nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒06‒27
88 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Financialisation and Economic and Financial Crises: The Case of Italy By Giampaolo Gabbi; Elisa Ticci; Pietro Vozzella
  2. Sentiments, Financial Markets, and Macroeconomic Fluctuations By Jess Benhabib; Xuewen Liu; Pengfei Wang
  3. The interest rate pass-through in the euro area during the sovereign debt crisis By von Borstel, Julia; Eickmeier, Sandra; Krippner, Leo
  4. The crisis of finanace-led capitalism in the United States of America By Trevor Evans
  5. Central Bank Collateral Frameworks By Nyborg, Kjell G
  6. Economic growth and debt: a simplified model By Krouglov, Alexei
  7. Monetary policy and sovereign debt vulnerability By Galo Nuño; Carlos Thomas
  8. A national public bank to finance a euro zone government: Getting the funds for investment and recovery packages By Oliver Picek
  9. Macroeconomic Effects of Banking Sector Losses across Structural Models By Guerrieri, Luca; Iacoviello, Matteo; Covas, Francisco; Driscoll, John C.; Kiley, Michael T.; Jahan-Parvar, Mohammad; Queraltó, Albert; Sim, Jae W.
  10. Financial shocks and the real economy in a nonlinear world: From theory to estimation By Silvestrini, Andrea; Zaghini, Andrea
  11. Fiscal consolidation after the Great Recession:the role of composition By Iván Kataryniuk; Javier Vallés
  12. Core Inflation and Trend Inflation By James H. Stock; Mark W. Watson
  13. The scope for progressive tax reform in the OECD countries: A macroeconomic perspective with a case study for Germany By Sarah Godar; Christoph Paetz; Achim Truger
  14. How can the labor market accounts for the effectiveness of fiscal policy over the business cycle? By Thierry Betti; Thomas Coudert
  15. Financialisation and the Financial and Economic Crises: The Case of Germany By Daniel Detzer; Eckhard Hein
  16. Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter By Thomas I. Palley
  17. Post-Keynesian Economics – A User’s Guide By Neil Hart; Peter Kriesler
  18. Forecasting Core Inflation: The Case of South Africa By Franz Ruch; Mehmet Balcilar; Mampho P. Modise; Rangan Gupta
  19. Income Distribution and the Great Depression By Christian A. Belabed
  20. Growing Up to Stability? Financial Globalization, Financial Development and Financial Crises By Michael D. Bordo; Christopher M. Meissner
  21. Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach By Paolo Gelain; Kevin J. Lansing; Gisle J. Natvik
  22. Saving Europe?: The Unpleasant Arithmetic of Fiscal Austerity in Integrated Economies By Enrique G. Mendoza; Linda L. Tesar; Jing Zhang
  23. Stress Test of Banks in India: A VAR Approach By Sreejata Banerjee; Divya Murali
  24. European monetary integration and aggregate relative deprivation: The dull side of the shiny euro By Stark, Oded; Wlodarczyk, Julia
  25. Financialisation and the Financial and Economic Crises: The Case of Estonia By Egert Juuse; Rainer Kattel
  26. A Minskian extension to Kaleckian dynamics By Kemp-Benedict, Eric
  27. Estimating the Cyclically- and Absorption-adjusted Fiscal Balance for New Zealand By Miles Workman
  28. Membership in the Euro area and fiscal sustainability. Analysis through panel fiscal reaction functions By Piotr Ciżkowicz; Andrzej Rzońca; Rafał Trzeciakowski
  29. Fiscal Discoveries and Yield Decouplings By Luis Catão; Ana Fostel; Romain Ranciere
  30. On the predictability of narrative fiscal adjustments By Pablo Hernández de Cos; Enrique Moral-Benito
  31. The ‘visible hand’ of the ECB’s quantitative easing By Valiante, Diego
  32. Debt into Growth: How Sovereign Debt Accelerated the First Industrial Revolution By Jaume Ventura; Hans-Joachim Voth
  33. Financialization and the Financial and Economic Crises: The Case of Greece By Yanis Varoufakis; Lefteris Tserkezis
  34. Business cycle synchronization of the Visegrad Four and the European Union By Hanus, Lubos; Vacha, Lukas
  35. Braaaaaaaains! The Undead Humbug Production Function: Now With Human Capital By Mike Isaacson
  36. Oil and macroeconomic (in)stability By Hilde C. Bjørnland; Vergard H. Larsen
  37. Financialisation and the Financial and Economic Crises: The Case of Japan By Mimoza Shabani; Jan Toporowski
  38. Large-Scale Asset Purchases: Impact on Commodity Prices and International Spillover Effects By Sharon Kozicki; Eric Santor; Lena Suchanek
  39. Asymmetric perceptions of the economy: Media, firms, consumers, and experts By Kholodilin, Konstantin; Kolmer, Christian; Thomas, Tobias; Ulbricht, Dirk
  40. The business cycle human capital accumulation nexus and its effect on hours worked volatility By Diana Alessandrini; Stephen Kosempel; Thanasis Stengos
  41. Does Negative News Reporting on the Economy Get Reflected in Companies’ Business Situation? By David Iselin
  42. The UK's Productivity Puzzle By Bryson, Alex; Forth, John
  43. Ordoliberalism, pragmatism and the eurozone crisis: How the German tradition shaped economic policy in Europe By Feld, Lars P.; Köhler, Ekkehard A.; Nientiedt, Daniel
  44. Financialisation and the Financial and Economic Crises: The Case of Spain By Jesus Ferreiro; Catalina Galvez; Ana Gonzalez
  45. Job Polarization and Structural Change By Zsofia Barany; Christian Siegel
  46. Forward Guidance By Svensson, Lars E O
  47. The Swedish Financial System By Alexis Stenfors
  48. The One-Child Policy and Household Savings By Taha Choukhmane; Nicolas Coeurdacier; Keyu Jin
  49. Financialisation and the Financial and Economic Crises: The Case of Sweden By Alexis Stenfors
  50. Monetary policy and informal finance: Is there a pecking order? By Ghosh, Saibal; Kumar, Rakesh
  51. Stock market volatility and exchange rates: MGARCH-DCC and wavelet approaches By Hashim, Khairul Khairiah; Masih, Mansur
  52. Productive Public Expenditure and Debt Dynamics: An Error Correction Representation using Indian Data. By Hakhu, Antra Bhatt
  53. Revenue decentralization, central oversight and the political budget cycle: Evidence from Israel By Baskaran, Thushyanthan; Blesse, Sebastian; Brender, Adi; Reingewertz, Yaniv
  54. Dynamic Production Theory under No-arbitrage Constraints By Zhao, Guo
  55. Monetary Financing in the Euro Area: A Free Lunch? By Silke Tober
  56. Monetary Policy Report to the Minnesota Business Partnership / Narayana Kocherlakota, President ... Minneapolis, Minnesota ... July 8, 2014 By Kocherlakota, Narayana R.
