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on Macroeconomics |
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Issue of 2015‒05‒09
73 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Campiglio, Luigi Pierfranco |
| Abstract: | We specify a VEC model based on six main macroeconomic imbalances to explain the Great European Recession, in Germany, France, Spain and Italy, from 1999 to 2013, estimating their long-term relationships. We focus on employment and unemployment as the main imbalances and identify consumption and investment slumps, prompted by fiscal consolidation, as the causes and current account rebalance and low inflation as the main consequences. Our main results are the following: a) public investment is the main policy instrument which can foster employment, prompting private investment and growth, exports can only partly balance a falling domestic demand; b) the unemployment-current account trade-off is a structural constraint to a lower unemployment level; c) mild deflation set in as a consequence of the consumption slump and oil price decline; d) breaks dates for consumption and inflation thresholds are estimated; and e) Germany successfully passed through the European recession by sharply increasing its exports and reshaping its economic role. |
| Keywords: | E21, E22, E24, E31, F32, F45, O52 |
| JEL: | E0 E22 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64113&r=mac |
| By: | Wang, J. Christina (Federal Reserve Bank of Boston) |
| Abstract: | The robust performance of U.S. labor productivity (LP) early in the recovery from the Great Recession contrasts markedly with the sluggish growth of output, and even more with the lack of recovery in employment. This pattern has renewed interest in understanding why productivity has become much less procyclical in recent decades. This is an important topic because the cyclicality of productivity has implications for how we model business cycles, and our understanding of how they are propagated. The topic also has implications for monetary policy because it affects the trend-cycle decomposition and in turn the projection of trend growth as well as the assessment of the economy's output gap. A number of papers have investigated the aggregate time-series data and proposed mechanisms that may explain the observed changes. Those papers rely entirely on dynamic stochastic general equilibrium models. This study, in contrast, uses the cross-industry dimension as an alternative and complementary method for identifying the mechanisms that have led to the diminished procyclicality of productivity. |
| Keywords: | productivity; exporters; productivity premium; openness |
| JEL: | D24 E22 E24 E32 |
| Date: | 2014–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:14-15&r=mac |
| By: | Jalil, Andrew (Occidental College); Rua, Gisela (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | This paper uses the historical narrative record to determine whether inflation expectations shifted during the second quarter of 1933, precisely as the recovery from the Great Depression took hold. First, by examining the historical news record and the forecasts of contemporary business analysts, we show that inflation expectations increased dramatically. Second, using an event-studies approach, we identify the impact on financial markets of the key events that shifted inflation expectations. Third, we gather new evidence--both quantitative and narrative--that indicates that the shift in inflation expectations played a causal role in stimulating the recovery. |
| Keywords: | Great Depression; inflation expectations; liquidity trap; narrative evidence; regime change |
| JEL: | E31 E32 E42 N12 |
| Date: | 2015–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-29&r=mac |
| By: | Debortoli, Davide (Universitat Pompeu Fabra); Kim, Jinill (Korea University); Linde, Jesper (Sveriges Riksbank); Nunes, Ricardo (Federal Reserve Bank of Boston) |
| Abstract: | Variable and high rates of price inflation in the 1970s and 1980s led many countries to delegate the conduct of monetary policy to "instrument-independent" central banks and to give their central banks a clear mandate to pursue price stability and instrument independence to achieve it. Advances in academic research supported a strong focus on price stability as a means to enhance the independence and credibility of monetary policymakers. An overwhelming majority of these central banks also adopted an explicit inflation target to further strengthen credibility and facilitate accountability. One exception is the U.S. Federal Reserve, which since 1977 has been assigned the so-called "dual mandate," which requires it to "promote maximum employment in a context of price stability." Although the Fed has established credibility for the long-run inflation target, an important question is whether its heavy focus on resource utilization can be justified. The authors' reading of the academic literature is that resource utilization should be assigned a small weight relative to inflation under the reasonable assumption that the underlying objective of monetary policy is to maximize the welfare of households inhabiting the economy. Woodford (1998) showed that the objective function of households in a basic New Keynesian sticky-price model could be approximated as a (purely) quadratic function in inflation and the output gap, with the weights determined by the specific features of the economy. A potential drawback with the large literature that followed is that it focused on relatively simple calibrated (or partially estimated) models. In this paper the authors revisit this issue within the context of an estimated medium-scale model of the U.S. economy, specifically the Smets and Wouters (2007) model. |
| Keywords: | central banks’ objectives; simple loss function; monetary policy design; Smets-Wouters model |
| JEL: | C32 E58 E61 |
| Date: | 2015–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:15-3&r=mac |
| By: | Sohei Kaihatsu (Bank of Japan); Jouchi Nakajima (Bank of Japan) |
| Abstract: | This paper proposes a new econometric framework for estimating trend inflation and the slope of the Phillips curve with a regime-switching model. As a unique aspect of our approach, we assume regimes for the trend inflation at one-percent intervals, and estimate the probability of the trend inflation being in each regime. The trend inflation described in the discrete manner provides for an easily interpretable explanation of estimation results as well as a robust estimate. An empirical result indicates that Japan's trend inflation stayed at zero percent for about 15 years after the late 1990s, and then shifted away from zero percent after the introduction of the price stability target and the quantitative and qualitative monetary easing. The U.S. result shows a considerably stable trend inflation at two percent since the late 1990s. |
| Keywords: | Phillips curve; Regime-switching model; Trend inflation |
| JEL: | C22 E31 E42 E52 E58 |
| Date: | 2015–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp15e03&r=mac |
| By: | Monetary Affairs Department (Bank of Japan) |
| Abstract: | Two years have passed since the Bank of Japan introduced quantitative and qualitative monetary easing (QQE) in April 2013. This article considers attempts to assess the effects of QQE on Japan's economic and financial developments during this period. The start of the transmission mechanism of QQE is as follows: (1) inflation expectations will be raised through a strong and clear commitment to the price stability target of 2 percent and large-scale monetary expansion to underpin the commitment; and concurrently, (2) downward pressure will be put on the entire yield curve through the Bank's massive purchases of Japanese government bonds (JGBs); thereby (3) decreasing real interest rates. On that basis, the assessment of QQE's effects was made in the following two stages: in the first stage, the degree of the decline in real interest rates was gauged; and in the second stage, the extent to which the decline in real interest rates affected economic activity and prices was assessed. The results of the assessment could be judged to be that (a) QQE lowered real interest rates by slightly less than 1 percentage point and (b) the actual improvement in economic activity and prices was mostly in line with the mechanism anticipated by QQE. Recently, however, the year-on-year rate of increase in the consumer price index slowed, mainly due to the effects of the decline in crude oil prices. Looking ahead, due attention needs to be paid to how the decline in the actual inflation rate will affect inflation expectation formation. |
| Keywords: | Monetary policy; real interest rate; inflation expectations |
| JEL: | E52 E44 E37 E47 |
| Date: | 2015–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojrev:rev15e03&r=mac |
| By: | Lopez-Salido, J. David (Board of Governors of the Federal Reserve System (U.S.)); Stein, Jeremy C. (Harvard University); Zakrajsek, Egon (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Using U.S. data from 1929 to 2013, we show that elevated credit-market sentiment in year t-2 is associated with a decline in economic activity in years t through t+2. Underlying this result is the existence of predictable mean reversion in credit-market conditions. That is, when our sentiment proxies indicate that credit risk is aggressively priced, this tends to be followed by a subsequent widening of credit spreads, and the timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t-2 also forecasts a change in the composition of external finance: net debt issuance falls in year t, while net equity issuance increases, patterns consistent with the reversal in credit-market conditions leading to an inward shift in credit supply. Unlike much of the current literature on the role of financial frictions in macroeconomics, this paper suggests that time-variation in expected returns to credit market investors can be an important driver of economic fluctuations. |
| Keywords: | Business cycles; credit-market sentiment; financial stability |
| JEL: | E32 E44 G12 |
| Date: | 2015–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-28&r=mac |
| By: | Pietro Cova (Bank of Italy); Giuseppe Ferrero (Bank of Italy) |
| Abstract: | This paper analyzes the operation of the Eurosystem’s public and private assets purchases programmes for monetary policy purposes, quantifying the potential effect on the Italian economy. First we give an exhaustive account of the main transmission channels by which the purchases can be expected to affect economic activity and inflation. Then we assess the effects on the main channels of transmission to the economy and measure the impact on the main macroeconomic variables, applying the Bank of Italy’s quarterly model. For 2015-16 the purchase programme can be expected to make a significant contribution to the growth of output and of prices, of more than 1 percentage point in both cases. Among the channels examined, the largest contribution is judged to come through the depreciation of the euro and the reduction in the interest rates on government securities and bank loans. These effects are comparable in magnitude to those found by studies on the securities purchase programmes conducted in the United States and the United Kingdom. |
