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on Macroeconomics |
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Issue of 2015‒05‒30
78 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Dominique Pepin (CRIEF) |
| Abstract: | Is the elasticity of intertemporal substitution (EIS) more or less than one? This question can be answered by confronting theoretical results of asset pricing models with investor behaviour during episodes of stock market panic. If we consider these episodes as periods of high risk aversion, then lower asset prices are in fact associated with higher risk aversion. However, according to theoretical models, risky asset price is an increasing function of the coefficient of risk aversion only if the EIS exceeds unity. It may therefore be concluded that the EIS must be more than one to reconcile theory with the observed stock price decline during periods of panic. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1505.07210&r=mac |
| By: | Constantinos Kardaras; Hao Xing; Gordan \v{Z}itkovi\'{c} |
| Abstract: | We study existence and uniqueness of continuous-time stochastic Radner equilibria in an incomplete markets model. An assumption of "smallness" type - imposed through the new notion of "closeness to Pareto optimality" - is shown to be sufficient for existence and uniqueness. Central role in our analysis is played by a fully-coupled nonlinear system of quadratic BSDEs. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1505.07224&r=mac |
| By: | Till Strohsal; Rafi Melnick; Dieter Nautz; |
| Abstract: | Well-anchored inflation expectations have become a key indicator for the credibility of a central bank’s inflation target. Since the outbreak of the recent financial crisis, the existence and the degree of de-anchoring of U.S. inflation expectations have been under debate. This paper introduces an encompassing time-varying parameter model to analyze the changing degree of U.S. inflation expectations anchoring. We confirm that inflation expectations have been partially de-anchored during the financial crisis. Yet, our results suggest that inflation expectations have been successfully re-anchored ever since. |
| Keywords: | Anchoring of Inflation Expectations, Financial Crisis, Break-Even Inflation Rates, Time-Varying Parameter |
| JEL: | E31 E52 E58 C22 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2015-028&r=mac |
| By: | Ryoji Ohdoi (Department of Social Engineering, Tokyo Institute of Technology); Koichi Futagami (Graduate School of Economics, Osaka University); Takeo Hori (College of Economics, Aoyama Gakuin University) |
| Abstract: | In this paper, we propose a neoclassical growth model with non-unitary discount- ing, where an individual discounts her future utilities from consumption and leisure differently. Because this non-unitary discounting induces the individual's preference reversals, we regard one individual as being composed of different selves. Then we derive the closed-form solution of the recursive competitive equilibrium in which her different selves behave in a time-consistent way in all periods. With regard to welfare analysis, we obtain the following three main results. First, the selves in any period strictly prefer the planning allocation to the laissez-faire allocation if they are given the same value of a state variable in both situations. Second, the selves in the long run can prefer the latter to the former allocation if we focus on the overall equilibrium paths in both situations. Third, a time-consistent tax policy designed by a benevolent government replicates the planning allocation. |
| Keywords: | Non-unitary discounting; Time-inconsistency; Intrapersonal game; Markov- perfect equilibrium; Time-consistent tax policy |
| JEL: | E21 H21 O41 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1514&r=mac |
| By: | Jordan Roulleau-Pasdeloup; Anastasia Zhutova |
| Abstract: | We document the existence of a "missing deflation" puzzle during the U.S. Great Depression (1929-1941) and show that the solution of this puzzle lies in Hoover policies. Herbert Hoover made multiple public announcements asking firms not to cut wages, most of which complied. The consequences of such a policy are ambiguous since it affects aggregate fluctuations via two channels: as a negative aggregate supply shock this policy decreases output while increasing inflation, but more inflation can postpone the occurrence of a liquidity trap when the economy is hit by a large negative aggregate demand shock. We develop and estimate a medium scale New Keynesian model to measure the effect of Hoover policies during the Great Depression and we find evidence that without such polices the U.S. economy would have ended up in a liquidity trap two years before it actually did, suffering an even deeper recession with a larger deflation. In addition, the welfare effects of Hoover policy are found to be clearly positive. |
| Keywords: | Zero lower bound; Deflation; Great Depression |
| JEL: | C11 E24 E31 E32 E44 E52 N12 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:15.05&r=mac |
| By: | Nicolas Groshenny (School of Economics, University of Adelaide); Francesco Furlanetto (Norges Bank (Central Bank of Norway)) |
| Keywords: | Search and matching frictions; Unemployment; Natural rates. |
| JEL: | E32 C51 C52 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2015-14&r=mac |
| By: | M. Baldini; C. Mazzaferro; P. Onofri |
| Abstract: | We use 6 waves of the Bank of Italy’s Survey on household income and wealth (SHIW) to check the evolution of workers’ expectations on future pension benefits and retirement age from 2000 to 2012. Based on these two subjective evaluations, we compute a measure of expected pension benefit and compare it with a “true” measure of the same variable that we estimate on the basis of the pension rules in each year of the considered time lapse. By comparing subjective and “true” measures of the variable, we are able to measure the evolution over time of the “expectation error” and its distribution among different economic and demographic subsets of the population. Finally, we estimate a subjective measure of social security wealth and the degree of substitution between this variable and the private net worth of workers’ households, in order to quantify the effects of pension reforms approved in the period considered on wealth accumulation. |
| JEL: | H55 D91 E21 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1007&r=mac |
| By: | Jeremy Greenwood (University of Pennsylvania); Nezih Guner (Universitat Autonoma de Barcelona); Guillaume Vandenbroucke (Federal Reserve Bank of St. Louis) |
| Abstract: | Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a decline in marriage and a rise in divorce; (iv) a higher degree of assortative mating; (v) more children living with a single mother; (vi) shifts in social norms governing premarital sex and married women's roles in the labor market. Macroeconomic models explaining these aggregate trends are surveyed. The relentless flow of technological progress and its role in shaping family life are stressed. |
| Keywords: | Assortative mating, female labor supply, family economics, fertility, household income inequality, household production, human capital, macroeconomics, marriage and divorce, quality-quantity tradeoff, premarital sex, single mothers, social change, survey, technological progress, women's rights |
| JEL: | D31 D58 E1 E13 J1 J2 J12 J13 J22 N2 N30 O3 O11 O15 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:eag:rereps:26&r=mac |
| By: | Wenjuan Chen; Dieter Nautz; ; |
| Abstract: | This paper introduces a Divisia monetary aggregate for Germany and explores its information content for the Great Recession. Divisia money and the corresponding simple sum aggregate are highly correlated in normal times but begin to diverge before the crisis. Out of sample forecast analysis and a conditional forecast exercise show that the predictive content of this divergence for the Great Recession is not only statistically significant, but also economically important. |
| Keywords: | Monetary aggregates, Divisia index, recession indicator, Great Recession |
| JEL: | E27 E32 E51 C43 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2015-027&r=mac |
| By: | Hattendorff , Christian (BOFIT) |
| Abstract: | The paper investigates the relationship between economic concentration and level of financial development to illuminate the linkage of real economy structure and financial markets. Using data from 81 Russian regions for the period 2005–2011, empirical evidence is offered to show that poor diversification weakens credit. Geographical variables are used as instruments of concentration in accounting for endogeneity. This work supports previous findings at the national level that policymakers seeking to promote economic development should place stronger emphasis on output diversification. |
| Keywords: | economic concentration; diversification; financial development; Russia |
| JEL: | E51 O11 R11 |
| Date: | 2015–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2015_018&r=mac |
| By: | Stefano Puddu (Institute of economic research IRENE, Faculty of Economics, University of Neuchâtel, Switzerland); Andreas Waelchli (Studienzentrum Gerzensee (Study Center Gerzensee), Schweizerische Nationalbank (SNB) (Swiss National Bank); Department of Econometrics and Political Economy DEEP, Faculty of Economics, University of Lausanne, Switzerland) |
| Abstract: | Using a unique data set based on US commercial banks and county level loan origination for the period 2005-2010, we measure whether banks that benefited from the Troubled Asset Relief Program (TARP) increase small business loan originations. We propose an identification strategy which exploits the ownership structureof bank holding companies. We find that TARP banks provide on average 19% higher small business loan originations than NO TARP banks. The disaggregated data allows us to control for the potential demand side effects. When considering poverty and unemployment rates at a county level we show that TARP is effective only in counties suffering from unemployment. Several robustness checks confirm the main result. |
| Keywords: | TARP, Financial Crisis, Loan provision |