  57. The Monetary Policy of the European Central Bank (2002-2015) By Micossi, Stefano
  58. France et Allemagne : une histoire du désajustement européen By Xavier Ragot
  59. Collaboration with and without Coauthorship: Rocket Science Versus Economic Science By Barnett, William
  60. Stock Price Related Financial Fragility and Growth Patterns By Pascal Assmuth
  61. La Mobilité des Capitaux en Afrique de l'Ouest: Investigations sur des pays de la CEDEAO By Koté, Lassine; Sorgho, Zakaria; Ouedraogo, Carine
  62. Micro-Data Evidence on Family Size and Chinese Saving Rates By Steven Lugauer; Jinlan Ni; Zhichao Yin
  63. Financialisation and the Financial and Economic Crises: The Case of Portugal By Sergio Lagoa; Emanuel Leao; Ricardo Paes Mamede; Ricardo Barradas
  64. Are the shocks obtained from SVAR fundamental? By Hamidi Sahneh, Mehdi
  65. Wege zu einer stabilitäts- und wachstumsorientierten Geldpolitik aus österreichischer Perspektive By Schnabl, Gunther
  66. Financialisation and the Financial and Economic Crises: The Case of France By Gerard Cornilleau; Jerome Creel
  67. Macro and micro level impulse responses: A survey experimental identification procedure By Dirk Drechsel; Heiner Mikosch; Samad Sarferaz; Matthias Bannert
  68. Some Clarity on Banks as Financial Intermediaries and Money 'Creators' By Robert W Vivian and Nicholas Spearman
  69. Central Bank Screening, Moral Hazard, and the Lender of Last Resort Policy By Mei Li; Frank Milne; Junfeng Qiu
  70. GREECE: SOLIDARITY AND ADJUSTMENT IN TIMES OF CRISIS By Tassos Giannitsis; Stavros Zografakis
  71. Quantitative effects of the shale oil revolution By Galo Nuño; Cristiana Belu Manescu
  72. An Inter-Country Analysis on Growth of Non-Bank Financial Intermediaries By K.R. Shanmugam
  73. Changes in Payment Timing in Canada’s Large Value Transfer System By Nellie Zhang
  74. Not Working at Work: Loafing, Unemployment and Labor Productivity By Burda, Michael C.; Genadek, Katie R.; Hamermesh, Daniel S.
  75. Macroeconomic Policy and potential growth By Jérôme Creel; Maurizio Iacopetta
  76. The consumption and wealth effects of an unanticipated change in lifetime resources By Jappelli, Tullio; Padula, Mario
  77. Did the Intergenerational Solidarity Pact Increase the Employment Rate of Older Workers in Belgium? A Macro-Econometric Evaluation By Dejemeppe, Muriel; Smith, Catherine; Van der Linden, Bruno
  78. Choosing a Human Capital Measure: Educational Attainment Gaps and Rankings By Barbara M. Fraumeni
  79. The Value of News By Vergard H. Larsen; Leif Anders Thorsrud
  80. Incorporating Economic Policy Uncertainty in US Equity Premium Models: A Nonlinear Predictability Analysis By Stelios Bekiros; Rangan Gupta; Anandamayee Majumdar
  81. Sales Spotter: An Algorithm to Identify Sale Prices in Point-of-Sale Data By Iqbal A. Syed
  82. Which currency is best for business in a small country? By Dilger, Alexander
  83. In the search for the optimal path to establish a funded pension system By Marcin Bielecki; Krzysztof Makarski; Joanna Tyrowicz; Marcin Waniek
  84. Economic Relevance of Hidden Factors in International Bond Risk Premia By Tiozzo Pezzoli, Luca
  85. Capital Controls, Exchange Market Intervention and International Reserve Accumulation in India By Naveen Srinivasan; Vidya Mahambare; M. Ramachandran
  86. The rise of behavioural economics: A quantitative assessment By Geiger, Niels
  87. Myths and Self-Deceptions about the Greek Debt Crisis By Stergios Skaperdas
  88. Temporary employment protection reforms and productivity: evidence from an industry-level panel of EU countries By Kristel Jacquier

  1. By: Giampaolo Gabbi (University of Siena); Elisa Ticci (University of Siena); Pietro Vozzella (University of Siena)
    Abstract: This report on Italy examines the long-run changes between the financial and the real sectors of the economy, with a focus on the effects of financialization on the macroeconomic developments which drove to the 2007 financial crisis. The first part provides some analysis on the major GDP components and the financial balance pattern over the long period. The analysis allows to classify the nature of Italian growth as mainly consumer led type. The second part finds out the effects of an increasing dominance of finance since the beginning of the 1990s on income distribution, investment in capital stock, consumption and the current account. The third part links the long-run developments with the financial and economic crisis, showing how the consumer collapse and the public investment constraints explain how the recession is still charactering the Italian economy.
    Keywords: income inequality, consumption, financialisation, financial and economic crisis, current account, credit, Italy
    JEL: D31 D33 E21 E24 E25 E62 E64 G21
    Date: 2014–12–01
  2. By: Jess Benhabib; Xuewen Liu; Pengfei Wang
    Abstract: This paper studies how financial information frictions can generate sentiment-driven fluctuations in asset prices and self-fulfilling business cycles. In our model economy, exuberant financial market sentiments of high output and high demand for capital increase the price of capital, which signals strong fundamentals of the economy to the real side and consequently leads to an actual boom in real output and employment. The model further derives implications for asymmetric non-linear asset prices and for economic contagion and co-movement across countries. In the extension to the dynamic OLG setting, our model demonstrates that sentiment shocks can generate persistent output, employment and business cycle fluctuations, and offers some new implications for asset prices over business cycles.