| Keywords: | unconventional monetary policy, quantitative easing, transmission mechanism |
| JEL: | E51 E52 E58 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_270_15&r=mac |
| By: | Arias, Jonas E. (Board of Governors of the Federal Reserve System (U.S.)); Ascari, Guido (University of Oxford); Branzoli, Nicola (Bank of Italy); Castelnuovo, Efrem (University of Melbourne) |
| Abstract: | Working with a small-scale calibrated New-Keynesian model, Coibion and Gorodnichenko (2011) find that the reduction in trend inflation during Volcker's mandate was a key factor behind the Great Moderation. We revisit this finding with an estimated New-Keynesian model with trend inflation and no indexation based on Christiano, Eichenbaum and Evans (2005). First, our simulations confirm Coibion and Gorodnichenko's (2011) main finding. Second, we show that a trend inflation-immune Taylor rule based on economic theory can avoid indeterminacy even at high levels of trend inflation such as those observed in the 1970s. |
| Keywords: | Trend inflation; determinacy; and monetary policy |
| JEL: | C22 E30 E52 |
| Date: | 2014–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1127&r=mac |
| By: | Kei Imakubo (Bank of Japan); Haruki Kojima (Bank of Japan); Jouchi Nakajima (Bank of Japan) |
| Abstract: | Recent monetary policies aiming to influence the entire yield curve have come to play a more prominent role in advanced economies as there has been little room for further lowering the short-term interest rate. This means that the effects of monetary easing cannot be fully captured by the single gap between the actual real short-term rate of interest and the corresponding natural rate of interest. This article proposes the concept of the natural yield curve, which extends the idea of the natural rate of interest defined at a specific maturity to one defined for all maturities. The gap between the actual real yield curve and the natural yield curve enables us to measure not only the effects of conventional monetary policy through short-term interest rate control but also those of unconventional monetary policy through government bond purchases and forward guidance. |
| Keywords: | Natural yield curve; Yield curve gap; Natural rate of interest; Interest rate gap |
| JEL: | C32 E43 E52 E58 |
| Date: | 2015–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojlab:lab15e03&r=mac |
| By: | Koki Oikawa; Kozo Ueda |
| Abstract: | In this study, we analyze the relationship between inflation and economic growth. To this end, we construct a model of endogenous growth with creative destruction, incorporating sticky prices due to menu costs. Inflation and deflation reduce the reward for innovation via menu cost payments and, thus, lower the frequency of creative destruction. Central banks can maximize the rate of economic growth by setting their target inflation rate at the negative of a fundamental growth rate that would be realized without price stickiness. The optimal inflation rate, however, may differ from the growth-maximizing inflation rate because of overinvestment in R&D and indeterminacy. Both mechanisms indicate a higher optimal inflation rate than the negative of a fundamental growth rate. Our calibrated model shows that the optimal inflation rate is close to the growth-maximizing inflation rate and that a deviation from the optimal level has sizable impacts on economic growth. |
| Keywords: | creative destruction, menu cost, new Keynesian, monetary policy |
| JEL: | E31 E58 O33 O41 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2015-14&r=mac |
| By: | Alberto Martín; Jaume Ventura |
| Abstract: | We study a dynamic economy where credit is limited by insufficient collateral and, as a result, investment and output are too low. In this environment, changes in investor sentiment or market expectations can give rise to credit bubbles, that is, expansions in credit that are backed not by expectations of future profits (i.e. fundamental collateral), but instead by expectations of future credit (i.e. bubbly collateral). Credit bubbles raise the availability of credit for entrepreneurs: this is the crowding-in effect. But entrepreneurs must also use some of this credit to cancel past credit: this is the crowding-out effect. There is an "optimal" bubble size that trades off these two effects and maximizes long-run output and consumption. The equilibrium bubble size depends on investor sentiment, however, and it typically does not coincide with the "optimal" bubble size. This provides a new rationale for macroprudential policy. A credit management agency (CMA) can replicate the "optimal" bubble by taxing credit when the equilibrium bubble is too high and subsidizing credit when the equilibrium bubble is too low. This leaning-against-the-wind policy maximizes output and consumption. Moreover, the same conditions that make this policy desirable guarantee that a CMA has the resources to implement it. |
| Keywords: | bubbles, credit, business cycles, economic growth, financial frictions, pyramid schemes |
| JEL: | E32 E44 O40 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:823&r=mac |
| By: | Arias, Jonas E. (Board of Governors of the Federal Reserve System (U.S.)); Caldara, Dario (Board of Governors of the Federal Reserve System (U.S.)); Rubio-Ramirez, Juan F. (Duke University) |
| Abstract: | Following Leeper, Sims, and Zha (1996), we identify monetary policy shocks in SVARs by restricting the systematic component of monetary policy. In particular, we impose sign and zero restrictions only on the monetary policy equation. Since we do not restrict the response of output to a monetary policy shock, we are agnostic in Uhlig's (2005) sense. But, in contrast to Uhlig (2005), our results support the conventional view that a monetary policy shock leads to a decline in output. Hence, our results show that the contractionary effects of monetary policy shocks do not hinge on questionable exclusion restrictions. |
| Keywords: | SVARs; Monetary policy shocks; Systematic component of monetary policy |
| JEL: | C51 E52 |
| Date: | 2015–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1131&r=mac |
| By: | Jung, Kuk Mo; Lee, Seungduck |
| Abstract: | A new monetary theory is set out to resolve the “Uncovered Interest Parity Puzzle (UIP Puzzle)”. It explores the possibility that liquidity properties of money and nominal bonds can account for the puzzle. A key concept in our model is that nominal bonds carry liquidity premium due to their medium of exchange role as either collateral or means of payment. In this framework no-arbitrage condition ensures a positive comovement of real return on money and nominal bonds. Thus, when inflation in one country becomes relatively lower, i.e., real return on this currency is relatively higher, its nominal bonds should also yield higher real return. We show that their nominal returns can also become higher under the economic environment where collateral pledgeability and/or liquidity of nominal bonds and/or collateralized credit based transactions are relatively bigger. Since a currency with lower inflation is expected to appreciate, the high interest currency does indeed appreciate in this case, i.e., the UIP puzzle is no longer an anomaly in our model. Our liquidity based theory in fact has interesting implications on many empirical observations that risk based explanations find difficult to reconcile with. |
| Keywords: | uncovered interest parity puzzle, monetary search models, FOREX market |
| JEL: | E31 E4 E52 F31 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64164&r=mac |
| By: | mhamdi, ghrissi; aguir, abdelkader; farhani, ramzi |
| Abstract: | After more than two decades of inflation targeting in the world, it is important to evaluate if the adoption of this regime in a relevant developing country contributed to the creation of a better environment for the process of entrepreneurs' expectations formation. Brazil is part of an important group of developing countries and represents a potential laboratory experiment in which the effects of an adoption of inflation targeting after more than a decade can be evaluated. Not enough is known about the consequences of inflation targeting credibility on both monetary policy and monetary policy transmission channels in developing countries that adopted inflation targeting. Emphasizing the role of transparency and the credibility of monetary policy as a performance criterion that motivate any country wishing to adopt an inflation targeting regime, this study leads to the fact that these two basic principles toward which a inflation targeting regime cannot be achieved without respect for certain pre namely institutional and technical conditions |
| Keywords: | Credibility, Inflation targeting, Investment, Employment, Central bank, Interest rate. |
| JEL: | E5 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64034&r=mac |
| By: | Emily Anderson; Atsushi Inoue; Barbara Rossi |
| Abstract: | This paper studies empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that are allowed to di¤er depending on their individual characteristics. We use data from the Consumption Expenditure Survey (CEX) to estimate individual-level impulse responses as well as multipliers for government spending. The main empirical finding of this paper is that unexpected fiscal shocks have substantially different effects on consumers depending on their income and age levels. In particular, the wealthiest individuals tend to behave according to the predictions of standard RBC models, whereas the poorest individuals tend to behave according to standard IS-LM (non-Ricardian) models, most likely due to credit constraints. Furthermore, government spending policy shocks tend to decrease consumption inequality. |
| JEL: | E4 E52 E21 H31 I3 D1 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:822&r=mac |
| By: | J. Ramos-Tallada |
| Abstract: | Using a large database of bank financial statements, this paper investigates the determinants of the bank lending channel (BLC) of monetary transmission in Brazil between 1995 and 2012. I extend the standard empirical approach in two main ways. First, I apply a micro-founded strategy for disentangling demand from supply shifts in credit. Using this identification scheme, I show that lending supply is negatively correlated with the short-term market interest rate over the long period. The sensitivity of credit supply to monetary shocks is not related to the bank characteristics generally used in the empirical literature, whereas a proxy of the individual bank external finance premium (EFP) tends to capture financial constraints better than size, liquid assets or capitalization ratios. However, the patterns of the BLC have changed since the onset of the global financial crisis. In the post-crisis period, the money market rate does not affect the lending supply of the average bank anymore, while small banks and those lacking access to long-term funds appear more sensitive to monetary shocks in some estimations. Second, I check whether several types of uncertainty may drive the BLC, beyond liquidity risk. Over the long period, I find evidence that higher market risk borne by banks' securities portfolios (captured by a longer duration of public debt bonds) and lower uncertainty in the money market (captured by a lower volatility of rates) appear to consistently enhance the effectiveness of monetary policy through the BLC. |
