on an original questionnaire survey of private export firms regarding their choices of currency trading modes suggests that banks can attract exporters by exploiting the economies of scope between currency trading and lending.
    Keywords: Myanmar, Foreign exchange, Banks, Informal finance, Exports, Exchange rate unification, Black market for foreign exchange, Economies of scope in banking
    JEL: E26 O24 O53
    Date: 5015–03
  70. By: Mordecai Kurz (Stanford University); Maurizio Motolese (Università Cattolica di Milano); Giulia Piccillo (Utrecht University); Howei Wu (Shanghai University of Finance and Economics)
    Abstract: We study the impact of diverse beliefs on conduct of monetary policy. Individual belief is modeled by a state variable that defines an individual’s perceived laws of motion. We use a New Keynesian Model that is solved with a quadratic approximation hence individual decisions are quadratic functions. Aggregation renders the belief distribution an aggregate state variable. Although the model has standard technology and policy shocks, diverse expectations change materially standard results about a smooth trade-off between inflation volatility and output volatility. Our main results are summed up as follows:<br> (i) The policy space contains a curve of singularity which is a collection of policy parameters that divides the space into two sub-regions. Some trade-off between output and inflation volatilities exists within each region and some across regions. (ii) The singularity causes volatility of variables to be non monotone in policy parameters. Policy-makers cannot assume a more aggressive policy will change outcomes in a predictable manner. (iii) When beliefs are diverse a central bank must also consider the volatility of individual consumption and the related volatility of financial markets. We show aggressive anti-inflation policy increases consumption volatility and aggressive output stabilization policy entails rising inflation volatility. Efficient central bank policy must therefore be moderate. (iv) High optimism about the future typically lowers aggregate output and increases inflation. This “stagflation†effect is stronger the stickier prices are. Policy response is muted since the effects of higher inflation and lower output on interest rates partially cancel each other. Effective policy requires targeting exuberance directly or its effects in asset markets. Central banks already do so with short term interventions. (v) The observed high serial correlation of 0.80 in policy shocks contributes greatly to market volatility and we show that a reduction in persistence of central bank’s deviations from a fixed rule will contribute to stability. (vi) Belief dispersion is measured by cross sectional standard deviation of individual beliefs. An increased belief diversity is found to make policy coordination harder and results in lower aggregate output and lower rate of inflation. Bank policy can lower belief dispersion by being more transparent.
    Keywords: New Keynesian Model; heterogenous beliefs; market state of belief; Rational Beliefs; monetary policy rule
    JEL: C53 D8 D84 E27 E42 E52 G12 G14
    Date: 2015–03
  71. By: Nicholas Oulton; Gavin Wallis
    Abstract: This paper presents annual estimates of fixed capital stocks and capital services for the United Kingdom, 1950-2013, for the whole economy and for the market sector. Our estimates cover eight asset types (structures, machinery, vehicles, computers, purchased software, own-account software, mineral exploration and artistic originals) and also a ninth, R&D, from 1981 to 2013. We compare the effect on the estimates of capital services of using either an exogenous (ex post) rate of return or an endogenous one. The latter uses a model which allows for ex ante risk: firms' expectations may not be satisfied so the realised rate of return may not be equalised across assets. We see how much the inclusion of R&D matters. We also look at what has happened to capital intensity (capital services per hour worked) in the Great Recession, a period when labour productivity fell in the UK. And we consider the evolution of the aggregate depreciation rate and of capital consumption as a proportion of GDP.
    Keywords: Capital services, capital stocks, rate of return, ex post, hybrid
    JEL: E22 E23 D24 O47
    Date: 2015–03
  72. By: Muqtada, Muhammed
    Abstract: This study is inspired by the current debate on whether central banks, especially in the developing world, should pursue a single mandate or dual/multiple mandates. It examines the Bangladesh Bank’s (BB) aspiration to adopt a multiple mandates approach. These include, besides the objective of price stability, the promotion of “output, employment and real income”. In recent years, the BB has widened its developmental role to play its part in the national strategy of “inclusive growth”, and is seeking to model itself as a developmental central bank. According to an ILO content-analysis study of objectives and missions of central banks, Bangladesh is cited among the very few countries where the central bank has an explicit development objective.