    JEL: E02 E44 G01 G20
    Date: 2015–06
  3. By: von Borstel, Julia; Eickmeier, Sandra; Krippner, Leo
    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
  4. By: Trevor Evans (Institute for International Political Economy, Berline School of Economics and Law)
    Abstract: This study examines the development of the US economy since the prolonged recession in the early 1980s. This period was characterised by a serious weakening in the bargaining position of waged workers and a major expansion of the financial sector. Most of the economic gains accrued to top earners and economic growth became increasingly dependent on the expansion of credit. This precarious constellation led to short recessions in 1990 and again in 2001, but then in 2007 and 2008 the failure of highly complex financial securities led to the most serious financial crisis since 1929. The study reviews the development of profitability, income distribution and other key macroeconomic variables in the period leading up to, during and immediately after the crisis. It then identifies the main channels by which the crisis was transmitted from the US to other advanced capitalist economies and concludes with a brief review of the policy measures introduced by the US government in response to the crisis.
    Keywords: United States, finanace-led capitalism, financial crisis
    JEL: E25 E32 E44 E58 E65 F44 G01
    Date: 2015–05–01
  5. By: Nyborg, Kjell G
    Abstract: This paper seeks to inform about a feature of monetary policy that is largely overlooked, yet occupies a central role in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood by the observation that the money at the core of these systems, central bank money, is injected into the economy on terms, not defined in a market, but by the collateral frameworks and interest rate policies of central banks. Using the collateral framework of the Eurosystem as a basis of illustration and case study, the paper brings to light the functioning, reach, and impact of collateral frameworks. A theme that emerges is that collateral frameworks may have distortive effects on financial markets and the wider economy. They can, for example, bias the private provision of real liquidity and thereby also the allocation of resources in the economy as well as contribute to financial instability. Evidence is presented that the collateral framework in the euro area promotes risky and illiquid collateral and, more generally, impairs market forces and discipline. The paper also emphasizes the important role of ratings and government guarantees in the Eurosystem’s collateral framework.
    Keywords: banks; central bank; collateral; ECB; Eurosystem; financial system; guarantees; haircuts; liquidity; monetary policy; monetary system; money; ratings
    JEL: E42 E44 E52 E58 G01 G10 G21
    Date: 2015–06
  6. By: Krouglov, Alexei
    Abstract: Presented is a mathematical model of single-product economy where an investment and debt are used to alter the demand for and supply of product. Explored is the dynamics of a nominal economic growth and decline. Examined are cases of a constant-rate growing debt and a constant-rate and constant-acceleration growing investment.
    Keywords: debt; investment; modeling
    JEL: E22 E32 E51
    Date: 2015–06–21
  7. By: Galo Nuño (Banco de España); Carlos Thomas (Banco de España)
    Abstract: We investigate the trade-offs between price stability and the sustainability of sovereign debt, using a small open economy model where the government issues nominal defaultable debt and chooses fiscal and monetary policy under discretion. Inflation reduces the real value of outstanding debt, thus making it more sustainable; but it also raises nominal yields and entails direct welfare costs. We compare this scenario with a situation in which the government gives up the ability to deflate debt away, e.g. by issuing foreign currency debt or joining a monetary union with an anti-inflationary stance. We find that the benefits of giving up this adjustment margin outweigh the costs, both for our preferred calibration and for a wide range of parameter values.
    Keywords: monetary-fiscal interactions, discretion, sovereign default, continuous time, optimal stopping
    JEL: E5 E62 F34
    Date: 2015–06
  8. By: Oliver Picek (Department of Economics, New School for Social Research)
    Abstract: A national public bank may be used to finance the national fiscal policy of a country within the euro zone. The bank would only hold domestic government bonds. It would get its funds from the Eurosystem, pledging government bonds as collateral. The publicly owned bank would apply for funds like any other bank, legally not violating the prohibition of monetary financing provision in EU treaties. Eectively, as the prots of the bank are returned to the government, interest on newly issued bonds can be saved, freeing up additional resources for government spending and investment. The biggest risk to the bank is a margin call by the national central bank in response to a fall in the market price of government bonds. A rule change in the ECB collateral scheme is proposed to remedy this risk. Then, a public bank could insulate the national government from buyer strikes and allow the state to pursue an adequate fiscal policy to create employment while debt servicing costs remain subdued.
    Keywords: Government Finance, Euro Crisis, Public Bank, Euro Area, European Central Bank, Financing Stimulus, Fiscal Policy, Public Debt Reduction, Monetary Financing, Government Bonds, Public Investment, Government Spending
    JEL: E63 E52 E62 H1 H12 H63 E42
    Date: 2015–06
  9. By: Guerrieri, Luca (Board of Governors of the Federal Reserve System (U.S.)); Iacoviello, Matteo (Board of Governors of the Federal Reserve System (U.S.)); Covas, Francisco (Board of Governors of the Federal Reserve System (U.S.)); Driscoll, John C. (Board of Governors of the Federal Reserve System (U.S.)); Kiley, Michael T. (Board of Governors of the Federal Reserve System (U.S.)); Jahan-Parvar, Mohammad (Board of Governors of the Federal Reserve System (U.S.)); Queraltó, Albert (Board of Governors of the Federal Reserve System (U.S.)); Sim, Jae W. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The macro spillover effects of capital shortfalls in the financial intermediation sector are compared across five dynamic equilibrium models for policy analysis. Although all the models considered share antecedents and a methodological core, each model emphasizes different transmission channels. This approach delivers "model-based confidence intervals" for the real and financial effects of shocks originating in the financial sector. The range of outcomes predicted by the five models is only slightly narrower than confidence intervals produced by simple vector autoregressions.