| Keywords: | Risks, Monetary policy transmission, Bank lending channel, Identification of supply shifts, Panel data, Brazil. |
| JEL: | E44 E52 F4 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:548&r=mac |
| By: | Swamy, Vighneswara |
| Abstract: | In the context of rising government debt levels in advanced economies and the ongoing euro zone debt crisis, there has been a revival of academic and policy debate on the impact of growing government debt on economic growth. This data-rich study offers an econometric investigation of the macroeconomic determinants of government debt and answers the much-debated question – What factors influence the government debt in a sovereign country? The study provides analyses for economy groupings, political governance groupings and income groupings of countries in addition to the full sample. Panel Granger causality testing is employed to establish causality running from the determinants of debt. The results of the full sample analysis reveal that real GDP growth, foreign direct investment, government expenditure, inflation and population growth have negative effect on debt. Gross fixed capital formation, final consumption expenditure, and trade openness have positive effect on debt. The results for different country groupings bring out some interesting implications. |
| Keywords: | Government Debt, economic growth, panel data, nonlinearity, country groupings |
| JEL: | C33 C36 E62 H63 O4 O40 O5 O50 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64106&r=mac |
| By: | Christina Strobach; Carin van der Cruijsen |
| Abstract: | We empirically investigate how well different learning rules manage to explain the formation of household inflation expectations in six key member countries of the euro area. Our findings reveal a pronounced heterogeneity in the learning rules employed on the country level. While the expectation formation process in some countries can be best explained by rules that incorporate forward-looking elements (Germany, Italy, the Netherlands), households in other countries employ information on energy prices (France) or form their expectations by means of more traditional learning rules (Belgium, Spain). Moreover, our findings suggest that least squares based algorithms significantly outperform their stochastic gradient counterparts, not only in replicating inflation expectation data but also in forecasting actual inflation rates. |
| Keywords: | Inflation expectations; adaptive learning algorithms; household survey |
| JEL: | E31 E37 D84 C53 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:472&r=mac |
| By: | Luo, Yulei; Nie, Jun; Young, Eric |
| Abstract: | This paper provides a tractable continuous-time constant-absolute-risk averse (CARA)-Gaussian framework to quantitatively explore how the preference for robustness (RB) affects the interest rate, the dynamics of consumption and income, and the welfare costs of model uncertainty in general equilibrium. We show that RB significantly reduces the equilibrium interest rate, and reduces (increases) the relative volatility of consumption growth to income growth when the income process is stationary (non-stationary). Furthermore, we find that the welfare costs of model uncertainty are nontrivial for plausibly estimated income processes and calibrated RB parameter values. Finally, we extend the benchmark model to consider the separation of risk aversion and intertemporal substitution, incomplete information about income, and regime-switching in income growth. |
| Keywords: | Robustness, Model Uncertainty, Precautionary Savings, the Permanent Income Hypothesis, Low Interest Rates, Consumption Inequality, General Equilibrium. |
| JEL: | C6 D5 D52 E2 E21 |
| Date: | 2015–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:63985&r=mac |
| By: | Mitsuru Katagiri (Bank of Japan); Hideki Konishi (Faculty of Political Science and Economics, Waseda University); Kozo Ueda (Faculty of Political Science and Economics, Waseda University) |
| Abstract: | Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of government debt does not become a burden on future generations. Our analysis reveals that the effects of aging depend on its causes. Aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate. Numerical simulation shows that aging over the past 40 years in Japan generated deflation of about 0.6 percentage points annually. |
| Keywords: | Fiscal theory of the price level, Politico-economic equilibrium |
| JEL: | D72 E30 E62 E63 H60 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1413&r=mac |
| By: | Atsushi Inoue; Chun-Huong Kuo; Barbara Rossi |
| Abstract: | The Great Recession has challenged the adequacy of existing models to explain key macroeconomic data, and raised the concern that the models might be misspecified. This paper investigates the importance of misspecification in structural models using a novel approach to detect and identify the source of the misspecification, thus guiding researchers in their quest for improving economic models. Our approach formalizes the common practice of adding "shocks" in the model and identifies potential misspecification via forecast error variance decomposition and marginal likelihood analyses. Simulation results based on a small-scale DSGE model demonstrate that the method can correctly identify the source of misspecification. Our empirical results show that state-of-the-art medium-scale New Keynesian DSGE models remain mis-specified, pointing to asset and labor markets as the sources of the misspecification. |
| Keywords: | DSGE models, empirical macroeconomics, model misspecification |
| JEL: | C32 E32 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:821&r=mac |
| By: | Ferrante, Francesco (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | I develop a macroeconomic model with a financial sector, in which banks can finance risky projects (loans) and can affect their quality by exerting a costly screening effort. Informational frictions regarding the observability of loan characteristics limit the amount of external funds that banks can raise. In this framework I consider two possible types of financial intermediation, traditional banking (TB) and shadow banking (SB), differing in the level of diversification across projects. In particular, shadow banks, by pooling different loans, improve on the diversification of their idiosyncratic risk and increase the marketability of their assets. Due to their ability to pledge a larger share of the return on their projects, shadow banks will have a higher endogenous leverage compared to traditional banks, despite choosing a lower screening level. As a result, on the one hand, the introduction of SB will imply a higher amount of capital intermediated. On the other han d it will make the economy more fragile via three channels. First, by being highly leveraged and more exposed to risky projects, shadow banks will amplify exogenous negative shocks. Second, during a recession, the quality of projects intermediated by shadow banks will endogenously deteriorate even further, causing a slower recovery of the financial sector. A final source of instability is that the SB-system will be vulnerable to runs. When a run occurs, shadow banks will have to sell their assets to traditional banks, and this fire sale, because of the limited leverage capacity of the TB-system, will depress asset prices, making the run self-fulfilling and negatively affecting investment. In this framework I study how central bank credit intermediation helps reduce the impact of a crisis and the likelihood of a run. |
| Keywords: | Bank Runs; Financial Frictions; Shadow Banking; Unconventional Monetary Policy |
| JEL: | E44 E58 G23 G23 G24 |
| Date: | 2015–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-21&r=mac |
| By: | Congressional Budget Office |
| Abstract: | In calendar year 2014, ARRA—which was enacted in 2009—raised real GDP by between a small fraction of a percent and 0.2 percent and increased the number of full-time-equivalent jobs by between a slight amount and 0.2 million, CBO estimates. |
| JEL: | E62 E65 |
| Date: | 2015–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:49958&r=mac |
| By: | Lie, Denny |
| Abstract: | This paper studies optimal monetary policy under precommitment in a state-dependent pricing (SDP) environment, in contrast to the standard assumption of time-dependent pricing(TDP). I show that the endogenous timing of price adjustment under SDP importantly alters the policy tradeoffs faced by the monetary authority, due to lower cost of inflation variation on the relative-price distortion. It is thus desirable under SDP for the monetary authority to put less weight on inflation stabilization, relative to other stabilization goals. The optimal Ramsey policy under SDP delivers a 24 percent higher standard deviation of inflation, but with 26 percent and 6 percent lower standard deviations of output gap and nominal interest rate, respectively. Within a simple, Taylor-like policy rule, the change in the policy tradeoffs is manifested in higher feedback response coefficients on the output gap and the lagged nominal interest rate deviation under SDP. Additionally, this paper studies the optimal policy start-up problem related to the cost of adopting the timeless perspective policy instead of the true Ramsey policy. The SDP assumption leads to different start-up dynamics compared to the dynamics under the TDP assumption in several important ways. In particular, the change in the policy tradeoffs gives rise to much higher start-up inflation under SDP. |
| Keywords: | optimal monetary policy, state-dependent pricing, start-up problem, policy tradeoff, Ramsey policy, simple policy rule |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2015-09&r=mac |
| By: | Giorgio Liotti (-) |
| Abstract: | This paper investigates the role of the fiscal authority in the case in which a negative shock hits the economic system. We analyze the several kinds of behavior that the fiscal authority can adopt during a crisis and show how the various approaches impact upon the effectiveness of fiscal policy. In general, there are two approaches: a) Adopt a neutral behavior or b) Adopt an active behavior in order to stabilize output volatility caused by a slump. Using a constrained minimization process it emerges that the mere use of a monetary policy is ineffective to counteract the crisis, with the risk of keeping the system in a situation in which aggregate demand falls below the potential output. In this context, an expansionary fiscal policy may be crucial to restore the output equilibrium. |