| JEL: | C23 E58 G21 G28 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:15-06&r=mac |
| By: | Phiri, Andrew |
| Abstract: | This study contributes to the foregoing literature by investigating asymmetric behaviour within the South African short-run Phillips curve for three versions of the Phillips curve specification namely; the New Classical Phillips curve, the New Keynesian Phillips curve and the Hybrid New Keynesian Phillips curve. To this end, we employ a logistic smooth transition regression (LSTR) econometric model to each of the aforementioned versions of the Phillips curve specifications for quarterly data spanning from 1970:01 to 2014:01. Our empirical results indicate that both the marginal-cost based as well as the output gap based versions of the Hybrid New Keynesian Philips curve provide a good fit for South African data. Therefore, our empirical results indicate that monetary policy in South Africa has an influence on the demand side of the economy through inflation inertia and inflation expectations whilst appearing to exhibit no significant effects on the supply side of the economy. |
| Keywords: | New Classical Phillips Curve; New Keynesian Phillips curve; Hybrid New Keynesian Phillips curve; inflation; output gap; marginal costs; smooth transition regression; monetary policy; South Africa, developing country |
| JEL: | C22 E31 E37 |
| Date: | 2015–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64487&r=mac |
| By: | Lopez, Claude; Markwardt, Donald; Savard, Keith |
| Abstract: | As many central banks contemplate the normalization of monetary policy, their focus is turning to the promise of macroprudential policy as a tool to manage possible future systemic risk in financial markets. Janet Yellen and Mario Draghi, among others, are pinning much of their hopes for managing financial stability in the context of Basel III on macroprudentialism. Despite central banks’ clear intention that this policy will play a significant role in developed economies, few policymakers or financial players know what macroprudential policy is, much less how to assess its efficacy or necessity. Our report aims to clarify the concept of macroprudential policy for a broader audience, cultivating a better understanding of these tools and their implications for broader monetary policy going forward. The report also advocates the use of more refined indicators for financial cycles as benchmarks for policy discussions on macroprudential policy. |
| Keywords: | macroprudential policy, non-core liabilities, Basel III |
| JEL: | E6 F3 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64499&r=mac |
| By: | Guerrazzi, Marco |
| Abstract: | This paper develops a DSGE model with investment and capital accumulation build along demand-driven explanations of the Great Recession. Specifically, following Farmer (2013), I set forth a search framework in which households decide about consumption while firms decide about recruiting effort as well as investment. This setting closed with market clearing in good and asset markets has one less equation than unknowns. Therefore, in order to solve such an indeterminacy, I assume that investment is driven by self-fulfilling expectations about the adjustment cost of capital. Consistently with the view of business cycles pushed by stock price fluctuations, this model has the potential to provide a more comprehensive rationale of the consumption-investment patterns observed during the years of the crisis. |
| Keywords: | Investment; Capital accumulation; Finance-induced recession; Search, DSGE Models |
| JEL: | E24 E32 E58 |
| Date: | 2015–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64540&r=mac |
| By: | León, C.; Cely, Jorge; Cadena, Carlos |
| Abstract: | We identify interbank (i.e. non-collateralized) loans from the Colombian large-value payment system by implementing Furfine’s method. After identifying interbank loans from transactional data we obtain the interbank rates and claims without relying on financial institutions’ reported data. Contrasting identified loans with those consolidated from financial institutions’ reported data suggests the algorithm performs well, and it is robust to changes in its setup. The weighted average rate implicit in transactional data matches local interbank rate benchmarks strictly. From identified loans we also build the interbank claims network. The three main outputs (i.e. the interbank loans, the rates, and the claims networks) are valuable for examining and monitoring the money market, for contrasting data reported by financial institutions, and as inputs in models of financial contagion and systemic risk. |
| Keywords: | Furfine's method; interbank; IBR; TIB |
| JEL: | E42 E44 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:ccd49709-e1d5-4da9-bf85-8e7e7320524e&r=mac |
| By: | Stavros B. Thomadakis |
| Abstract: | The paper reflects a basic premise: Greek participation in the Euro-zone marked a definitive institutional break in the process of contracting and managing public debt. Instead of internal debt, used extensively in earlier decades, euro-denominated sovereign issues were now placed in the international market. Thus, the Greek state became a net ‘exporter’ of financial claims to an extent unprecedented in its recent history. In assessing the prolegomena to crisis, I offer a review of the post-junta, pre-euro period, the forces leading to accumulation of (mostly internal) debt and the predominance of a ‘money illusion’ in distributional politics; I also engage an argument that the institutional shift that occurred with Euro-zone entry brought about a fundamental change to the very ‘sovereignty’ of Greek public debt. It expunged ‘money illusion’ but created the ground for policies that embodied ‘financial’ and ‘fiscal’ illusions. The entrapment of elites and electorates in various ‘illusions’ reflected a persistent tendency to underestimate the limits imposed by globalization on Greek economic policies. In the euro era, Greek policy became trapped in a self-feeding loop of debt-driven growth that effectively undermined the country’s sovereignty. |
| JEL: | F3 G3 E6 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:62081&r=mac |
| By: | Jacek Kotłowski |
| Abstract: | This paper examines to what extent public information provided by the central bank affects the forecasts formulated by professional forecasters. We investigate empirically whether disclosing GDP and inflation forecasts by Narodowy Bank Polski (the central bank of Poland) reduces the disagreement in professional forecasters’ expectations. The results only partially support the hypothesis on the coordinating role of the central bank existing in the literature. The main finding is that by publishing its projection of future GDP growth, the central bank reduces the dispersion of one-year-ahead GDP forecasts. Moreover our study indicates that the role of the central bank in reducing the forecasts dispersion is strengthening over time. We also find using non-linear STR models that the extent to which the projection release affects the dispersion of GDP forecasts varies over the business cycle. By disclosing its own projection the central bank reduces the disagreement among the forecasters the most in the periods when the economy moves from one phase of the business cycle to another. On the contrary, the release of CPI projection by NBP affects neither the cross-sectional dispersion nor the level of forecasts formulated by professional forecasters. |
| Keywords: | Monetary policy, inflation targeting, forecasting, central bank communication, survey expectations, forecasts disagreement, STR models. |
| JEL: | C24 E37 E52 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:204&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 for aggregate output and productivity dynamics display: (i) persistence, (ii) volatility and (iii) 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:upf:upfgen:1481&r=mac |
| By: | Dirk Schoenmaker (Faculty of Economics and Business Administration, VU University Amsterdam, Duisenberg school of finance, the Netherlands); Peter Wierts (Duisenberg school of finance, the Netherlands) |
| Abstract: | We propose a regulatory approach for restricting debt financing as an amplification mechanism across the financial system. A small stylised model illustrates the trade-off between static and time varying limits on leverage in dampening the financial cycle. The policy section proposes its application to highly leveraged entities and activities across the financial system. Whereas the traditional view on regulation focuses on capital as a buffer against exogenous risks, our approach focuses instead on debt financing, endogenous feedback mechanisms and resource allocation. It explicitly addresses the boundary problem in entity-based financial regulation and provides a motivation for substantially lower levels of leverage – and thereby higher capital buffers – than in the traditional approach. |
| Keywords: | Financial cycle; macroprudential regulation; financial supervision; (shadow) banking |
| JEL: | E58 G10 G18 G20 |
| Date: | 2015–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150057&r=mac |
| By: | Gadatsch, Niklas; Hauzenberger, Klemens; Stähler, Nikolai |
| Abstract: | We present the estimated large-scale three-region DSGE model GEAR picturing Germany, the Euro Area and the Rest of the world. Compared to existing models of this type, GEAR incorporates a comprehensive fiscal block, involuntary unemployment and a complex international structure. We use the model to evaluate spillovers of fiscal policy, to calculate various present-value multipliers for distinct fiscal instruments, and to assess how discretionary fiscal policy in Germany and the Euro Area affected GDP growth during the global financial crisis. Our analysis suggests that spillovers of fiscal policy shocks in the Euro Area are small. Overall, spending multipliers are higher than revenue-based multipliers and are in line with those found in the literature. We find that, during the crisis, fiscal stimulus packages increased annualized quarter-on-quarter GDP growth substantially, both in Germany and in the rest of the Euro Area. The main drivers of GDP growth in Europe, however, were rest of the world and uncovered interest rate parity shocks, followed by domestic non-fiscal shocks. |