    Keywords: Bank losses; banks; capital requirements; DSGE models
    JEL: E42 E44 E47
    Date: 2015–06–03
  10. By: Silvestrini, Andrea; Zaghini, Andrea
    Abstract: We examine the inter-linkages between financial factors and real economic activity. We review the main theoretical approaches that allow financial frictions to be embedded into general equilibrium models. We outline, from a policy perspective, the most recent empirical papers focusing on the propagation of exogenous shocks to the economy, with a particular emphasis on works dealing with time variation of parameters and other types of nonlinearities. We then present an application to the analysis of the changing transmission of financial shocks in the euro area. Results show that the effects of a financial shock are time-varying and contingent on the state of the economy. They are of negligible importance in normal times but they greatly matter in conditions of stress.
    Keywords: financial crisis,nonlinearities,financial shocks
    JEL: C32 E32 E44 E58
    Date: 2015
  11. By: Iván Kataryniuk (Banco de España); Javier Vallés (Banco de España)
    Abstract: We have examined the fiscal consolidation episodes in a group of OECD countries from 2009 to 2014. The range of the estimated short-term fiscal multiplier runs from 1.2% to 2% of GDP, larger than those obtained in more “normal times”, implying that the contractionary effect has been greater in depressed environments. Nevertheless, we have also found that revenue measures have a higher and more persistent real impact than expenditure measures, which is more consistent with the literature and suggests that expenditure cuts are less harmful for the economy than tax hikes
    Keywords: fiscal multipliers, fiscal policy, crisis management
    JEL: E12 E62 E63 H12
    Date: 2015–06
  12. By: James H. Stock; Mark W. Watson
    Abstract: An important input to monetary policymaking is estimating the current level of inflation. This paper examines empirically whether the measurement of trend inflation can be improved by using disaggregated data on sectoral inflation to construct indexes akin to core inflation, but with time-varying distributed lags of weights, where the sectoral weight depends on the time-varying volatility and persistence of the sectoral inflation series, and on the comovement among sectors. The model is estimated using U.S. data on 17 components of the personal consumption expenditure inflation index. The modeling framework is a dynamic factor model with time-varying coefficients and stochastic volatility as in del Negro and Otrok (2008); this is the multivariate extension of the univariate unobserved components-stochastic volatility model of trend inflation in Stock and Watson (2007). Our main empirical results are (i) the resulting multivariate estimate of trend inflation is similar to the univariate estimate of trend inflation computed using core PCE inflation (excluding food and energy) in the first half of the sample, but introduces food in the second half of the sample: early in the sample, food inflation was noisy and a poor indicator of trend inflation, but now food inflation is less volatile, more persistent, and a useful indicator; (ii) the model-based filtering uncertainty about trend inflation is substantially reduced by using the disaggregated series in a multivariate model, relative to computing the trend using only headline inflation; (iii) the multivariate trend and the univariate trend constructed using core measures of inflation forecast average inflation over the 1-3 year horizon more accurately than a variety of other benchmark inflation measures, although there is considerable sampling uncertainty in these forecast comparisons.
    JEL: E31
    Date: 2015–06
  13. By: Sarah Godar; Christoph Paetz; Achim Truger
    Abstract: The trend of increasing inequality in the distribution of income and wealth in most developed countries has led to calls for corrective tax increases for the rich and wealthy. Such calls are often confronted with the claim that higher taxes on top personal incomes, corporate income and wealth are detrimental to growth and employment and/or will foster tax avoidance. This paper argues that even the dominating theoretical framework leaves substantial leeway for redistributive taxation. Furthermore, from a Keynesian macroeconomic perspective redistribution may even be systematically conducive to growth and employment. At the same time a change towards such a policy of redistribution may for some economies, particularly the German one, well be the prerequisite for compliance with the European Fiscal Compact if an increase of the macroeconomic imbalances that have come to be seen as a root cause of the global financial and economic crisis 2008/2009 and also the Euro crisis by many observers is to be avoided. Therefore, besides attempts at international tax coordination and harmonisation, national tax policies should actively use their room of manoeuvre for progressive taxation to correct the disparities in the income distribution and at the same time to increase the fiscal space.
    Keywords: Macroeconomic effects of taxation, redistribution and macroeconomic performance, macroeconomic imbalances
    JEL: E62 H23 E21
    Date: 2015
  14. By: Thierry Betti; Thomas Coudert
    Abstract: We develop a new-Keynesian model with a two-sector search and matching labor market framework. We investigate the first and second order effects of fiscal policy on labor market and on output. The model includes four fiscal instruments: a labor income tax, a social protection tax paid by firms, public wage and public vacancies. First-order simulations of the model indicate that whatever instrument is used, fiscal expansion significantly increases total employment and reduce unemployment. We explicit the different transmission channels at work. The main contribution is to use a second-order approximation of the model to investigate the effects of fiscal shocks for two states of the economy: a low unemployment state (6%) and a high unemployment state (12%). For the four fiscal instruments, response of employment is greater when the steady-state unemployment rate is high. We also emphasize a new channel for explaining a larger output fiscal multiplier in periods of economic downturn: the wage channel that plays a crucial role for explaining the non-linear effects of fiscal policy.
    Keywords: Labor Market Search, Wage Bargaining, PublicWage, Business Cycle, Fiscal Policy, Second Order.
    JEL: E62 J38
    Date: 2015
  15. By: Daniel Detzer (Berlin School of Economics and Law and Institute for International Political Economy (IPE) Berlin,); Eckhard Hein (Berlin School of Economics and Law and Institute for International Political Economy (IPE) Berlin,)
    Abstract: This study on Germany examines the long-run changes between the financial and the non-financial sectors of the economy, and in particular the effects of these changes on the macroeconomic developments that have led or contributed to the financial crisis starting in 2007 and the Great Recession in 2008/09. The first part provides some descriptive statistics on real GDP growth, on the growth contributions of the main demand aggregates, and the financial balances of the macroeconomic sectors since the early 1980s, and it classifies the German type of development as ‘export-led mercantilist’. The second part examines the effects of an increasing dominance of finance since the early/mid 1990s on income distribution, investment in capital stock, consumption and the current account in more detail. The third part links the long-run developments with the financial and economic crisis and examines the causes of the quick recovery in Germany.