| Keywords: | crisis, fiscal authority, monetary authority, budget deficit, sustainability |
| JEL: | E61 E63 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:crj:dpaper:1_2014&r=mac |
| By: | Swamy, Vighneswara |
| Abstract: | The rising government debt levels in the aftermath of global financial crisis and the ongoing euro zone debt crisis have necessitated the revival of the academic and policy debate on the impact of growing debt levels on growth. This study provides a data–rich analysis of the dynamics of government debt and economic growth for a longer period (1960–2009). It spans across different debt regimes and involves a worldwide sample of countries that is more representative than that of studies confined to advanced countries. This study observes a negative relationship between government debt and growth. The point estimates of the range of econometric specifications suggest a 10-percentage point increase in the debt-to-GDP ratio is associated with 23 basis point reduction in average growth. Our results establish the nonlinear relationship between debt and growth. Further, by employing panel vector auto regressions (PVAR) approach, this study decomposes the cause and effect relationship between debt and growth and offers an answer to the question – Does high debt lead to low growth or low growth leads to high debt? The results derived from the impulse–response functions and variance decomposition show the evidence of long-term effect of debt on economic growth. The results indicate that the effect is not uniform for all countries, but depends mostly on the debt regimes and other important macroeconomic variables like; inflation, trade openness, general government final consumption expenditure and foreign direct investment. |
| Keywords: | Government Debt, economic growth, panel data, nonlinearity, country groupings |
| JEL: | C33 C36 E62 H63 O4 O40 O50 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64105&r=mac |
| By: | Bialowolski, Piotr; Kuszewski, Tomasz; Witkowski, Bartosz |
| Abstract: | The main goal of the article is to investigate forecasting quality of two approaches to modelling main macroeconomic variables without a priori assumptions concerning causality and generate forecasts without additional assumptions regarding regressors. With application of tendency survey data the authors develop methodology for application of the Bayesian averaging of classical estimates (BACE) but also construct dynamic factor models (DFM). Within the BACE framework they apply two diversified methods of regressors' selection: frequentist (FMA) and averaging (BMA). Because their models yield multiple forecasts for each period, subsequently the authors employ diversified approaches to combine forecasts. The assessment of the results is performed with in-sample and out-of-sample prediction errors. Although the results do not significantly differ, the best performance is observed in Bayesian models with frequentist approach. Their analysis conducted for Polish economy also shows that the unemployment rate turns out to be forecasted with highest precision, followed by the rate of GDP growth and the CPI. It can be concluded from their analyses that although their methods are atheoretical they provide reasonable forecast accuracy not inferior to that of structural models. Additional advantage of their approach is that the forecasting procedure can be mostly automated and the influence of subjective decisions made in the forecasting process can be significantly reduced. |
| Keywords: | Bayesian averaging of classical estimates,dynamic factor models,tendency survey data,forecasting |
| JEL: | C10 C38 C83 E32 E37 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201528&r=mac |
| By: | Asian Development Bank (ADB); Asian Development Bank (ADB) (South Asia Department, ADB); Asian Development Bank (ADB) (South Asia Department, ADB); Asian Development Bank (ADB) |
| Abstract: | The Bangladesh Quarterly Economic Update (QEU) has been produced by the Bangladesh Resident Mission of the Asian Development Bank since March 2001. The QEU provides information and analysis on Bangladesh’s macroeconomic and sector developments, key development challenges, and policy and institutional reforms. The QEU has wide readership in government, academia, development partners, private sector, and civil society. |
| Keywords: | bangladesh economy, revenue collection, bangladesh economic growth, inflation, fiscal management, bangladesh macroeconomic updates, fiscal year 2014, bangladesh gdp growth estimates, bangladesh agriculture growth, bangladesh services sector growth, fy2014 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:asd:wpaper:rps146773-2&r=mac |
| By: | Barbara Rossi; Tatevik Sekhposyan |
| Abstract: | We propose new indices to measure macroeconomic uncertainty. The indices measure how unexpected a realization of a representative macroeconomic variable is relative to the unconditional forecast error distribution. We use forecast error distributions based on the nowcasts and forecasts of the Survey of Professional Forecasters. We further compare the new indices with those proposed in the literature and assess their macroeconomic impact. |
| JEL: | C18 E01 E30 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:820&r=mac |
| By: | Caliendo, Lorenzo (Yale University and NBER); Dvorkin , Maximiliano (Federal Reserve Bank of St. Louis); Parro, Fernando (Federal Reserve Board.) |
| Abstract: | We develop a dynamic labor search model where production and consumption take place in spatially distinct labor markets with varying exposure to domestic and international trade. The model recognizes the role of labor mobility frictions, goods mobility frictions, geographic factors, and input-output linkages in determining equilibrium allocations. We show how to solve the equilibrium of the model without estimating productivities, reallocation frictions, or trade frictions, which are usually di¢ cult to identify. We use the model to study the dynamic labor market outcomes of aggregate trade shocks. We calibrate the model to 38 countries, 50 U.S. states and 22 sectors and use the rise in China’s import competition to quantify the aggregate and disaggregate employment and welfare effects on the U.S. economy. We find that China’s import competition growth resulted in 0.6 percentage point reduction in the share of manufacturing employment, approximately 1 million jobs lost, or about 60% of the change in the manufacturing employment share not explained by a secular trend. Overall, China’s shock increases U.S. welfare by 6.7% in the long-run and by 0.2% in the short-run with very heterogeneous effects across labor markets. |
| Keywords: | Migration; labor reallocation; dynamic discrete choice; manufacturing employment; intersectoral trade; interregional trade; international trade |
| JEL: | E24 F16 J62 R13 R23 |
| Date: | 2015–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2015-009&r=mac |
| By: | Paredes-Lodeiro, Joan; Pérez, Javier J; Pérez-Quirós, Gabriel |
| 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 to unveil 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: | fiscal policy; forecasting; policy credibility |
| JEL: | C54 E61 E62 H30 H68 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10553&r=mac |
| By: | Gerlach, Stefan; Lydon, Reamonn; Stuart, Rebecca |
| Abstract: | We study the determination of Irish inflation between 1926 and 2012. The difference between unemployment and the NAIRU is a significant determinant of inflation in a simple backward-looking Phillips Curve that incorporates import prices. While there is a break in 1979-80, when the link to Sterling was abandoned, this effect is present in the full sample and in the subsamples spanning 1926-1979 and 1980-2012. The econometric model assumes that the NAIRU follows a random walk. |
| Keywords: | historical statistics; import prices; inflation; Ireland; unemployment |
| JEL: | E3 E4 N14 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10567&r=mac |
| By: | Hans Christian Müller-Dröge (Handelsblatt Newspaper); Tara M. Sinclair (The George Washington University); Herman O. Stekler (The George Washington University) |
| Abstract: | In this paper we present an evaluation of forecasts of a vector of variables of the German economy made by different institutions. Our method permits one to evaluate the forecasts for each year and then if one is interested to combine the years. We use our method to determine an overall winner for a forecasting competition across twenty-five different institutions for a single time period using a vector of eight key economic variables. Typically forecasting competitions are judged on a variable-by-variable basis, but our methodology allows us to determine how each competitor performed overall. We find that the Bundesbank was the overall winner for 2013. |
| Keywords: | Mahalanobis Distance, forecasting competition, GDP components, German macroeconomic data |
| JEL: | C5 E2 E3 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2014-004&r=mac |
| By: | Paul Hubert (OFCE) |
| Abstract: | Since Romer and Romer (2000), a large literature has dealt with the relative forecasting performance of Greenbook macroeconomic forecasts of the Federal Reserve. This paper empirically reviews the existing results by comparing the different methods, data and samples used previously. The sample period is extended compared to previous studies and both real-time and final data are considered. We confirm that the Fed has a superior forecasting performance on inflation but not on output. In addition, we show that the longer the horizon, the more pronounced the advantage of Fed on inflation and that this superiority seems to decrease but remains prominent in the more recent period. The second objective of this paper is to underline the potential sources of this superiority. It appears that it may stem from better information rather than from a better model of the economy. |
| Keywords: | monetary policy; greenbook; forecasts |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/3pot7260lh88lrfhrhvs85lh2f&r=mac |
| By: | Avouyi-Dovi, Sanvi; Horny, Guillaume; Sevestre, Patrick |