| Keywords: | Fiscal Policy,Unemployment,DSGE modeling,Bayesian estimation |
| JEL: | H2 J6 E32 E62 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:052015&r=mac |
| By: | Hollmayr, Josef; Kühl, Michael |
| Abstract: | In this paper, we discuss the consequences of imperfect information about financial frictions on the macroeconomy. We rely on a New Keynesian DSGE model with a banking sector in which we introduce imperfect information about a limited enforcement problem. Bank managers divert resources and can increase the share of diversion. This can only be observed imperfectly by depositors. The ensuing imperfect information generates a higher volatility of the business cycle. Spillovers from the financial sector to the real economy are higher and shocks in general are considerably amplified in the transition period until agents' learning is complete. Volatility and second-order moments also display an amplification under the learning setup compared with the rational expectations framework. |
| Keywords: | DSGE Model,Financial Frictions,Learning |
| JEL: | E3 E44 G3 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:072015&r=mac |
| By: | Munkacsi, Zsuzsa |
| Abstract: | I calculate unemployment multipliers of fiscal consolidation policies in a standard, closed-economy New Keynesian framework with search and matching frictions, and, as an innovation, in the presence of sectoral heterogeneity. Family and non-family firms behave differently in the labor market and are differently managed. This latter assumption is modeled by the inclusion of intangible capital in the family sector. The model is calibrated to match European data on countries with a large percentage of family firms in the labor force. I find that fiscal austerity raises unemployment. Both at peak and cumulatively, unemployment reacts least when the budget is consolidated by increasing the rate of value-added tax. At peak, the highest increase in unemployment is induced by a cut in government consumption, but, cumulatively, a hike in employees' labor income tax is just as costly in terms of employment. There are trade-offs, however, which a policymaker must face, as the value-added tax increase results in the steepest decline in consumption. Sectoral heterogeneity is crucial; multipliers of labor income tax policies and government consumption multipliers are usually biased downwards, while the consumption-tax multipliers are often biased upwards. Thus, ignoring sectoral heterogeneity might lead to incorrect policy conclusions. |
| Keywords: | fiscal austerity,government consumption,labor income tax,consumption tax,social security contribution,unemployment multiplier,sectoral heterogeneity,family firms,intangible capital |
| JEL: | E22 E24 E62 J64 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:062015&r=mac |
| By: | Konstantinos Theodoridis (Bank of England); Francesco Zanetti (University of Oxford) |
| Abstract: | We enrich a baseline RBC model with search and matching frictions on the labor market and real frictions that are helpful in accounting for the response of macroeconomic aggregates to shocks. The analysis allows shocks to have an unanticipated and a news (i.e. anticipated) component. The Bayesian estimation of the model reveals that the model which includes news shocks on macroeconomic aggregates produces a remarkable fit of the data. News shocks in stationary and non-stationary TFP, investment-specific productivity and preference shocks significantly affect labor market variables and explain a sizeable fraction of macroeconomic fluctuations at medium- and long-run horizons. Historically, news shocks have played a relevant role for output, but they have had a limited influence on unemployment. |
| Keywords: | Anticipated productivity shocks, Bayesian SVAR methods, labor market search frictions. |
| JEL: | E32 C32 C52 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkcam:1501&r=mac |
| By: | Stella, Andrea (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | What drives aggregate fluctuations? I test the granular hypothesis, according to which the largest firms in the economy drive aggregate dynamics, by estimating a dynamic factor model with firm-level data and controlling for the propagation of firm-level shocks using multi-firm growth model. Each time series, the growth rate of sales of a specific firm, is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results suggest that, once I control for aggregate shocks, idiosyncratic shocks do not explain much of U.S. GDP growth fluctuations. |
| Keywords: | Business Cycles; Firm Dynamics; Granular Residual; Dynamic Factor Models |
| JEL: | C30 D20 E32 |
| Date: | 2015–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1133&r=mac |
| By: | Julia von Borstel; Sandra Eickmeier; Leo Krippner |
| Abstract: | We investigate the pass-through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis, in comparison to the pre-crisis period. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks’ funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Specifically, expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer term bank funding risk in peripheral and core countries during the crisis, but has been unable to lower banks’ markups. This was not, or not as much, the case prior to the crisis. Unconventional monetary policy helped decreasing lending rates, mainly due to large shocks rather than a strong propagation. |
| Keywords: | Interest rate pass-through, factor model, sovereign debt crisis, unconventional monetary policy |
| JEL: | E5 E43 E44 C3 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2015-15&r=mac |
| By: | F. Koulischer |
| Abstract: | Currency unions limit the ability of the central bank to use interest rate policy to accommodate asymmetric shocks. I show that collateral policy can serve to dampen asymmetric shocks in a currency area when these shocks also affect the collateral held by banks and when collateral portfolios of banks differ systematically across countries. In my model banks from 2 countries use collateral to borrow from the money market or a central bank that targets a level of interest rate (or investment) in each economy. The distressed bank may enter a “collateral crunch” regime where it is constrained in its access to funding due to a moral hazard problem. The central bank faces an heterogeneous transmission of its interest rate: a unit change in rate has a smaller effect on the economy rate of the distressed country. The central bank therefore sets a high interest rate which is well transmitted in the booming economy and relaxes the haircut on the collateral owned by the distressed bank. |
| Keywords: | Central banking, currency union, collateral policy, repo, monetary policy. |
| JEL: | E58 G01 G20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:554&r=mac |
| By: | Andrew Baker |
| Abstract: | Macroprudential regulation, which has emerged as a new departure in financial regulation (albeit with a longer heritage), since the financial crash, is in a fluid, evolving and highly experimental phase. Understanding its future political economy requires engaging with macroprudential's constituent concepts and how they interrelate to one another. This paper argues that the emerging political economy of macroprudential regulation revolves around five paradoxes. The first three of these are paradoxes that characterise the financial system and are identified by the macroprudential perspective. In seeking to respond to these paradoxes, macroprudential policy, generates a further two distinctly institutional and political paradoxes. The last of these is a central bankers' paradox which relates to the source of independent central bank authority and the difficulty of building legitimacy and public support for macroprudential regulation. Functioning macroprudential regulation is about executing a technocratic control project that rests on a depoliticisation strategy, that in turn risks politicising central banks, exposing their claims to technical authority to critical scrutiny and potential political backlash. This is the ultimate central bankers’ paradox in the era of post-crash political economy. Central banks conducting macroprudential regulation need to be aware of this paradox and handle it with great care. |
| JEL: | E5 E6 |
| Date: | 2015–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:61998&r=mac |
| By: | Aytek Malkhozov; Andrea Tamoni |
| Abstract: | We study the importance of anticipated shocks (news) for understanding the comovement between macroeconomic quantities and asset prices. We find that four-quarter anticipated investment shocks are an important source of fluctuations for macroeconomic variables: they account for about half of the variance in hours and investment. However, it is the four-quarter anticipated productivity shock that is driving a large fraction of consumption and most of the price-dividend ratio fluctuations. These productivity news are key for the model to reproduce the empirical tendency for stock-market valuations and excess returns to lead the business cycle. Importantly, a model that does not use asset price information in the estimation would downplay the role of productivity news; in this case, the model implies that return moves (almost) completely contemporaneously with the economic activity, counterfactually with the data. |
| Keywords: | anticipated shocks; sources of aggregate fluctuations; Bayesian estimation; DSGE model |
| JEL: | C22 E32 E44 G12 |
| Date: | 2015–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:62004&r=mac |
| By: | Antonio Baez-Morales (Faculty of Economics, University of Barcelona) |