    Keywords: economic reform, bank, monetary policy, price stabilization, employment security, Bangladesh, réforme économique, banque, politique monétaire, stabilisation des prix, sécurité de l'emploi, Bangladesh, reforma económica, banco, política monetaria, estabilización de los precios, seguridad en el empleo, Bangladesh
    Date: 2015
  73. By: Figari, Francesco; Paulus, Alari; Sutherland, Holly
    Abstract: The financial and economic crisis which started in the late 2000s and the fiscal consolidation measures to counter the subsequent government budget deficits have an impact on household income distribution and macroeconomic recovery. We consider the austerity measures in relation to their distributional impact and the potential channels through which fiscal consolidation can affect economic growth. We find notable variation in the size, composition and effects of fiscal consolidation. Richer households tend to bear a greater burden in most countries but spending cuts are more likely to affect liquidity constrained households casting doubts over previous findings in the macro-economic literature about the effectiveness of such measures. This suggests the need to consider more disaggregated evidence to reach robust policy conclusions.
    Date: 2015–03–27
  74. By: Bart Cockx (Ghent University, SHERPPA, UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and CESifo, IZA); Corinna Ghirelli (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: We study the impact of graduating in a recession in Flanders (Belgium), i.e. in a rigid labor market. In the presence of a high minimum wage, a typical recession hardly influences the hourly wage of low educated men, but reduces working time and earnings by about 4.5% up to twelve years after graduation. For the high educated, the working time is not persistently affected, but the penalty on the hourly wage (and earnings) increases with experience, and attains roughly -6% ten years after labor market entry. We also contribute to the literature on inference with few clusters.
    Keywords: scars, graduating, labor market rigidity, recession, few clusters, cluster robust
    JEL: C12 C41 E32 I21 J22 J23 J31 J6
  75. By: Chong, Terence Tai Leung; Wong, Kin Ming
    Abstract: Economists and policy-makers have long sought the ideal framework for monetary policy as it is arguably one of the most important tools for government to influence the economy. Exchange rate and inflation are believed to be the most appealing anchors for providing guidance to the conduct of monetary policy and are thus widely used in the real world. Most existing studies on the effect of exchange-rate arrangements and inflation targeting on economic growth suffer from the absence of a clear counterfactual, rendering it difficult to interpret their results. Based on a new classification scheme on monetary policy regimes, this paper helps to fill that gap by investigating the effect of monetary policy regimes on growth. Our results consistently support that an inflation targeting regime has a positive impact on economic growth when compared with an exchange-rate targeting regime.
    Keywords: Monetary Policy Regimes; Inflation Targeting; Exchange-rate Targeting; Economic Growth
    JEL: E42 E52 E58 F43
    Date: 2015–04–07
  76. By: Chong, Terence Tai Leung; Wong, Kin Ming
    Abstract: There is a large literature on the effect of exchange rate arrangements on trade. The monetary policy used in the floating exchange rate regime, however, is usually ignored and unidentified in the empirical studies. This makes the effect of alternative monetary policy regimes on trade remains largely unknown. This paper sheds light on this area by examining the effect of two well-defined monetary policy regimes, namely exchange-rate targeting and inflation targeting regimes, on bilateral and multilateral trade. Our result suggests a moderate positive effect of inflation targeting policy on bilateral trades between two inflation targeting countries. This effect of inflation targeting, even much moderate than the effect of currency union and a fixed exchange rate at the bilateral level, could exist in the bilateral trades with a large number of trading partners under the same regime. This implies that inflation targeting regime may not have a lower level of multilateral trade than exchange-rate targeting regime. We further support this view with an analysis of multilateral trade.
    Keywords: Monetary Policy Regimes; Inflation Targeting; Exchange-rate Targeting; Gravity Model; Trade
    JEL: E42 E52 E58 F14
    Date: 2015–04–12

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