| Abstract: | We analyse the dynamics of the pass - through of banks’ marginal cost to bank lending rates over the 2008 crisis and the euro area sovereign debt crisis in France, Germany, Greece, Italy, Portugal and Spain . We measure banks’ marginal cost by their rate on new deposits, contrary to the literature that focuses on money market rates. This allows us to account for banks’ risks. We focus on the interest rate on new short - term loans granted to non - financial corporations in these countries . Our analysis is based on an error - correction approach that we extend to handle the time - varying long - run relationship between banks’ lending rates and banks’ marginal cost, as w ell as stochastic volatility . Our empirical results are based on a harmoni s ed monthly database from January 2003 to October 201 4 . We estimate the model within a Bayesian framework, using Markov Chain Monte Carlo methods (MCMC). We reject the view that the t ransmission mechanism is time invariant. The long - run relationship moved with the sovereign debt crises to a new one, with a slower pass - through and higher bank lending rates. Its developments are heterogeneous from one country to the other. Impediments to the transmission of monetary rates depend on the heterogeneity in banks marginal costs and therefore, its risks. We also find that rates to small firms increase compared to large firms in a few countries. Using a VAR model, we show that overall, the effec t of a shock on the rate of new deposits on the unexpected variances of new loans has been less important since 2010. These results confirm the slowdown in the transmission mechanism. |
| Keywords: | Bank interest rates; error-correction model; structural breaks; stochastic volatility; Bayesian econometrics; Taux bancaires; modèle à correction d’erreur; ruptures structurelles; volatilité stochastique; économétrie bayésienne; |
| JEL: | E43 G21 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/15030&r=mac |
| By: | M. Ege Yazgan (Department of Economics, Kadir Has University); Hakan Yilmazkuday (Department of Economics, Florida International University) |
| Abstract: | This paper investigates the relationship between the level of inflation and regional price-level convergence utilizing micro-level price data from Turkey during two clearly distinguishable periods of high and low inflation. The results indicate that higher persistence and slower convergence of price levels are evident during the low-inflation period, which corresponds to the inflation-targeting (IT) regime that was successful in lowering and maintaining inflation at acceptable levels. During this low-inflation IT regime, it is also shown that inflation convergence across regions appears to occur more quickly and may be responsible for the slower pace of convergence in price levels. |
| Keywords: | Price Convergence, Inflation Convergence, Micro-level Prices, Turkey |
| JEL: | E31 F41 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:1503&r=mac |
| By: | Sergio Destefanis; Giuseppe Mastromatteo (-) |
| Abstract: | This paper tests the existence of a Beveridge Curve across the economies of nine OECD countries from 1980 to 2011, investigating the impact of various kinds of structural factors (technological progress, globalisation, oil prices) and of the current recession on the Curve. Technological progress (R&D intensity) shifts the Curve outwards, producing evidence in support of the creative destruction effect. Globalisation and unfavourable oil price shocks also shift the Curve outwards, worsening the unemployment-vacancies trade-off. Structural relationships seem to be stable enough in the 2008-2011 period, suggesting that the current crisis mainly implied moves along the Curve. |
| Keywords: | Unemployment, vacancies, capitalisation effect, creative destruction, labour-market institutions. |
| JEL: | E24 J20 O40 |
| Date: | 2015–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:crj:dpaper:4_2015&r=mac |
| By: | Christophe Blot (OFCE); Bruno Ducoudre (OFCE); Xavier Timbeau (OFCE) |
| Abstract: | The outbreak of the Greek crisis has revived the literature on the sovereign debt spreads. Recent evidence has shed new lights on the main determinants of interest rates spreads. The sharp increase of government bond yields cannot be entirely attributed to changes in macroeconomic fundamentals. Contagion effects can occur and self-fulfilling speculation may arise. Yet, this literature has been mainly empirical and needs sound theoretical foundations. The aim of this paper is to fill in this gap. We develop a simple model in the spirit of second generation currency crises models developed by (Obstfled, 1996). The model describes a strategic game between governments and financial markets. Eurozone countries face a trade-off as governments may either commit and implement restrictive fiscal policies or default on debt. The cost of the commitment strategy increases when interest rates increase or when the fiscal multipliers are high. This leaves the opportunity for speculators to drive the economy towards a bad equilibrium, forcing the government to renege its commitment. We introduce a source of uncertainty about the cost of default in the model. By this way, we may introduce the possibility that governments do not default although risk premiums on bond yield is high. |
| Keywords: | Sovereign default; risk premium; multiple equilibria; asymmetric information |
| JEL: | H63 E44 E61 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5bhbhfsmhj981b00go8c6saind&r=mac |
| By: | Cendejas Bueno, José Luis (Instituto de Investigaciones Económicas y Sociales Francisco de Vitoria); Muñoz, Félix (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Fernández-de-Pinedo, Nadia (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) |
| Abstract: | Time series filtering methods such as the Hodrick-Prescott (HP) filter, with a consensual choice of the smoothing parameter, eliminate the possibility of identifying long swing cycles (e.g., Kondratieff type) or, alternatively, may distort periodicities that are in fact present in the data, giving rise, for example, to spurious Kuznets-type cycles. In this paper, we propose filtering Maddison’s time series for the period 1870-2010 for a selection of developed countries using a less restrictive filtering technique that does not impose but rather estimates the cut-off frequency. In particular, we use unobserved component models that optimally estimate the smoothing parameter. Using this methodology, we identify cycles of periods mainly in the range of 4-7 years (Juglar type cycles), as well as a pattern of cyclical convergence that deepens with globalization processes. After 1950, a common business cycle factor grouping all economies is found. |
| Keywords: | historical business cycles; spectral analysis; unobserved component models; Maddison’s time series. |
| JEL: | C32 E32 N1 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201504&r=mac |
| By: | Fischer, Stanley (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2015–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:837&r=mac |
| By: | Foote, Christopher L. (Federal Reserve Bank of Boston); Ryan, Richard W. (University of Michigan) |
| Abstract: | One of the most important long-run trends in the U.S. labor market is polarization, defined as the relative growth of employment in high-skill jobs (such as management and technical positions) and low-skill jobs (such as food-service and janitorial work) amid the concurrent decline in middle-skill jobs (such as clerical, construction, manufacturing, and retail occupations). Middle-skill job losses typically result from outsourcing labor to lower-wage countries or from substituting automated technologies for routine tasks. Economists are now beginning to study how long-run polarization might be related to short-run business cycles, but doing so requires the construction of quarterly datasets with consistent occupational data over long periods of time. The authors of this paper construct a new dataset of occupational employment and unemployment that extends from 1947:Q3 to 2013:Q4. Using this dataset, along with more-recent individual-level data from the Current Population Survey, the authors study how recessions typically affect employment in various occupations, what employment alternatives are available to middle-skill workers who become unemployed, and whether the ongoing erosion of middle-skill job opportunities is related to long-term declines in labor force participation among men. |
| JEL: | E24 J22 J23 J24 J62 J63 J64 |
| Date: | 2014–12–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:14-16&r=mac |
| By: | LE HERON Edwin; MAROUANE Amine |
| Abstract: | The purpose of this paper will be to show the main features of the post Keynesian stock-flow consistent modeling (SFC) with a presentation of the basic model of Lavoie Godley 2001. Then, we shall give a brief overview of the most important contributions in this search field. Special emphasis will be focused on the latest works, addressing several topics such as financialization, bank behavior, exchange rate, sectors analysis, heterogeneous agents or the impact of economic crisis. We shall present the matrices of stocks and flows and the remarkable equations. |
| Keywords: | SFC model, post Keynesian theory |
| JEL: | E12 E27 E40 E52 F43 O55 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2015-15&r=mac |
| By: | Kandrac, John (Board of Governors of the Federal Reserve System (U.S.)); Schlusche, Bernd (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | In this paper, we document that mortgage-backed securities (MBS) held by the Federal Reserve exhibit faster principal prepayment rates than MBS held by the rest of the market. Next, we show that this stylized fact persists even when controlling for factors that affect prepayment behavior, and thus determine the MBS that are delivered to the Federal Reserve. After ruling out several potential explanations for this result, we provide evidence that points to an agency problem in the secondary market for MBS, which has not previously been documented, as the most likely explanation for the abnormal prepayment behavior of Federal Reserve-held MBS. This agency problem--a key feature of the MBS market--arises when originators of mortgages that underlie the MBS no longer share in the prepayment risk of the securities, thereby increasing incentives to solicit refinancing activity. Therefore, Federal Reserve MBS holdings acquired from originators as a result of large-scale asset purchases can help stimulate economic activity through a so-called "solicited refinancing channel." Finally, we provide an estimate of the additional refinancing activity resulting from the solicited refinancing channel in the years after the Federal Reserve's first MBS purchase program, demonstrating that this channel conveyed savings on monthly mortgage payments to homeowners. |
| Keywords: | Federal Reserve; LSAP; Monetary policy; QE; mortgage; mortgage-backed securities; prepayment rates |
| JEL: | E52 G01 G21 R38 |
| Date: | 2015–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-27&r=mac |
| By: | Christophe Blot (OFCE); Jérôme Creel (OFCE); Bruno Ducoudre (OFCE); Xavier Timbeau (OFCE) |
| Abstract: | The European consolidation process has raised a few questions. The most frequent one has been how large are the costs of consolidation and has the Eurozone fiscal stance improved or achieved debt sustainability? Second, do these costs and sustainability depend on the composition (tax vs. spending) of the consolidation process? Third, do risk premia matter? Fourth, which of the two following strategies, backloading vs. frontloading, is superior to the other? The aim of the paper is to shed light on these questions using a multi-country reduced-form model. It considers explicitly that the Eurozone member states are facing a dual trade-off, first between labor market outcomes of consolidation and public debt dynamics and, second, between reducing public expenditures and increasing taxes. The main conclusion is that a tax-based backloaded consolidation is superior to all other strategies, be they spending-based or frontloaded, or both. Introducing risk premia endogenously does not alter the conclusion. |