    Keywords: current account imbalances, distribution of income, finance-dominated capitalism, financialisation, financial and economic crisis, Germany, Kaleckian distribution theory, trade balance
    JEL: D31 D33 D43 E25 E61 E63 E64 E65 F40 F43
    Date: 2014–12–01
  16. By: Thomas I. Palley
    Abstract: This paper examines several mainstream explanations of the financial crisis and stagnation and the role they attribute to income inequality. Those explanations are contrasted with a structural Keynesian explanation. The role of income inequality differs substantially, giving rise to different policy recommendations. That highlights the critical importance of economic theory. Theory shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis and stagnation, making it critical we get the story right.
    Keywords: Income inequality, financial crisis, stagnation, economic theory.
    JEL: E00 E02 E10 E20 E24
    Date: 2015
  17. By: Neil Hart (Industrial Relations Research Centre, UNSW); Peter Kriesler (School of Economics, UNSW Business School, UNSW)
    Abstract: This paper provides a brief introduction to post-Keynesian economics. Post-Keynesians are sceptical of the usefulness of the equilibrium method, and favour an approach based on path-determined models with, due to the influence of uncertainty on economic decisions, an important role assigned to money, institutions and rules of thumb. As there are no forces within capitalist economies which can guarantee full employment, government intervention is important. While monetary policy is seen as a rather blunt instrument, fiscal policy is perceived to be much more potent than it is in the mainstream. However, there are inherent limits to the achievement of sustained full employment in capitalist economies.
    Keywords: Keynes, post-Keynesians, methodology, path dependency, economic policy
    JEL: B2 B41 B5 D4 D5 E6
    Date: 2015–06
  18. By: Franz Ruch (South African Reserve Bank); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus , via Mersin 10, Turkey; Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.); Mampho P. Modise (National Treasury, 40 Church Square, Pretoria, 0002, South Africa); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: Forecasting and estimating core inflation has recently gained attention, especially for inflation targeting countries, following research showing that targeting headline inflation may not be optimal; a Central Bank can miss the signal due to the noise. Despite its importance there is sparse literature on estimating and forecasting core inflation in South Africa, with the focus still on measuring core inflation. This paper emphasises predicting core inflation using large time-varying parameter vector autoregressive models (TVP-VARs), factor augmented VAR, and structural break models using quarterly data from 1981Q1 to 2013Q4. We use mean squared forecast errors (MSFE)and predictive likelihoods to evaluate the forecasts. In general, we find that (i) small TVP-VARs consistently outperform all other models; (ii) models where the errors are heteroscedastic do better than models with homoscedastic errors; (iii) models assuming that the forgetting factor remains 0.99 throughout the forecast period outperforms models that allow for the forgetting factors to change with time; and (iv) allowing for structural break does not improve the predictability of core inflation. Overall, our results imply that additional information on the growth rate of the economy and interest rate is sufficient to forecast core inflation accurately, but the relationship between these three variables needs to be modelled in a time-varying (nonlinear) fashion.
    Keywords: Core inflation, forecasting, small- and large-scale vector autoregressive models, constant and time-varying parameters
    JEL: C22 C32 E27 E31
    Date: 2015–06
  19. By: Christian A. Belabed
    Abstract: There is a growing literature comparing the current financial crisis or Great Recession to the worst economic crisis of capitalism, the Great Depression. However, the role of rising income inequality, which has risen dramatically before both crises, is rarely discussed. In this paper we discuss the rise of top-end inequality and its effects on household consumption, saving, and debt for the 1920s by applying a non-standard theory of consumption, the relative income hypothesis, to the period of interest. We argue that income inequality is linked to the increase of household consumption and the simultaneous decline of household savings as well as rapidly increasing household debt. Thus, the rise of top-end inequality in connection with a broader institutional change, such as the deregulation of financial markets, has contributed to a build-up of financial and macroeconomic instability, in the period leading to the Great Depression.
    Keywords: income distribution, relative income hypothesis, household debt, financial innovation, great depression
    JEL: D31 D33 E21 E25 N12 N22 N32 N62
    Date: 2015
  20. By: Michael D. Bordo; Christopher M. Meissner
    Abstract: Why did some countries learn to grow up to financial stability and others not? We explore this question by surveying the key determinants and major policy responses to banking, currency, and debt crises between 1880 and present. We divide countries into three groups: leaders, learners, and non-learners. Each of these groups had very different experiences in terms of long-run economic outcomes, financial development, financial stability, crisis frequency, and their policy responses to crises. The countries that grew up to financial stability had rule of law, democracy, political stability and other institutional features highlighted in the literature on comparative development. We illustrate this by way of case studies for three kinds of financial crises for four countries (Argentina, Australia, Canada, and the United States) over the long-run.
    JEL: E44 E58 E65 F32 F33 F34 F43 N10 N20
    Date: 2015–06
  21. By: Paolo Gelain (Norges Bank (Central Bank of Norway)); Kevin J. Lansing (Federal Reserve Bank San Francisco); Gisle J. Natvik (BI Norwegian Business School)
    Abstract: We use a simple quantitative asset pricing model to "reverse-engineer" the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage contract (one-period versus long-term). We find that the model with moving average forecast rules and long-term mortgage debt does best in plausibly matching the patterns observed in the data. Counterfactual simulations show that shifting lending standards (as measured by a loan-to-equity limit) were an important driver of the episode while movements in the mortgage interest rate were not. All models deliver rapid consumption growth during the boom, negative consumption growth during the Great Recession, and sluggish consumption growth during the recovery when households are deleveraging.