| Abstract: | Informality has been given adverse associations as a result of its economic and social consequences in developed and developing countries. The latter group of countries has been the most affected in terms of low productivity, unprotected workers and the erosion of institutional credibility. Although the determinants of informality have been studied before, the research conducted on micro firms in a developing country has been less notable. In this paper, Mexico is taken as case study due to its high level of micro firm informality and the heterogeneity among Mexican states. The aim of this paper is to analyse the determinants of micro firm informality by state, using different public sources, such as the Encuesta Nacional de Micronegocios (ENAMIN, or the National Micro Firm Survey), the Instituto Nacional de Estadisica (INEGI, or the National Institute for Statistics) and the Secretaría de Economía (SE, or the Secretariat for Economics). Econometric panel data models were estimated for a sample of 32 states over the 2008-2012 period. Furthermore, this paper uses different definitions of informality to check the robustness of the results. The empirical evidence obtained allows us to conclude that, although economic factors are the main causes of informality, variables such as corruption and education have an important role to play. |
| Keywords: | microenterprises, informal economy, entrepreneurship, developing countries, institutions. JEL classification: E26, O17, L26 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201514&r=mac |
| By: | Bassam AbuAl-Foul |
| Abstract: | This paper examines the causal relation between savings and economic growth for Morocco and Tunisia using Autoregressive Distributed Lag (ARDL) approach to cointegration. The results support bidirectional causality between economic growth and savings growth for Morocco. However, for Tunisia, the results suggest a unidirectional causality from saving growth to economic growth. |
| Keywords: | Cointegration, ARDL approach, Savings and Economic Growth, Causality, MENA region. |
| JEL: | C50 C51 E20 O40 |
| URL: | http://d.repec.org/n?u=RePEc:sha:ecowps:06-05/2015&r=mac |
| By: | Michalis Nikiforos; Laura Carvalho, Christian Schoder |
| Abstract: | The paper discusses the trajectories of the Greek public deficit and sovereign debt between 1980 and 2010 and its connection to the political and economic environment of the same period. We pay special attention to the causality between the public and the external deficit in the period after 1995, the post-Maastricht treaty period. We argue that, due to the European monetary unification process and the adoption of the common currency, causality ran from the external deficit to the public deficit. This hypothesis is tested econometrically using both Granger Causality and Cointegration analyses. We find empirical support for this hypothesis |
| Keywords: | Greece; crisis; public debt; twin deficits; imbalances |
| JEL: | E62 F21 F34 F41 |
| Date: | 2015–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2015wpecon9&r=mac |
| By: | Filippo Ferroni; Stefano Grassi; Miguel A. Leon-Ledesma |
| Abstract: | DSGE models are typically estimated assuming the existence of certain structural shocks that drive macroeconomic fluctuations. We analyze the consequences of introducing nonfundamental shocks for the estimation of DSGE model parameters and propose a method to select the structural shocks driving uncertainty. We show that forcing the existence of non-fundamental structural shocks produces a downward bias in the estimated internal persistence of the model. We then show how these distortions can be reduced by allowing the covariance matrix of the structural shocks to be rank deficient using priors for standard deviations whose support includes zero. The method allows us to accurately select fundamental shocks and estimate model parameters with precision. Finally, we revisit the empirical evidence on an industry standard medium-scale DSGE model and find that government, price, and wage markup shocks are non-fundamental. |
| Keywords: | Reduced rank covariance matrix; DSGE models; stochastic dimension search |
| JEL: | C10 E27 E32 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1508&r=mac |
| By: | Piero Gottardi (European University Institute); Atsushi Kajii (Kyoto University and Singapore Management University); Tomoyuki Nakajima (Kyoto University and CIGS) |
| Abstract: | We consider an economy where individuals face uninsurable risks to their human capital accumulation, and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion. |
| Keywords: | incomplete markets; Ramsey equilibrium; optimal taxation; optimal public debt. |
| JEL: | D52 D60 D90 E20 E62 H21 O40 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:051&r=mac |
| By: | Ginters, Buss |
| Abstract: | This paper builds a dynamic stochastic general equilibrium (DSGE) model for Latvia that would be suitable for policy analysis and forecasting purposes at Bank of Latvia. For that purpose, I adapt the DSGE model with financial frictions of Christiano, Trabandt and Walentin (2011) to Latvia’s data, estimate it, and study whether adding the financial frictions block to an otherwise identical (‘baseline’) model is an improvement with respect to several dimensions. The main findings are: i) the addition of financial frictions block provides more appealing interpretation for the drivers of economic activity, and allows to reinterpret their role; ii) financial frictions played an important part in Latvia’s 2008-recession; iii) the financial frictions model beats both the baseline model and the random walk model in forecasting both CPI inflation and GDP, and performs roughly the same as a Bayesian structural vector autoregression. |
| Keywords: | DSGE model, financial frictions, small open economy, Bayesian estimation, Currency union |
| JEL: | E0 E3 F0 F4 G0 G1 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:042&r=mac |
| By: | Schwarzmüller, Tim; Wolters, Maik H. |
| Abstract: | We provide a systematic analysis of the transmission mechanisms of fiscal consolidation via various fiscal instruments in a medium-scale dynamic general equilibrium model. Our analysis shows that the following three aspects have a large impact on the quantitative macroeconomic effects of fiscal consolidation. First, the effects on output depend crucially on the interaction of the specific fiscal consolidation instrument with the production factors labor, private and public capital. Increases in the labor and capital tax rates and cuts in government investment lead to large declines in one of these production factors, respectively. This is followed by a decrease in the private or public capital stock which in turn yields a persistent output contraction. By contrast, for consolidations via government consumption, transfers or the consumption tax rate the capital stock does not shrink and output recovers much faster. Second, the presence of credit-constrained households amplifies the consumption and output dynamics caused by fiscal consolidation. This has large distributional consequences and opposing welfare implications for credit-constrained and fully optimizing households. Finally, when the zero lower bound on the nominal interest rate binds the short-run output costs of fiscal consolidation increase substantially in particular for expenditure based consolidations. |
| Keywords: | fiscal consolidation, policy transmission, government debt, distortionary taxes, zero lower bound, welfare, monetary-fiscal policy interaction |
| JEL: | E32 E62 E63 H61 H62 H63 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:043&r=mac |
| By: | Daniel Rees (Reserve Bank of Australia); Penelope Smith (Reserve Bank of Australia); Jamie Hall (Reserve Bank of Australia) |
| Abstract: | This paper describes the dynamic stochastic general equilibrium (DSGE) model currently in use at the Reserve Bank of Australia. The model extends previous DSGE models of the Australian economy by incorporating multiple production sectors, including a resource sector. We estimate the model, describe its dynamic properties, illustrate its use in scenario analysis and use the model to identify the sources of Australian business cycle fluctuations. |
| Keywords: | monetary policy; small open economy; Bayesian estimation |
| JEL: | C11 E47 E52 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2015-07&r=mac |
| By: | Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Marcin Waniek (University of Warsaw) |
| Abstract: | While the inequalities of endowments are widely recognized as areas of policy intervention, the dispersion in preferences may also imply inequalities of outcomes. In this paper, we analyze the inequalities in an OLG model with obligatory pension systems. We model both policy relevant pension systems (a defined benefit system -- DB -- and a transition from a DB to a defined contribution system, DC). We introduce within cohort heterogeneity of endowments (individual productivities) and heterogeneity of preferences (preference for leisure and time preference). We introduce two policy instruments, which are widely used: a contribution cap and a minimum pension. In theory these instruments affect both the incentives to work and the incentives to save for the retirement with different strength and via different channels, but the actual effect attributable to these policy instruments cannot be judged in an environment with a single representative agent. We show four main results. First, longevity increases aggregate consumption inequalities substantially in both pension systems, whereas the effect of a pension system reform works to reinforce the consumption inequalities and reduce the wealth inequalities. Second, the contribution cap has negligible effect on inequalities, but the role for minimum pension benefit guarantee is more pronounced. Third, the reduction in inequalities due to minimum pension benefit guarantee is achieved with virtually no effect on capital accumulation. Finally, the minimum pension benefit guarantee addresses mostly the inequalities which stem from differentiated endowments and not those that stem from differentiated preferences. |
| Keywords: | inequality, longevity, defined contribution, defined benefit, Gini |
| JEL: | C68 E17 E21 J11 J26 H55 D63 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2015-16&r=mac |
| By: | Lotz, Sebastien; Zhang, Cathy |