| Keywords: | fiscal consolidation; fiscal multiplier; composition effect; public debt; frontloading; backloading |
| JEL: | E61 E62 E47 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6018jmm8rk9oroimutg7hhiu3f&r=mac |
| By: | Etienne Lalé |
| Abstract: | This paper studies the secular behavior of worker reallocation across occupations in the US labor market. In the empirical analysis, we use 45 years of microdata to construct consistent time-series and document that the fraction of employment reallocated annually across occupations is remarkably stable in the long run. We go beyond description and use an equilibrium model to uncover potential changes in the factors that affect worker reallocation, namely productivity shocks and mobility costs. We uncover their joint evolution by deriving a simple mapping between data and the model. We find little changes overall, except in the period surrounding the Great Recession where both the volatility of productivity shocks and the cost of switching occupations are found to increase. |
| Keywords: | Occupations, Reallocation, Wages, Equilibrium Search. |
| JEL: | E24 J21 J31 J62 |
| Date: | 2015–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:15/657&r=mac |
| By: | Leyla Yusifzada; Aytan Mammadova |
| Abstract: | Financial depth does not fully reflect how well the financial intermediaries serve to economic agents in stimulating economic growth. Additional aspects of financial system such as access, efficiency and stability should be taken into account in order to shed light into the relationship between finance and economic growth. In our paper we capture the four aspects of finance – depth, access, efficiency and stability – to investigate the impact of financial development and economic growth. Our results suggest that the impact of four parameters of financial development differs depending on the level of financial development and has an inverted S-shape function. |
| Keywords: | Financial intermediaries, financial development, economic growth, financial depth, access to finance, efficiency, financial stability |
| JEL: | E44 O16 |
| Date: | 2015–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2015-1091&r=mac |
| By: | Ramiz Rahmanov |
| Abstract: | This article examines the impact of the banking sector development on households’ saving dynamics in the emerging economies of Eastern Europe. For this purpose, we use the mean group FMOLS estimator to estimate the saving function augmented with variables characterizing three dimensions of the banking sector development – depth, efficiency, and stability. The mean group results show that an increase in the depth and stability of the banking sector significantly stimulates saving, whereas an improvement in the efficiency has no significant effect on saving. Additionally, we find that an increase in the real GDP per capita and age dependency ratio significantly and positively affects saving, while an increase in the real interest rate has a significantly negative effect on saving. |
| Keywords: | household saving, banking sector development, Eastern Europe |
| JEL: | C33 E21 |
| Date: | 2015–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2015-1089&r=mac |
| By: | Marlene Karl |
| Abstract: | This paper introduces a new and comprehensive dataset on “alternative” banks in EU and OECD countries. Alternative banks (e.g. ethical, social or sustainable banking) experienced a recent increase in media interest and have been hailed as an answer to the financial crisis but no research exists on their stability. This paper studies whether alternative banks differ from conventional banks in terms of riskiness. For this I construct a comprehensive dataset of alternative banks and compare their riskiness with an adequately matched control group of conventional banks using mean comparison and panel regression techniques. The main result is that alternative banks are significantly more stable (in terms of z-score) than their conventional counterparts. The results are robust to different estimation methods and data specifications. Alternative banks also have lower loan to asset ratios and higher customer deposit ratios than conventional banks. |
| Keywords: | Ethical banking, social banking, bank risk, financial crisis |
| JEL: | G21 G32 E44 M14 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:feu:wfewop:y:2015:m:5:d:0:i:96&r=mac |
| By: | Mark J. Holmes (University of Waikato); Ana Maria Iregui (Banco de la República); Jesús Otero (Universidad del Rosario) |
| Abstract: | Using a sample of Colombian banks, we examine retail interest rate adjustment in response to changes in wholesale interest rates. Interest rate pass-through running from wholesale to retail rates is found to be both partial and heterogeneous across banks. This suggests that the effectiveness of monetary policy is limited. Further investigation reveals that the behaviour of retail deposit rates appears consistent with collusive behaviour between banks insofar as interest rates are more rapidly adjusted downwards than upwards. In the case of retail lending rates, it appears that banks more rapidly reduce than increase rates. This suggests that expansionary monetary policy in Colombia may be relatively more effective than contractionary policy. |
| Keywords: | interest rate pass-through; asymmetries; M/TAR model |
| JEL: | C33 E43 |
| Date: | 2015–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:15/05&r=mac |
| By: | Ludek Kouba; Michal Mádr; Danuše Nerudová; Petr Rozmahel |
| Abstract: | The European integration process is ongoing. Europe is still heterogeneous. Within this context, the paper addresses the question of whether policies in the EU should head towards autonomy, coordination or harmonization. Taking the path dependence effect into account, in the papers’ opinion, Europe has gone too far in its integration process to be able to continue with policies fully under the competencies of individual member countries. Furthermore, the establishment of the common currency in the EU as a result of deep harmonization in the monetary policy area is an unambiguous precedent with many consequences. First of all, the habitual question still arises in the literature: does fiscal policy need to be harmonized to a comparable level, as these two policies necessarily complement each other? The paper argues that it does not. First, the authors build on the theory of fiscal federalism, which often recommends the strengthening of the stabilization function of public finance; typically in the form of rules and surveillance institutions (e.g., Fiscal Compact, the Six-Pac, European Semester). And on the contrary, they usually refute the intensification of the redistribution function, due to the fact that intergovernmental transfers in contemporary Europe are highly unpopular. Second, Europe is still too heterogeneous and it will continue to be so in the future, simply because of the different cultures, mentalities, traditions, social relations and ways of thinking it harbours. In our context, this means that there are significantly different regimes of welfare states and extents of social policies among European countries, which strongly determine the character of public finance. And third, the tax systems across Europe are also highly divergent, with many different features of continued tax competition. Therefore, a top-down harmonization path towards a full fiscal union is neither politically enforceable, nor economically rational. On the other hand, in order to keep the European integration process viable, it is necessary to reduce behaviour with features of moral hazard and free ride and strengthen joint responsibility for the fiscal development of public finances in the EU. In addition to the discussed matter of joint responsibility and fiscal discipline, the paper points out the open coordination method as an approach towards a sustainable alternative path between a fragmented Europe and a European super state. |
| Keywords: | EU integration, European economic policy, European governance, European Monetary Union, Full employment growth path, Good governance, Policy options |
| JEL: | E63 F15 F42 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:feu:wfewop:y:2015:m:4:d:0:i:95&r=mac |
| By: | Vasco Carvalho; Basile Grassi |
| Abstract: | Do large firm dynamics drive the business cycle? We answer this question by developing a quantitative theory of aggregate fluctuations caused by firm-level disturbances alone. We show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle, without appealing to aggregate shocks. We offer a complete analytical characterization of the law of motion of the aggregate state in this class of models – the firm size distribution – and show that the resulting closed form solutions imply aggregate output and productivity dynamics which are: (i) persistent, (ii) volatile and (iii) exhibit time-varying second moments. We explore the key role of moments of the firm size distribution – and, in particular, the role of large firm dynamics – in shaping aggregate fluctuations, theoretically, quantitatively and in the data. |
| Keywords: | large firm dynamics, firm size distribution, random growth, aggregate fluctuations |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:824&r=mac |
| By: | Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2015–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:840&r=mac |
| By: | Kevin Mumford |
| Abstract: | This paper takes a stocks rather than a flows approach to measuring national prosperity. It examines changes in capital stocks of different kinds in Asian economies, including produced capital, natural capital, human capital and inclusive wealth. |
| Keywords: | national wealth, capital stocks, measurement, prosperity |
| JEL: | E01 E22 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:24841&r=mac |
| By: | Hryckiewicz, Aneta; Kozlowski, Lukasz |
| Abstract: | In our paper we analyze the heterogeneity between various business models among systemically important banks in 65 countries over the period of 2000-2012. For the first time, we are able to identify true banking strategies consisting of different combinations of bank asset and funding sources and assess their impact on the mortgage crisis. We then estimate how distinct strategies have affected bank profitability and risk before the crisis, and what impact they have put on the mortgage crisis. Our results prove that the asset structure of banks was responsible for the systemic risk before the mortgage crisis, whereas the liability structure was responsible for the crisis itself. Finally, we show that countries with banks that rely on investment activities experienced a greater but more short-lived drop in GDP compared to countries that have a predominantly traditional banking sector. |