    Keywords: Housing bubbles, Mortgage debt, Borrowing constraints, Lending standards, Macroprudential policy
    JEL: D84 E32 E44 G12 O40 R31
    Date: 2015–06–16
  22. By: Enrique G. Mendoza (University of Pennsylvania and NBER); Linda L. Tesar (University of Michigan and NBER); Jing Zhang (Federal Reserve Bank of Chicago)
    Abstract: What are the macroeconomic effects of tax adjustments in response to large public debt shocks in highly integrated economies? The answer from standard closed-economy models is deceptive, because they underestimate the elasticity of capital tax revenues and ignore cross-country spillovers of tax changes. Instead, we examine this issue using a two-country model that matches the observed elasticity of the capital tax base by introducing endogenous capacity utilization and a partial depreciation allowance. Tax hikes have adverse effects on macro aggregates and welfare, and trigger strong crosscountry externalities. Quantitative analysis calibrated to European data shows that unilateral capital tax increases cannot restore fiscal solvency, because the dynamic Laffer curve peaks below the required revenue increase. Unilateral labor tax hikes can do it, but have negative output and welfare effects at home and raise welfare and output abroad. Large spillovers also imply that unilateral capital tax hikes are much less costly under autarky than under free trade. Allowing for one-shot Nash tax competition, the model predicts a "race to the bottom" in capital taxes and higher labor taxes. The cooperative equilibrium is preferable, but capital (labor) taxes are still lower (higher) than initially. Moreover, autarky can produce higher welfare than both Nash and Cooperative equilibria.
    Keywords: fiscal austerity, tax, public debt
    JEL: E6 E62 F34 F42 H6
  23. By: Sreejata Banerjee (Madras School of Economics); Divya Murali (Research Associate at Athenainfonomics)
    Abstract: Banking crisis have serious repercussion causing loss of household savings and decline in confidence and soundness in the banking sector. The present study is an attempt to analyze this aspect in light of the challenges of financial sector reforms faced by banks in India . Stress test of banks operating in India is undertaken to identify factors that adversely influence banks’ non-performing assets (NPA) which is the key indicator of banks’ soundness. We examine the response of bank’s NPA to unexpected shocks from external and domestic macroeconomic factors namely interest rate, exchange rate, GDP. NPAs are regressed in Vector Auto Regressive model on a set of macroeconomic variables with quarterly data from 1997 to 2012 to examine whether there is divergence in the response across the four types ownership: public, old private, new private, and foreign. Granger Causality, IRF and FEVD are used to verify the VAR results. Interest rate significantly impairs asset quality for all banks in two-way causality. Exchange rate, net foreign institutional investor flow and deposits Granger cause public banks’ NPA. GDP gap Granger cause NPA in old private and foreign banks. IRF show banks are vulnerable to inflation shock requiring 8 quarters to stabilize. The stress test clearly demonstrates that all banks need to re-capitalize and improve asset quality.
    Keywords: Macro Stress test, Non-performing Assets, Impulse response function, Vector Auto Regression, Granger Causality
    JEL: C33 E32 E37
    Date: 2015–04
  24. By: Stark, Oded; Wlodarczyk, Julia
    Abstract: Drawing on the premise that the integration of economies revises people's social space and their comparators, we quantify social stress by aggregate relative deprivation, ARD; we calculate the effect of monetary mergers on ARD; and we document the validity of the superadditivity property of ARD for successive adoptions of a common currency by European countries. One feature of monetary unification, which replaces diverse currencies with a common currency, is that it brings about a change in the comparison environment, expanding the reference space of individuals in a given country to encompass individuals from the joining countries. Overall, calculations regarding six enlargements of the Economic and Monetary Union between 1999 and 2011 reveal an increase of ARD on six occasions when we hold incomes constant, and on five when we take into consideration changes in incomes. In addition, we observe an uneven distribution of the costs and benefits from monetary integration among the participating countries when these costs and benefits are measured in terms of ARD.
    Keywords: Monetary integration,Aggregate relative deprivation,Superadditivity,Social stress
    JEL: D31 D63 E42 E44 F33 P51
    Date: 2015
  25. By: Egert Juuse (Tallinn University of Technology (TTU), Estonia); Rainer Kattel (Tallinn University of Technology (TTU), Estonia)
    Abstract: This study on Estonia examines the long-run changes between the financial and the non-financial sectors of the economy, and in particular the effects of financialisation on key variables / categories of the real economy as well as the their contribution to the financial crisis of 2007/08. The first part provides the background historical overview of last 20 years in Estonia with some descriptive statistics on GDP, growth contributions of the main demand aggregates, and the financial balances of the macroeconomic sectors since early 1990s, and it classifies the Estonian development path as following the ‘debt-led consumption’ one. The following chapters examine the effects of financialisation and their extent, accompanied by transition processes, on income distribution, financing of capital stock investments, consumption and current account dynamics in detail. The final parts deal with the elaboration on the causes of the financial and economic crisis as well as the policy response in Estonia.
    Keywords: current account balance, trade balance, income distribution, finance-dominated capitalism, transition economies, financialisation, financial and economic crisis, Estonia.
    JEL: D31 D33 D43 E25 E61 E64 E65 F40 F43 P20 P21 R21
    Date: 2014–12–01
  26. By: Kemp-Benedict, Eric
    Abstract: Minsky’s financial instability hypothesis (FIH) has been criticized as suffering from a fallacy of composition that violates a central thesis of Kalecki. Nevertheless, Minsky’s description of borrowing and lending behavior is sufficiently compelling that it continues to drive new research. In this paper we propose a modified Kaleckian model in which a behavioral rule captures Minsky’s microeconomic argument that firms and banks increase the leverage of new loans during booms, but which translates through Kaleckian dynamics into a falling debt-to-capital ratio at a macroeconomic level. The expanding loan-to-capital ratio drives a potential instability, but in utilization, rather than debt.
    Keywords: financial instability hypothesis; Kalecki; Minsky; debt dynamics
    JEL: E12 E32
    Date: 2015–06–22
  27. By: Miles Workman (The Treasury)
    Abstract: Indicators of the structural fiscal balance help inform assessments of the sustainability of fiscal settings and identify shifts in discretionary fiscal policy. The Treasury’s headline structural fiscal balance indicator – the cyclically-adjusted balance (CAB) – is estimated by removing the cyclical component of the budget balance from the government’s operating balance. The cyclical component is estimated by adjusting for fluctuations of actual GDP around potential GDP via the output gap. However, this approach does not take account of the composition of GDP. A boom in domestic demand – an absorption boom – will have a more pronounced impact on fiscal revenues than a boom driven by external demand (ie, net exports). This is because some components of demand are more “tax rich” than others. In particular, indirect tax revenues are closely linked to domestic demand rather than output. This paper documents the nature of the absorption cycle in New Zealand and then quantifies its effect on fiscal revenues by estimating a new structural fiscal balance indicator – the cyclically- and absorption-adjusted balance (CAAB) – over the period 1997- 2019. This indicator extends the existing CAB by adjusting for deviations in the level of domestic absorption from its long-run equilibrium level, which is in turn derived with reference to estimates of the long-run equilibrium current account balance. The estimated absorption adjustment on New Zealand’s structural fiscal balance is up to 0.4 percent of GDP. This adjustment is reasonably material given conventional cyclical adjustments average 0.5 percent of GDP for New Zealand.