| Abstract: | This paper studies the choice of payment instruments in a simple model where both money and credit can be used as means of payment. We endogenize the acceptability of credit by allowing retailers to invest in a costly record-keeping technology. Our framework captures the two-sided market interaction between consumers and retailers, leading to strategic complementarities that can generate multiple steady-state equilibria. In addition, limited commitment makes debt contracts self-enforcing and yields an endogenous upper bound on credit use. So long as record-keeping is imperfect, money and credit coexist for a range of nominal interest rates. Our model captures the dependence of debt limits on monetary policy and explains how hold-up problems in technological adoption prevent retailers from accepting credit as consumers continue to coordinate on cash usage. With limited commitment, changes in monetary policy generate multiplier effects in the credit market due to complementarities between consumer borrowing and the adoption of credit by merchants. |
| Keywords: | money and credit, limited commitment, endogenous record-keeping |
| JEL: | E41 E51 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64535&r=mac |
| By: | RACHDI, Houssem; Hakimi, Abdelaziz; Hamdi, Helmi |
| Abstract: | The main purpose of this study is to investigate the interaction between financial liberalization, banking crisis and economic growth by taking into consideration the role of institutions. Our sample covers ten Middle East and North African (MENA henceforth) observed during the period 1990-2013. Using a dynamic panel data framework, our findings reveal that financial liberalization increases the likelihood of systemic banking crisis at the initial stages of financial reform, but there is a threshold level after which financial liberalization can have a positive impact on economic growth by reducing the probability of crisis. The results also suggest that all indicators of institutions play a less significant role in economic growth. |
| Keywords: | Economic growth, financial liberalization, institutions and MENA countries |
| JEL: | E44 F36 G21 G28 |
| Date: | 2015–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64562&r=mac |
| By: | John Barrdear (Bank of England; Centre for Macroeconomics (CFM); Economics Department London School of Economics (LSE)) |
| Abstract: | Modifying the standard New-Keynesian model to replace firms’ full information and sticky prices with flexible prices and dispersed information, and imposing mild and plausible restrictions on the monetary authority’s decision rule, produces the striking results that (i) there exists a unique and globally stable steady-state rate of inflation, despite the possibility of a lower bound on nominal interest rates; and (ii) in the vicinity of steady-state, the price level is determinate (and not just the rate of inflation), despite the central bank targeting inflation. The specification of firms’ signal extraction problem under dispersed information removes the need to make use of Blanchard-Kahn conditions to solve the model, thereby removing the need to adhere to the Taylor principle and consequently circumventing the critique of Cochrane (2011). The model admits a determinate, stable solution with no role for sunspot shocks when the monetary authority responds by less than one-for-one to changes in expected inflation, including under an interest rate peg. An extension to include incomplete information on the part of the central bank permits the consideration of (rational) errors of judgement on the part of policymakers and provides a theoretical basis for inertial policymaking without interest rate smoothing, in support of Rudebusch (2002, 2006). |
| Keywords: | New-Keynesian, indeterminacy, dispersed information, FTPL, Blanchard-Kahn, Taylor rules, Taylor principle |
| JEL: | D82 D84 E31 E52 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1509&r=mac |
| By: | Ahmed, Shaghil (Board of Governors of the Federal Reserve System (U.S.)); Coulibaly, Brahima (Board of Governors of the Federal Reserve System (U.S.)); Zlate, Andrei (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | We assess the importance of economic fundamentals in the transmission of international shocks to financial markets in various emerging market economies (EMEs). Our analysis covers the so-called taper-tantrum episode of 2013 and six earlier episodes of severe EME-wide financial stress since the mid-1990s. Cross-country regressions lead us to the following results: (1) EMEs with relatively better economic fundamentals suffered less deterioration in financial markets during the 2013 taper-tantrum episode. (2) Differentiation among EMEs set in quite early and persisted throughout this episode. (3) Controlling for economic fundamentals, we also find that, during the taper tantrum, financial conditions deteriorated more in those EMEs that had earlier experienced larger private capital inflows and greater exchange rate appreciation. (4) For earlier episodes, we find little evidence of investor differentiation across EMEs being explained by differences in their relative vulnerabilities during EME crises of the 1990s and early 2000s. (5) That said, differentiation across EMEs based on fundamentals does not appear to be unique to the 2013 episode. Differences in economic fundamentals played a role in explaining the heterogeneous EME financial market responses during the global financial crisis of 2008, and the role of fundamentals appeared to progressively increase through the European crisis in 2011 and subsequently the 2013 taper tantrum. |
| Keywords: | Emerging market economies; financial spillovers; economic fundamentals; vulnerability; depreciation pressure; taper tantrum; financial stress |
| JEL: | E50 F30 |
| Date: | 2015–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1135&r=mac |
| By: | Demyanyk, Yuliya (Federal Reserve Bank of Cleveland); Luengo-Prado, Maria Jose (Federal Reserve Bank of Boston); Hryshko, Dmytro (University of Alberta); Sorensen, Bent E. (University of Houston) |
| Abstract: | U.S. consumption has gone through steep ups and downs since the turn of the millennium, but the causes of these fluctuations are still imperfectly identified. We quantify the relative impact on consumption growth of income, unemployment, house prices, credit scores, debt, expectations, foreclosures, inequality, and refinancings for four subperiods: the “dot-com recession” (2001-2003), the “subprime boom” (2004-2006), the Great Recession (2007-2009), and the “tepid recovery” (2010-2012). We document that the explanatory power of different factors varies by subperiods, implying that a successful modeling of this decade needs to allow for multiple causal determinants of consumption. |
| Keywords: | consumption growth; wealth effects; income inequality; debt overhang; consumer credit; consumer expectations; foreclosures; cash-out refi nancing; dot-com recession; subprime boom; Great Recession; tepid recovery |
| JEL: | E21 E24 |
| Date: | 2015–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1507&r=mac |
| By: | Ingrid Größl (Universität Hamburg (University of Hamburg)); Artur Tarassow (Universität Hamburg (University of Hamburg)) |
| Abstract: | In this article we derive a microfounded model of money demand under uncertainty built on intertemporally optimizing risk-averse households. Deriving a complete solution of the optimization problem taking the intertemporal budget constraint into account leads to ambiguous effects w.r.t. to the impact of capital as well as inflation risk, thus contradicting standard results. We estimate both the long- and short-run model dynamics as well as potential time-variation by means of a rolling-window dynamic multiplier analysis using the error-correction framework for the U.S. economy between 1978q1 to 2013q4. The results reveal that U.S. households increase their demand for money in response to positive changes in inflation and stock market risks. |
| Keywords: | Money Demand, Uncertainty, Inflation Risk, Stock Market Risk, Monetary Policy, ARDL Model, Cointegration, Dynamic Multiplier, Rolling-Window |
| JEL: | C22 E41 E51 E58 G11 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201504&r=mac |
| By: | Peter Benczur; Katia Berti; Jessica Cariboni; Francesca Erica Di Girolamo; Sven Langedijk; Andrea Pagano; Marco Petracco Giudici |
| Abstract: | The euro area sovereign debt crisis brought to light the potential risks to public finances posed by the banking sector. This paper simulates the potential impact of bank defaults on public finances based on stress test scenarios using an advance analytical methodology. |
| JEL: | C15 E62 G01 G21 H63 H68 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0548&r=mac |
| By: | Nicolas Carnot; Phil Evans; Serena Fatica; Gilles Mourre |
| Abstract: | The recent crisis has shown how economic shocks can lead to considerable and persistent cyclical divergences in the euro area. Successful monetary unions have generally been backed by fiscal arrangements providing income insurance against shocks. This paper reviews the potential issues, the underlying trade-offs and the necessary theoretical conditions to make an income insurance scheme workable, and provides an empirical application for the euro area. It also discusses ‘good’ design features, arguing that such schemes should focus on large shocks and exert a moderating effect during boom times, as well as provide cushioning against adverse shocks. |
| JEL: | E61 E62 F36 F42 H77 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0546&r=mac |
| By: | Anna Thum-Thysen; Erik Canton |
| Abstract: | This paper analyses the impact of regulation on product sector mark-ups across the EU and confirms that less strict regulation tends to foster competition and reduce mark-up rates. The results also show that mark-ups in most EU countries and sectors have been declining over the last 15 years as a result of competition-friendly reforms. The paper also casts light on which areas of regulation are most important for mark-ups in individual sectors. |
| JEL: | D40 E31 L51 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0547&r=mac |
| By: | NGNIADO NOGNOU Edwige |
| Abstract: | This paper proposes to identify from the specificities of the CEMAC zone different sources of uncertainties that may affect monetary policies actions. We first realize a review of literature on the implementation of monetary policy under uncertainty as it is presented in the general theory. Two rules of conduct are mentioned. The certainty equivalence principle for which uncertainty has no effect on the optimal policy and the Brainard (1967) Conservatism principle that recommends more cautious and whose empirical validity is not always verified and depends on the type of uncertainty. |