| Keywords: | Bank risk, business model, bank regulation, financial crisis, banking stability, systemic risk |
| JEL: | E58 G15 G2 G21 G28 G32 |
| Date: | 2014–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64072&r=mac |
| By: | Congressional Budget Office |
| Abstract: | CBO’s estimate of the output gap—the percentage difference between actual and potential output—gauges slack or overheating in the economy. For the latter half of its 10-year projection period, CBO projects that actual output will grow at the same rate as potential output but fall short of potential by about half a percent, on average—matching the average estimated gap between actual and potential output from 1961 to 2009. |
| JEL: | E20 E27 O47 |
| Date: | 2015–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:49890&r=mac |
| By: | Hud, Martin; Rammer, Christian |
| Abstract: | The global economic crisis of 2008/2009 hit many firms hard. Faced with rapidly declining sales and highly uncertain economic prospects, firms had to cut costs and reconsider their business strategies. With respect to innovation, cost cutting often means to stop or underresource innovation projects which may harm a firm's long-term competitiveness. Firms may therefore refrain from reducing innovation budgets during crises but rather deliberately allocate more resources to innovation activities in order to update their product portfolio for the following recovery. Our analysis examines the effects of changes in innovation budgets during the most recent economic crisis on firms' post-crisis innovation performance. Based on firm-level panel data from the German Innovation Survey covering the period 2006 to 2012, we find a positive effect of crisis adjustment. Raising the ratio of innovation expenditure to sales does increase subsequent sales of market novelties, but not of product imitations. Our findings are dependent upon the way business cycle effects are measured, however. While the results hold for macroeconomic business cycle indicators (change in real GDP), they do not for demand changes in a firm's primary sales market. This may imply that lower opportunity costs of innovation during an economic crisis are transferred into higher post-crisis new product sales by firms in markets less strongly affected by the crisis. |
| JEL: | O31 O32 E32 L25 D22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:15030&r=mac |
| By: | Michael Ehrmann; Marcel Fratzscher |
| Abstract: | The paper analyzes the integration of euro area sovereign bond markets during the European sovereign debt crisis. It tests for contagion (i.e., an intensification in the transmission of shocks across countries), fragmentation (a reduction in spillovers) and flight-to-quality patterns, exploiting the heteroskedasticity of intraday changes in bond yields for identification. The paper finds that euro area government bond markets were well integrated prior to the crisis, but saw a substantialfragmentation from 2010 onward. Flight to quality was present at the height of the crisis, but has largely dissipated after the European Central Bank’s (ECB’s) announcement of its Outright Monetary Transactions (OMT) program in 2012. At the same time, Italy and Spain became more interdependent after the OMT announcement, providing our only evidence of contagion. While this suggests that countries have been effectively ring-fenced, and Italy and Spain benefited from the joint reduction in yields following the OMT announcement, the high current degree of fragmentation poses difficult challenges for policy-makers, since it leads to an unequal transmission of the ECB’s monetary policy to the various countries. |
| Keywords: | Sovereign debt, European crisis, integration, fragmentation, contagion, policy, ECB, high-frequency data, identification |
| JEL: | F3 E5 G15 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1479&r=mac |
| By: | Nguyen Van Phuong |
| Abstract: | Vietnam has been implementing the export-oriented economy, in which the central bank of Vietnam, well-known as the State Bank of Vietnam (SBV), adopted the managed float exchange rate regime in 1990. Therefore, the exchange rate movement plays an important role in stimulating the Vietnamese export activities. By applying the long-run SVAR model, pioneered by Blanchard and Quah (1989), this research examines how the real and nominal shocks impact the nominal and real exchange rate (USD/VND) in Vietnam. Based on monthly data concerning USD/VND exchange rate and, the price levels in Vietnam and the United States from May 1995 to December 2013, our empirical results reveal that: the real shock primarily leads the real and nominal exchange rate (USD/VND) to fluctuate over time. Meanwhile, the nominal shock has a temporary effect on the movement in the real exchange rate in Vietnam. Our research also finds that the long-run Purchasing Power Parity (PPP) does not hold in Vietnam. |
| Keywords: | The State Bank of Vietnam, the exchange rate, unit root test, SVAR. |
| JEL: | E60 E69 |
| Date: | 2015–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2015-1090&r=mac |
| By: | Vidakovic, Neven |
| Abstract: | This paper creates a mathematical model in which the banks are faced with two optimization problems. The first optimization problem is how to optimize their behavior in order to maximize profits. The second optimization is how to optimize the structure of liabilities in order to have minimum regulation. The regulatory regime is imposed by the central bank. This paper investigates the behavior of banks when faced with high regulation and provides a theoretical framework for analysis of the impact of high regulation on the choice of the bank’s portfolio structure. The model shows the banks have a learning framework in which the banks learn the central bank’s true model and adjust their credit policies to existing regulatory regime. However this adjustment also creates changes in the choice of credit. |
| Keywords: | credit, central bank regulation, dynamic programming, bayesian learning |
| JEL: | C61 C73 E51 E58 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:63929&r=mac |
| By: | Raouf Boucekkine (Aix-Marseille University (Aix-Marseille School of Economics), CNRS and EHESS); Bruno de Oliveira Cruz (IPEA - Instituto de Pesquisa Economica Aplicada, Brasilia (Brasil)) |
| Abstract: | This paper presents a non-technical overview of the recent investment literature with a special emphasis on the connection between technological progress and the investment decision. First of all, we acknowledge that some dramatic advances have been made in the 1990s in understanding and modelling non-convex capital adjustment schemes and irreversibility. Nonetheless, this new literature has not always satisfactorily accounted for the investment-specific (or embodied) nature of technical progress. We argue that the recent technological trends towards more embodiment have had a heavy impact on the way the investment decision is taken and is to be taken. This is turn should imply the reconsideration of many empirical results, and a more careful modelling strategy taking into account the price variables and scrupulously choosing the most appropriate level of (dis)aggregation. |
| Keywords: | Investment, Technological progress, Non-convex adjustment, irreversibility, Embodiment. |
| JEL: | E22 E32 O40 |
| Date: | 2015–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1519&r=mac |
| By: | Izu, Akhenaton |
| Abstract: | The objective of this paper is to highlight the idea according to wish the current misery of the DRC would be mainly dependent on the debt crisis of the years 1970-1980. To analyze this problem, the econometric approach was privileged and more precisely the cointegration. By the cointegration, one seeks to know if there is a long-term relation between the debt in% of the GDP and the GDP per capita. After deepened analyses, it was found that the weight of the external debt, with through the ousting of the welfare expenditures and the investments, had a negative effect on the population well-being. The undertaken studies reveal when the debt in % of the GDP increases by 10%, the GDP per capita decreases by 6.5% in short-term and by 23% in long-term. |
| Keywords: | Well-being, Cointegration, External debt, Investments, Democratic Republic of Congo. |
| JEL: | C22 D60 E22 H63 O47 |
| Date: | 2014–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64186&r=mac |
| By: | Hryckiewicz, Aneta |
| Abstract: | The most recent crisis prompted regulatory authorities to implement directives prescribing actions to resolve systemic banking crises. Recent findings show that government intervention results in only a small proportion of bank recoveries. This study examines the reasons for this failure and evaluates the effectiveness of regulatory instruments, demonstrating that weaker banks are more likely to receive government support, that the support extended addresses banks’ specific issues, and that supported banks are more likely to face bankruptcy than non-supported banks. Therefore, government interventions must be sufficiently large, and an optimal banking recovery program must include a deep restructuring process. |
| Keywords: | Bank risk, business models, bank regulation, financial crisis, banking stability |
| JEL: | E58 G15 G21 G32 |
| Date: | 2014–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64074&r=mac |
| By: | Gregory Phelan (Williams College) |
| Abstract: | This paper investigates how financial-sector leverage affects macroeconomic instability and household welfare. In the model, banks use leverage to allocate resources to productive projects and provide liquidity. When banks do not actively issue new equity, aggregate outcomes depend on the level of equity in the financial sector. Equilibrium is inefficient because agents do not internalize how their decisions affect volatility, aggregate leverage, and the returns on assets. Leverage creates systemic risk and macroeconomic instability, increasing the frequency and duration of crises. Regulating leverage changes asset-price volatility and the likelihood that the financial sector is undercapitalized. |
| Keywords: | Leverage, Macroeconomic Instability, Borrowing Constraints, Banks, Macroprudential Regulation, Financial Crises |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2015-02&r=mac |
| By: | Gorodnichenko, Yuriy (University of California, Berkeley); Sheremirov, Viacheslav (Federal Reserve Bank of Boston); Talavera, Oleksandr (University of Sheffield) |
| Abstract: | Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, this paper explores how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors' prices, and low costs of nominal price adjustment. High-quality data are not only useful to estimate price rigidity and other properties of price adjustment in online commerce but also allow comparing the behavior of those properties with estimates available from brick-and-mortar stores. |