    JEL: E62 H62
    Date: 2015–06
  28. By: Piotr Ciżkowicz; Andrzej Rzońca; Rafał Trzeciakowski
    Abstract: We estimate various panel fiscal reaction functions, including those of the main categories of general government revenue and expenditure for the 12 Euro area member states over the 1970-2013 period. We find that in the peripheral countries where sovereign bond yields decreased sharply in the years 1996-2007, fiscal stance ceased to respond to sovereign debt accumulation. This was due to the lack of sufficient adjustment in the government non-investment expenditure and direct taxes. In contrast, in the core member states, which did not benefit from the yields’ convergence related to the Euro area establishment, responsiveness of fiscal stance to sovereign debt increased between 1996 and 2007. This was achieved mainly through pronounced adjustments in the government non-investment expenditure. Our findings are in accordance with the predictions of the theoretical model by Aguiar et al. (2014) and are robust to various changes in the modelling approach.
    Keywords: fiscal reaction function, sovereign bond yields’ convergence, fiscal adjustment composition
    JEL: C23 E62 F34 H63
    Date: 2015
  29. By: Luis Catão; Ana Fostel; Romain Ranciere
    Abstract: The recent Eurozone debt crisis has witnessed sharp decouplings in cross-country bond yields without commensurate shifts in relative fundamentals. We rationalize this phenomenon in a model wherein countries with different fundamentals are on different equilibrium paths all along, but which become discernible only during bad times. Key ingredients are cross-country differences in the volatility and persistence of fiscal revenue shocks combined with their unobservability by investors. Differences in the cyclicality of fiscal revenues affect the option value of borrowing and resulting default risk; unobservability of fiscal shocks makes bond pricing responsive to market actions. When tax revenues are hit by common positive shocks, no country increases net debt and interest spreads stay put. When a common negative revenue shock hits and is persistent, low volatility countries adjust spending while others resort to borrowing. This difference signals a relative deterioration of fiscal outlooks, interest spreads jump and decoupling takes place.
    JEL: E62 F34 G15 H3
    Date: 2014–05
  30. By: Pablo Hernández de Cos (Banco de España); Enrique Moral-Benito (Banco de España)
    Abstract: In an influential paper, Devries et al. (2011) construct narrative series of tax- and spending-based fiscal adjustments for a panel of OECD countries. In this paper, we find that the adjustments based on spending cuts can be predicted on the basis of past output growth and other macroeconomic variables. Moreover, we illustrate that this source of endogeneity may generate significant differences in the estimated multipliers.
    Keywords: fiscal adjustment, fiscal multiplier
    JEL: H60 E62
    Date: 2015–06
  31. By: Valiante, Diego
    Abstract: In the midst of the market turbulence of recent years, policy rates have reached the zero lower bound, with central banks aggressively deploying their balance sheet with an array of ‘unconventional’ monetary policies to ensure the transmission of monetary policy impulses in disrupted financial markets, ultimately to set the conditions for economic recovery. Since March 9th, the European Central Bank (ECB) has also joined the club of central banks deploying the most feared monetary policy tool in its armoury. Unsterilised outright asset purchases (so-called ‘quantitative easing’, or QE) aim to re-establish control over the transmission of monetary policy impulse via policy rates by improving conditions for unsecured interbank market activity. This paper examines three dimensions of quantitative easing: i) the rationale behind the ECB’s new monetary policy stance, ii) the operational challenges of QE and iii) preliminary evidence on the effects of QE on markets.
    Date: 2015–05
  32. By: Jaume Ventura; Hans-Joachim Voth
    Abstract: Why did the country that borrowed the most industrialize first? Earlier research has viewed the explosion of debt in 18th century Britain as either detrimental, or as neutral for economic growth. In this paper, we argue instead that Britain’s borrowing boom was beneficial. The massive issuance of liquidly traded bonds allowed the nobility to switch out of low-return investments such as agricultural improvements. This switch lowered factor demand by old sectors and increased profits in new, rising ones such as textiles and iron. Because external financing contributed little to the Industrial Revolution, this boost in profits in new industries accelerated structural change, making Britain more industrial more quickly. The absence of an effective transfer of financial resources from old to new sectors also helps to explain why the Industrial Revolution led to massive social change – because the rich nobility did not lend to or invest in the revolutionizing industries, it failed to capture the high returns to capital in these sectors, leading to relative economic decline.
    JEL: E22 E25 E62 H56 H60 N13 N23
    Date: 2015–06
  33. By: Yanis Varoufakis (National & Kapodistrian University of Athens); Lefteris Tserkezis (National & Kapodistrian University of Athens)
    Abstract: The present essay analyzes the changing relationship between the real and the financial sector in the course of the long-run development of the Greek economy, focusing on the effects of financialization and on its connection to the current economic crisis. The first section offers a brief discussion of the basic tendencies characterizing the long-run development of the Greek economy over the past three decades. The second section examines the effect of financialization on several aspects of the real economy, including income distribution, gross capital formation, consumption and the evolution of the current account. In the third section, the results of the preceding analysis are linked to the outbreak of the current crisis, in an attempt to explain the reasons behind this crisis’ excessive severity in the case of the Greek economy, while the fourth section concludes.