| Keywords: | Monetary Policy – Uncertainty – CEMAC |
| JEL: | C32 E31 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2015-16&r=mac |
| By: | Ken Urai (Graduate School of Economics, Osaka University); Hiromi Murakami (Graduate School of Economics, Osaka University) |
| Abstract: | An overlapping generations model with the double infinity of commodities and agents is the most fundamental framework to introduce outside money into a static economic model. In this model, competitive equilibria may not necessarily be Pareto-optimal. Although Samuelson (1958) emphasized the role of fiat money as a certain kind of social contract, we cannot characterize it as a cooperative game-theoretic solution like a core. In this paper, we obtained a finite replica core characterization of Walrasian equilibrium allocations under non-negative wealth transfer and a core-limit characterization of Samuelsonfs social contrivance of money. Preferences are not necessarily assumed to be ordered. |
| Keywords: | Monetary Equilibrium, Overlapping Generations Model, Core Equivalence, Replica Econ- omy, Non-Ordered Preference |
| JEL: | C62 C71 D51 E00 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1435r2&r=mac |
| By: | Muteba Mwamba, John; Dube, Sandile |
| Abstract: | The main objective of this paper is to examine the effect of exchange rate volatility on international trade. We show that the impact of exchange rate volatility on international trade could be either positive or negative depending on various reasons that are discussed in this study. We focus mainly on the manufacturing trade between the Republic of South Africa with the United States and China. Aggregated manufacturing industry data and disaggregated manufacturing data, disaggregated to the 4 digit level using the Harmonized System tariff 2009 is used to investigate the impact of exchange rate volatility on international trades. The finding of this paper represents a challenge for policy recommendations as it reflects the fact that various industries, sectors and subsectors of the economy of the Republic of South Africa are impacted differently by the volatility of the Rand/Yuan and Rand/Dollar exchange rates, respectively, therefore any policy that is drawn up to improve international trade needs to be done on an individual basis for each industry, sector and subsector respectively taking into account the various dynamics and characteristics of each. |
| Keywords: | international trade, exchange rate, volatility |
| JEL: | E6 F2 F3 F4 F40 F42 |
| Date: | 2014–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64389&r=mac |
| By: | Mallick, Debdulal |
| Abstract: | This paper revisits the empirical relationship between business-cycle volatility and long-run growth. The key contribution lies in controlling for fluctuations in the trend growth that also accounts for enormous heterogeneity among countries in their long-run growth trajectories; otherwise, the estimating equation would be misspecified. We find that there is no effect of BC volatility on growth once estimation duly accounts for these fluctuations. Otherwise, there would be a significant effect of BC volatility on growth that also varies across time period and country income groups. We instead find a negative effect of persistence in volatility on growth. The results have implications in light of recent global financial crises, and also for cross-country regressions. |
| Keywords: | Growth, Business cycles, Volatility, Volatility persistence |
| JEL: | E32 F44 O11 O4 O40 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64502&r=mac |
| By: | Fuentes, Miguel; Raddatz, Claudio; Reinhart, Carmen |
| Abstract: | While the global economic environment has changed considerably from end-2011 to the present for advanced and emerging economies alike, the themes and policy issues addressed by these papers share a timeless dimension. Collectively, the studies that comprise this volume deal with various aspects of the causes, consequences, and policy challenges associated with the repeated boom-bust cycles that have characterized market economies throughout most of their history. The papers have a decided open-economy focus and connect the prosperity-crisis-depression cycle to international capital flows and their impact on domestic and external indebtedness, currency fluctuations, and the banking sector; their connection to global factors, such as international interest rates, commodity prices and crises or turbulence outside the national borders is explored. While the analysis is tilted towards emerging markets—particularly in Latin America, the relevance of these topics for mature economies has been made plain by the Global Financial Crisis. |
| Keywords: | capital flows, contagion, capital controls, credit booms |
| JEL: | E0 E50 F3 F32 F4 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64506&r=mac |
| By: | Bill Gibson (University of Vermont); Mark Setterfield (Department of Economics, New School for Social Research) |
| Abstract: | Keynesian economists refer to capitalism as a monetary production economy, in which the theory of money and the theory of production are inseparable (Skidelsky, 1992). One important aspect of this, brought to light by Robertson following the publication of The General Theory, is that in a Keynesian economy, endogenous money creation is logically necessary if the economy is to expand. A Keynesian economy cannot operate with an exogenously given supply of money as in verticalism. One way to ensure that money is endogenous is to simply assume that the supply of money is infinitely elastic, known in the literature as horizontalism. In this view, prior savings cannot be a constraint on current investment and it follows that the level of economic activity is determined by effective demand. Using a multi-agent systems model, this paper shows that real economies, especially those subject to recurrent financial crises, can be neither horizontalist nor verticalist. Horizontalism overlooks microeconomic factors that might block flows from savers to investors, while verticalism ignores an irreducible ability of the system to generate endogenous money, even when the monetary authority does everything in its power to limit credit creation. |
| Keywords: | Multi-agent system, intermediation, endogenous money, Keynesian macroeconomics |
| JEL: | D58 E12 C00 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1511&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201510&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201512&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201509&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201505&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201508&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201503&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201507&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201504&r=mac |
| By: | John Bryant (Vocat International) |
| Abstract: | Chapter from a book entitled Entropy Man, which deals with the relationships between the disciplines of thermodynamics and economics. Chapter 1 illusrates how entropy impacts on the world in which we live. Chapter 2 is a short history of human development. Chapter 3 covers such concepts as the distribution of income, elasticity, the first and second laws of thermodynamics and utility. Chapter 4 explores production and consumption. Chapter 5 explores the relationship between economic entropy and money, illustrated by data of the UK and USA economies. Chapter 7 explores the relationship between economic entropy and employment. Chapter 8 sets out the key dynamics of resources.Chapter 9 illustrates trends in non-renewable resources of oil, gas, coal, nuclear power, steel, cement and Aluminium. Chapter 10 illustrates trends in renewable resources, including humankind, water, land and soil, cereals and grain, meat, fish, the greeen revolution, and renewable energy, including hydro-electric power, wind and solar energy. Chapter 11 is a summary of trends relating to climate change and economic output, and chapter 12 summarises how economics and entropy relate to a sustainable world. |
| Keywords: | Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy, interest, elasticity, employment, climate change |
| JEL: | A1 C02 C68 D5 E O |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:voc:wpaper:em201511&r=mac |
| By: | Joseph E. Stiglitz |
| Abstract: | The paper identifies, and then resolves, a number of seeming puzzles in a newly identified set of stylized facts entailing movements in factor returns and shares and the wealth-income ratio. Standard data on savings cannot be reconciled with the increase in the wealth-income ratio: there is a wealth residual. An important component of this is associated with rents: land rents, exploitation rents, and returns on intellectual property. Nor can these stylized facts be reconciled with a standard neoclassical model, focusing on labor and capital, even taking into account technological change (including skill-biased technological change), with appropriately defined aggregates. Explaining why the concepts of “capital” and “wealth” are distinct, we show that appropriately defined aggregates for wealth may be (and in the case of some countries appear to be) moving in opposite directions. We identify some of the factors that may have contributed to the increase in rents and the divergence between wealth and capital. Subsequent Parts of this paper will investigate some of these factors in detail and relate them to changes in inequality. |
| JEL: | D31 E21 E22 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21189&r=mac |
| By: | Joseph E. Stiglitz |