| Keywords: | online markets; prices; price dispersion |
| JEL: | E3 |
| Date: | 2015–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:15-1&r=mac |
| By: | Sehgal, Sanjay; Gupta, Priyanshi; Deisting, Florent |
| Abstract: | In this paper, we examine the financial integration process amongst 17 EMU countries from January 2002 to June 2013 over a normal period as well as for the Global Financial Crisis (GFC) and Eurozone Debt Crisis (EDC) periods. We classify the economies in three groups (A, B and C) based on their GDP to examine whether the economic size influences financial integration. Seven indicators are used for the purpose, namely, Beta Convergence, Sigma Convergence, Variance Ratio, Asymmetric DCC, Dynamic Cointegration, Market Synchronisation Measure and Common Components Approach. The results suggest that large sized EMU economies (termed as Group A) exhibit strong financial integration. Moderate financial integration is observed for middle-sized EMU economies with old membership (termed as Group B). Small sized economies (termed as Group C) economies seemed to be least integrated within the EMU stock market system. The findings further suggest presence of contagion effects as one moves from normal to crisis periods, which are specifically stronger for more integrated economies of Group A. We recommend institutional, regulatory and other policy reforms for Group B and especially Group C to achieve higher level of integration. |
| Keywords: | EMU, Global Financial crisis, Eurozone Debt Crisis, Stock Market integration, Time-varying financial integration, Beta Convergence, Sigma Convergence, Variance Ratio, Asymmetric DCC, Rolling Cointegration, Carhart four factor model, Markov Regime Switching Model |
| JEL: | C22 E44 F36 G14 G15 |
| Date: | 2014–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64078&r=mac |
| By: | Leandro De Magalhães; Raül Santaeulàlia-Llopis |
| Abstract: | This paper provides new empirical insights on the joint distribution of consumption, income, and wealth (CIW) in three of the poorest countries in the world - Malawi, Tanzania, and Uganda - all located in sub-Saharan Africa (SSA). Our first finding is that while income inequality is similar to that of the United States, wealth inequality is barely one-third that of the US. Similarly, while the top of the income distribution (1-10%) earns a similar share of total income in SSA as in the United States, the share of total wealth accumulated by the income-rich in SSA is one-fifth of its US counterpart. Our main contribution is to i) document this dwarfed transmission from income to wealth, which suggests that SSA households face a larger inability to save and accumulate wealth compared with US households; and ii) document a lower transmission from income to consumption inequality, which suggests the presence of powerful institutions that favor consumption insurance in detriment of saving. These features are more relevant for rural areas, which represent roughly four-fifths of the total population. We identify the few successful pockets of the SSA population that are able to accumulate wealth by exploring sources of inequality such as age, education, migration, borrowing ability, and societal systems. |
| JEL: | E20 E21 O10 O55 I32 |
| Date: | 2015–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:15/655&r=mac |
| By: | Herman O. Stekler (The George Washington University); Hilary Symington (Barnard College) |
| Abstract: | In setting monetary policy, the Federal Open Market Committee uses forecasts and other information to assess the current and future states of the US economy. Numerous studies have evaluated the Greenbook forecasts but did not determine why a forecast was made, what factors were considered or the uncertainty that was involved. The minutes of the FOMC provide such information. While the minutes are qualitative, using a quantitative index, we show that the FOMC saw the possibility of a recession but did not predict it. Using textual analysis, we determined which variables informed the forecasts. |
| Keywords: | FOMC forecasts; forecast evaluation; uncertainty; Great Recession; textual analysis |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2014-005&r=mac |
| By: | Boateng, Elliot; Amponsah, Mary |
| Abstract: | Abstract The purpose of this paper is to explore how Ghanaians respond to changes in interest rate on savings. In other to effectively explain how changes in interest rate affect the savings behaviour among Ghanaians, the study administered 200 questionnaires and analysis of the data was done with descriptive statistics and chi-square test. The results show that, in general, changes in deposit interest rate loosely explain why people save. Again, decision to save with respect to changes in deposit interest rate depends on the knowledge the individual have on deposit interest rate and notices they receive from banks with respect to changes in deposit interest rate. The study further noted that, changes in income strongly explain the reasons why individual save. The chi-square result showed that, interacting knowledge on deposit interest rate with changes in interest rate may influence savings. Thus, increasing interest rate on deposit alone will not bring about increase in savings; however knowledge on the variable in question (deposit interest rate) is significant. |
| Keywords: | savings rate, deposit interest rate, knowledge on deposit interest rate, chi-square |
| JEL: | E21 |
| Date: | 2015–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:63926&r=mac |
| By: | Christopher Hoag (Department of Economics, Trinity College) |
| Abstract: | Which banks borrow from a lender of last resort? Looking across multiple panics of the nineteenth century, this paper treats borrowing of clearinghouse loan certificates as borrowing from a lender of last resort. We evaluate individual bank use of clearinghouse loan certificates in New York City using bank balance sheet data. Bank capital ratios do not predict borrowing. Lower pre-panic reserve ratios and greater reserve losses during the crisis increased the probability of positive net borrowing from a lender of last resort. |
| Keywords: | bank, lender of last resort, loan certificates |
| JEL: | G21 G28 N21 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:1503&r=mac |
| By: | Klinger, Sabine; Weber, Enzo |
| Abstract: | This paper investigates the productivity puzzle in Germany. We focus on the time-varying relationship between German output and employment growth, in particular their decoupling in recent years. We estimate a correlated unobserved components model that allows for both persistent and cyclical time variation in the employment impact of GDP as well as an autonomous employment component capturing other factors than real output. As one result, we measure a permanent decline in GDP impact on employment as well as pronounced effects of the autonomous employment component in the recent years. The development of the estimated impact parameters depends on structural change, but also on labour availability and business expectations. Beyond GDP, a high labour supply, tightness as well as moderate wages and working time reductions boosted employment growth. |
| Keywords: | decoupling; productivity puzzle; unobserved components; time-varying coefficient; Verdoorn´s law |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bay:rdwiwi:31751&r=mac |
| By: | A. Bergeaud; G. Cette; R. Lecat |
| Abstract: | This study presents a GDP per capita level and growth comparison across 17 main advanced countries and over the 1890-2013 long period. It proposes also a comparison of the level and growth of the main components of GDP per capita through an accounting breakdown and runs Philips-Sul (2007) convergence tests over GDP per capita and its main components. These components are total factor productivity, capital intensity (capital stock per hours worked), working time and employment rate. Over the whole period, standards of living as measured by GDP per capita experienced a very marked increase in advanced countries, especially because of the surge in Total Factor Productivity (TFP) and in capital intensity. The main results of the study are the following: i) All countries experienced at least one big wave of GDP per capita growth during the 20th Century, but of different sizes and in a staggered manner; ii) Almost all countries have suffered from a significant decline in GDP per capita growth during the last decades of the period; iii) The GDP per capita leadership changed among large countries over the period, from the UK until WWI to the US since WWII; iv) There is an overall convergence process among advanced countries, mainly after WWII, relying mostly on capital intensity convergence and then on TFP convergence, while evolutions in hours worked and even more employment rates are more disparate; v) But this convergence process is not continuous and was particularly scattered since 1990, as the convergence of the EA, the UK and Japan to the US GDP per capita level stopped at a large distance, with reforming or structurally flexible countries accelerating thanks to the Information and Communication Technology shock, while some countries such as Japan lingered in crisis; vi) Employment rates and hours worked did not contribute to the overall convergence process, with club convergence very often appearing for these variables among European countries on one side and Anglo-Saxon countries on the other. Dynamics were especially divergent between these two groups since 1974, as opposite labor policies were implemented. |
| Keywords: | GDP per capita, Productivity, convergence, technological change, global history. |
| JEL: | E20 N10 O47 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:549&r=mac |
| By: | Konstantin A. Kholodilin |
| Abstract: | Before the World War I, the urban rental housing market in Germany could be described as a free and competitive market. The government hardly interfered in the relationships between the landlords and ten- ants. The rents were set freely. During the World War I, the market was hit by several violent shocks. The outbreak of the war led initially to a huge outflow of men from cities to the fronts. Towards the end of the war, the cessation of construction as well as an inflow of workers and mustered out of service soldiers produced an acute housing shortage. Using a unique data set of asking rents extracted from the newspaper announcements, we constructed a monthly time series of rents in Berlin over 1909-1917. This variable is employed to measure the effects of demand and supply shocks on different segments of housing: from small dwellings for poor to large apartments for rich. The analysis shows a decline of rents (especially of the cheap dwellings) in the first half of the war, followed by a moderate increase. This stands in marked contrast to a steady and strong increase of the overall price level. |
| Keywords: | housing rents; announcements; World War I; Berlin |
| JEL: | C10 C52 C53 E32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1477&r=mac |