| Abstract: | This paper investigates the determination of the equilibrium distribution of income and wealth among individuals within a simple equilibrium growth model, where there is consistency between the movements of aggregate variables and the savings, bequest, and reproduction behavior of individuals. It describes centrifugal and centripetal forces, (leading to more or less unequal distributions), identifies the factors that may have contributed to the observed increase in inequality, and provides explicit expressions for the level of tail-inequality in terms of the underlying parameters of the economy and policy variables. Among the key results are: (i) The magnitude of wealth inequality does not, in general depend on the difference between the rate of interest (r) and the rate of growth (g); the former is itself an endogenous variable that needs to be explained. In the standard generalization of the Solow model, in the long run not only is r < g, but sr < g (where s is the savings rate). (ii) An increase in capital taxation may be (and in some of the central models is) fully shifted, and so may not lead to lower levels of inequality. (iii) If the capital tax is progressive and/or the proceeds go to public investment, wealth inequality may be reduced the well-being of workers may be increased. |
| JEL: | D31 E21 E22 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21190&r=mac |
| By: | Joseph E. Stiglitz |
| Abstract: | This paper extends the standard life cycle model to a world in which there are also capitalists. We obtain simple formulae describing the equilibrium fraction of wealth held by life-cycle savers. Using these formulae, we ascertain the effects of tax policy or changes in the parameters of the economy. The relative role of life cycle savings increases with the rate of growth and with the relative savings rate of life-cycle savers and capitalists. An increase in the savings rate of workers has no effect on output per capita; life cycle savings simply crowds out inherited savings. A tax on capital (even if proceeds are paid out to workers) is so shifted that capitalists are unaffected and that workers’ income (after transfers) and their share in national wealth are reduced. If the government invests the proceeds, the share of capital owned by life cycle savers may increase. We extend the analysis to endogenously derive the distribution of the population between life cycle savers and capitalists, in a model in which all individuals have identical non-linear savings functions. When wealth is low enough, bequests drop to zero. With stochastic returns, individuals move between the two groups. A second extension analyzes the effects of land. We ask whether land holding displaces the holding of capital, resulting in workers being worse off. A tax on land, while reducing the value of land, leaves unchanged the capital-labor ratio, output per capita, and wages. But the tax reduces the aggregate value of wealth, and if the proceeds of the tax are distributed to workers, their income and life cycle savings are increased. On both accounts, wealth inequality is reduced. Thus, consistent with Henry George’s views, a tax on the returns on land, including capital gains, reduces inequality with no adverse effect on national income. |
| JEL: | D31 D91 E21 E22 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21191&r=mac |
| By: | Joseph E. Stiglitz |
| Abstract: | A significant amount of the increase in the wealth income ratio in recent decades is due to an increase in the value of land. We present a series of models that explain why land prices may have increased. These models help us understand the increase in both the wealth income ratio and wealth inequality. One model focuses on certain locations as being positional good. In another, we show that land bubbles are a natural part of market economies, and that on “bubble paths”, wealth may increase, even as the real wealth of the economy diminishes. Focusing on long run equilibrium, we show that a tax on the returns on land (including capital gains) can lead to higher incomes and less inequality. We show the links between the increases in land values and the financial system, demonstrating how changes in the rules governing that sector and the conduct of monetary policy may increase inequality. Given the large amount of life cycle savings, the traditional division of society into the owners of capital and workers or creditors and debtors may no longer provide the most insights for understanding the impact of policies on distribution. The relevant division is between capitalists, who pass on their wealth from generation to generation, and workers, and between the owners of equity and the holders of debt instruments. These distinctions are important for tax, financial and monetary policy. In our simple model, a lowering of interest rates benefits holders of equity— the capitalists—but hurts holders of government bonds, disproportionately life-cycle savers, and thus increases inequality. Similarly, a lowering of collateral requirements or of banks’ capital adequacy requirements does not result in an increase in the overall efficiency of the economy, but leads to more inequality. |
| JEL: | D31 E21 E22 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21192&r=mac |
| By: | Jae Song; David J. Price; Fatih Guvenen; Nicholas Bloom |
| Abstract: | Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer—men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population. |
| JEL: | E24 E25 J31 L23 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21199&r=mac |
| By: | Miguel Faria-e-Castro; Joseba Martinez; Thomas Philippon |
| Abstract: | We characterize the optimal use of information disclosure and fiscal backstops during financial crises. In our model, financial crises force governments to choose between runs and lemons. Revealing information about banks' assets reduces adverse selection in credit markets, but it can also create inefficient runs on weak banks. A fiscal backstop mitigates this risk and allows the government to pursue a high disclosure strategy. A government with a strong fiscal position is more likely to run informative stress tests than a government with a weak fiscal position. As a result, such a government is also less likely to rely on outright bailouts. |
| JEL: | E44 E5 E6 G01 G21 G28 H12 H2 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21201&r=mac |
| By: | Atif Mian; Amir Sufi |
| Abstract: | We use individual level credit bureau data to document which individuals saw the biggest rise in household debt from 2000 to 2007 and the biggest rise in defaults from 2007 to 2010. Growth in household debt from 2000 to 2007 was substantially larger for individuals with the lowest initial credit scores. However, initial debt levels were lower for individuals in the lowest 20% of the initial credit score distribution. As a result, the contribution to the total dollar rise in household debt was strongest among individuals in the 20th to 60th percentile of the initial credit score distribution. Consistent with the importance of home-equity based borrowing, the increase in debt is especially large among individuals in the lowest 60% of the credit score distribution living in high house price growth zip codes. In contrast, the borrowing of individuals in the top 20% of the credit score distribution is completely unresponsive to higher house price growth. In terms of defaults, the evidence is unambiguous: both default rates and the share of total delinquent debt is largest among individuals with low initial credit scores. The bottom 40% of the credit score distribution is responsible for 73% of the total amount of delinquent debt in 2007, and 68% of the total in 2008. Individuals in the top 40% of the initial credit score distribution never make up more than 15% of total delinquencies, even in 2009 at the height of the default crisis. |
| JEL: | E0 R3 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21203&r=mac |
| By: | Kucera, Jakub |
| Abstract: | This paper provides a concise overview of Russia's economy. First, it describes the growth model of the past fifteen years and explains why that model is now exhausted. Secondly, it examines the reaction of the country´s leadership to the stagnating economy. Finally, to evaluate the feasibility of any reform programme, the paper pinpoints the biggest economic problems currently facing Russia with an overview of the main questions relating to Russian modernization. The main problems examined will be those that the Russian economy faced before the current crisis, as these can still be considered fundamental and, as we will see, were actually causing considerable concern even before sanctions were imposed during the Ukrainian crisis and before the current economic crisis began. |
| Keywords: | Russia; economy; stagnation; crisis; problems; modernization |
| JEL: | E22 E24 E61 E66 F32 Q43 |
| Date: | 2015–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64320&r=mac |
| By: | Obregon, Carlos |
| Abstract: | Piketty argues that there are long-run fundamental laws in capitalism that will necessarily concentrate the income in favor of the privileged 1 or 10% of the population. Piketty's two fundamental laws are really theoretical propositions that presume relative rigidity in the rate of return of capital and in the net savings rate. We show that such propositions are incompatible with seventy-five years of studies estimating the value of the elasticity of substitution between capital and labor, and with the theoretical models of savings optimizing behavior. We argue that Piketty's laws are wrong and that they contradict the essence of market dynamics. Economic agents optimize and neither the rate of return of capital nor the net savings rate can remain relatively stable as Piketty supposes. Using empirical estimates of the long-run elasticity of substitution between capital and labor, and analyzing the relationship between the net savings rate and the real growth rate of the economy, we show that Piketty's forecast for the second half of the twenty-first century is inadequate. We propose alternative forecasts. |
| Keywords: | Piketty, Capitalism, Rate of return of capital, Savings rate, Economy growth, Elasticity between capital an labor |
| JEL: | D30 D31 D33 E20 E21 E25 F01 O47 O57 |
| Date: | 2015–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64593&r=mac |
| By: | Soldatos, Gerasimos |
| Abstract: | This paper demonstrates theoretically that a profit tax does not affect the distribution of the firm’s operations between the official and the underground economy. Or, if the firm was initially operating only officially, direct taxation of its business would not be a reason to go underground. Indirect taxation in the form of a sales tax does influence an already existing mix of official and underground activities, favoring the latter. And, it does constitute a reason to “go underground” for an otherwise fully official business. This is a thesis robust to market structure changes and to introducing tax evasion in the usual sense, provided the underground demand is inelastic. The tax authority can still collect the planned tax revenue through a combination of a cash-flow tax with indirect taxation, under only consumer-surplus loss by the underground customer. |
| Keywords: | Inelastic underground demand, Business-tax shift, Tax policy |
| JEL: | D21 E26 H26 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64598&r=mac |
| By: | SBIA, Rashid; Al Rousan, Sahel |
| Abstract: | This paper investigates the relationship between financial development and economic growth in case of UAE over the period of 1975Q1-2012Q4. The issue of unit root properties of the variables is solved by employing structural break unit root test. We have employed Bayer-Hanck combined cointegration to test the long run relationship between the variables. Our analysis revealed the existence of cointegration between financial development and economic growth. Financial development induces economic growth. Foreign direct investment stimulates economic growth. Capitalization also increases economic growth. This paper suggests using foreign direct investment appropriately redesigning financial policy for sustainable economic growth in long span of time. |
| Keywords: | Financial Development, FDI, Capital Investment, Economic Growth, UAE, GCC, MENA. |
| JEL: | C32 E22 E62 F43 G18 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64599&r=mac |
| By: | Albers, Scott |
| Abstract: | This book is about the construction of reality. The central aim of this study is to understand how gravity works and how it may be focused and manipulated. While I do not have an answer to this question, the discoveries along the way have been worth collecting into a single volume for future reference. |
| Keywords: | Kondratiev Wave, Okun's Law, Pi, The golden mean, gross national product, employment, consciousness |
| JEL: | B41 B5 C01 C02 C5 C50 C6 C63 E0 E00 E01 E10 E19 E30 N00 N01 N11 Z10 Z13 |
| Date: | 2015–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64618&r=mac |
| By: | Wojciech Charemza; Carlos Díaz; Svetlana Makarova |
| Abstract: | Empirical evaluation of macroeconomic uncertainty and its use for probabilistic forecasting are investigated. New indicators of forecast uncertainty, which either include or exclude effects of macroeconomic policy, are developed. These indicators are derived from the weighted skew normal distribution proposed in this paper, which parameters are interpretable in relation to monetary policy outcomes and actions. This distribution is fitted to forecast errors, obtained recursively, of annual inflation recorded monthly for 38 countries. Forecast uncertainty term structure is evaluated for U.K. and U.S. using new indicators and compared with earlier results. This paper has supplementary material. |
| Keywords: | forecast term structure, macroeconomic forecasting, monetary policy, non-normality |
| JEL: | C54 E37 E52 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:15/09&r=mac |
| By: | Wojciech Charemza; Carlos Díaz; Svetlana Makarova |
| Abstract: | The paper discusses the consequences of possible misspecification in fitting skew normal distributions to empirical data. It is shown, through numerical experiments, that it is easy to choose a distribution which is different from that which generated the sample, if the minimum distance criterion is used. The distributions compared are the two-piece normal, weighted skew normal and the generalized Balakrishnan skew normal distribution which covers a variety of other skew normal distributions, including the Azzalini distribution. The estimation method applied is the simulated minimum distance estimation with the Hellinger distance. It is suggested that, in case of similarity in values of distance measures obtained for different distributions, the choice should be made on the grounds of parameters’ interpretation rather than the goodness of fit. For monetary policy analysis, this suggests application of the weighted skew normal distribution, which parameters are directly interpretable as signals and outcomes of monetary decisions. This is supported by empirical evidence of fitting different skew normal distributions to the ex-post monthly inflation forecast errors for Poland, Russia, Ukraine and U.S.A., where estimations do not allow for clear distinction between the fitted distributions for Poland and U.S.A. |
| Keywords: | Skew Normal Distributions, Ex-post Uncertainty, Inflation Forecasting, Economic Policy |
| JEL: | E17 C46 E52 E37 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:15/08&r=mac |
| By: | Wojciech Charemza; Carlos Díaz; Svetlana Makarova |
| Abstract: | The paper introduces the concept of conditional inflation forecast uncertainty. It is proposed that the joint and conditional distributions of the bivariate forecast uncertainty can be derived from estimation unconditional distributions of these uncertainties and applying appropriate copula function. Empirical results have been obtained for Canada and US. Term structure has been evaluated in the form of unconditional and conditional probabilities of hitting the inflation range of ±1% around the Canadian inflation target. The paper suggests a new measure of inflation forecast uncertainty that accounts for possible inter-country dependence. It is shown that evaluation of targeting precision can be effectively improved with the use of ex-ante formulated conditional and unconditional probabilities of inflation being within the pre-defined band around the target. |
| Keywords: | Macroeconomic Forecasting, Inflation, Uncertainty, Non-normality, Density Forecasting, Forecast Term Structure, Copula Modelling |
| JEL: | C53 E37 E52 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:15/07&r=mac |
| By: | Indira Hirway |
| Abstract: | Unpaid work, which falls outside of the national income accounts but within the general production boundary, is viewed as either "care" or as "work" by experts. This work is almost always unequally distributed between men and women, and if one includes both paid and unpaid work, women carry much more of the burden of work than men. This unequal distribution of work is unjust, and it implies a violation of the basic human rights of women. The grounds on which it is excluded from the boundary of national income accounts do not seem to be logical or valid. This paper argues that the exclusion reflects the dominance of patriarchal values and brings male bias into macroeconomics. This paper shows that there are multiple linkages between unpaid work and the conventional macroeconomy, and this makes it necessary to expand the boundary of conventional macroeconomics so as to incorporate unpaid work. The paper presents the two approaches: the valuation of unpaid work into satellite accounts, and the adoption of the triple "R" approach of recognition, reduction, and reorganization of unpaid work, recommended by experts. However, there is a need to go beyond these approaches to integrate unpaid work into macroeconomics and macroeconomic policies. Though some empirical work has been done in terms of integrating unpaid work into macro policies (for example, understanding the impacts of macroeconomic policy on paid and unpaid work), some sound theoretical work is needed on the dynamics of the linkages between paid and unpaid work, and how these dynamics change over time and space. The paper concludes that the time has come to recognize that unless unpaid work is included in macroeconomic analyses, they will remain partial and wrong. The time has also come to incorporate unpaid work into labor market analyses, and in the design of realistic labor and employment policies. |
| Keywords: | Unpaid Work; System of National Accounts; Time-Use Survey; Gender Equality |
| JEL: | D13 E01 I3 J3 J08 J16 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_838&r=mac |
| By: | Javed I. Ahmed (Office of Financial Research) |
| Abstract: | This article relates corporate credit rating quality to competition in lending between the public bond market and banks. In the model, the monopolistic rating agency's choice of price and quality leads to an endogenous threshold separating low-quality bank-dependent issuers from higher-quality issuers with access to public debt. In a baseline equilibrium with expensive bank lending, this separation across debt market segments provides information, but equilibrium ratings are uninformative. A positive shock to private (bank) relative to public lending supply allows banks to compete with public lenders for high-quality issuers, which threatens rating agency profits, and informative ratings result to prevent defection of high-quality borrowers to banks. This prediction is tested by analyzing two events that increased the relative supply of private vs. public lending sharply: legislation in 1994 that reduced barriers to interstate bank lending and the temporary shutdown of the high-yield bond market in 1989. After each event, the quality of ratings (based on their impact on bond yield spreads) increased for affected issuers. The analysis suggests that that the quality of credit ratings plays an important role in financial stability, as strategic behavior by the rating agency in an issuer-pays setting dampens the inuence of macroeconomic shocks. It also explains the use of informative unsolicited credit ratings to prevent unrated bond issues, particularly during good times. Additionally, the controversial issuer-pays model of ratings leads to more efficient outcomes than investor-pays alternatives. |
| Keywords: | Issuer pays, credit rating, segmented markets, unsolicited rating |
| JEL: | D82 E32 G24 G32 |
| Date: | 2014–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:ofr:wpaper:14-01&r=mac |