    Keywords: capital flows, current account deficit, debt crisis, financialization, Greek economy, trade imbalances
    JEL: E25 E62 E63 F34 F40 H21 H62 H63
    Date: 2014–12–01
  34. By: Hanus, Lubos; Vacha, Lukas
    Abstract: In this paper, we map the process of synchronization of the Visegrad Four within the framework of the European Union using the wavelet techniques. In addition, we show that the relationship of output and key macroeconomic indicators is dynamic and varies over time and across frequencies. We study the synchronization applying the wavelet cohesion measure with time-varying weights. This novel approach allows for studying the dynamic relationship among countries from a different perspective than usual timedomain models. Analysing monthly data from 1990 to 2014, the results for the Visegrad region show an increasing co-movement with the European Union after the countries began with preparation for the accession to the European union. The participation in a currency union possibly increases the co-movement. Further, analysing the Visegrad and South European countries' synchronization with the European Union core countries, we find a high degree of synchronization in long-term horizons.
    Keywords: business cycle synchronization,time-frequency,wavelets,co-movement,Visegrad Four,European Union
    JEL: E32 C40 F15
    Date: 2015
  35. By: Mike Isaacson (Department of Economics, New School for Social Research)
    Abstract: This paper demonstrates that the human-capital augmented Cobb-Douglas function is identically equal to the rules of aggregate accounting with any factor indices and an arbi- trary `human capital' variable thrown in. It is demonstrated empirically that the term for `total factor productivity' does not show total factor productivity at all, but rather a factor share weighted geometric mean of the prot rate and the quotient of the wage rate and human capital. It is demonstrated empirically with randomly generated data that both the calculation of this term as well as tests of its explanatory power in development economics are the result of using an arbitrary variable correlative with wages. It is also a story about zombies.
    Keywords: Capital, development accounting, human capital, methodology
    JEL: A13 B4 C43 E13 E24
    Date: 2015–06
  36. By: Hilde C. Bjørnland; Vergard H. Larsen
    Abstract: We analyze the role of oil price volatility in reducing U.S. macroeconomic instability. Using a regime-switching structural model we revisit the timing of the Great Moderation and the sources of changes in the volatility of macroeconomic variables. We find that smaller or fewer oil price shocks did not play a major role in explaining the Great Moderation. Instead oil price shocks are recurrent sources of macroeconomic fluctuations. The most important factor reducing macroeconomic variability is a decline in the volatility of other structural shocks (demand and supply). A change to a more responsive monetary policy regime also played a role.
    Date: 2015–06
  37. By: Mimoza Shabani (School of Oriental and African Studies, University of London); Jan Toporowski (School of Oriental and African Studies, University of London)
    Abstract: This study examines the financialisation process in Japan with the aim of identifying the channels of transmission of financialisation on short and long run economic development. The first section gives an overview of the long-run development of the Japanese economy dating back to 1980. The second section analyses the effect of financialisation on income distribution, investment and household consumption as well as discusses the development of the country’s current account. The third section identifies the transmission mechanism of the latest economic crisis. It is argued that financialisation in Japan has not been significant and thus has had no explicit effect on the recession the country experienced in 2008-2009. Section four concludes
    Keywords: Japan, financialisation, financial crisis
    JEL: E25 E44 F30 P16
    Date: 2015–04–01
  38. By: Sharon Kozicki; Eric Santor; Lena Suchanek
    Abstract: Prices of commodities, including metals, energy and agricultural products, rose markedly over the 2009–2010 period. Some observers have attributed a significant part of this increase in commodity prices to the U.S. Federal Reserve’s large-scale asset purchase (LSAP) programs. Using event-study methodologies, this paper investigates whether the announcement and subsequent implementation of the Fed’s LSAPs, and communication of the tapering of these purchases, affected commodity prices. Our empirical results suggest that LSAP announcements did not lead to higher commodity prices. However, there is some evidence that the currencies of commodity exporters appreciated and that their stock markets posted gains. The results suggest that other factors, such as supply constraints and robust demand from emerging-market economies, were the likely drivers behind the increase in commodity prices. Last, the paper finds that commodity prices have become more sensitive to macroeconomic news when monetary policy is at the effective lower bound.
    Keywords: International topics
    JEL: E E5 E58 G G1 G14 Q Q0 Q00
    Date: 2015
  39. By: Kholodilin, Konstantin; Kolmer, Christian; Thomas, Tobias; Ulbricht, Dirk
    Abstract: This article sheds light on the interaction of media, economic actors, and economic experts. Based on a unique data set of 86,000 news items rated by professional analysts of Media Tenor International and survey data, we first analyze the overall tone of the media, consumers', firms', and economic experts' opinions on the state and outlook of the economy. Second, we assess the protagonist's ability at correctly predicting GDP. Third, we use Granger causality tests to uncover who is influencing whom when it comes to the formation of opinions on the economy. We find that media reports have a significant negative bias. The economic sentiment of the media, consumers and firms does not reflect the actual situation. Finally, we find that media sentiment is not influenced by any other actor. In contrast, media appear to affect all other actors.
    Keywords: media bias,consensus forecasts,consumer and business sentiment
    JEL: E32 E37 L82
    Date: 2015
  40. By: Diana Alessandrini (Auburn University); Stephen Kosempel (Department of Economics and Finance, University of Guelph); Thanasis Stengos (Department of Economics and Finance, University of Guelph)
    Abstract: This paper studies hours worked volatility and the cyclicality of human capital investments by embedding a Ben-Porath life-cycle model of human capital accumulation into an RBC setting. Agents differ across two dimensions: age and productivity in learning. Our results show that individuals invest more in human capital during economic downturns. However, human capital accumulation is more counter-cyclical for young and low-productivity individuals because they face a lower opportunity cost of education and a higher marginal product of human capital. These results are confirmed empirically using US data from the Current Population Survey and the American Time Use Survey. In addition, the paper contributes to the RBC literature by showing that the modelÕs business cycle properties, in particular hours worked volatility, are sensitive to assumptions of heterogeneity. Introducing heterogeneity in productivity increases the volatility of aggregate hours worked and changes the life-cycle profile for hours volatility to better match the data.
    Keywords: hours worked volatility; human capital accumulation; business cycles; heterogeneous agents
    JEL: J22 J24 E32
    Date: 2014
  41. By: David Iselin (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: We examine the effects of negative news reporting on companies' self-assessment of their business situation. We compare survey data in the manufacturing sector in Switzerland with thousands of newspaper articles which we scan for particular keywords. Simple OLS regressions do not show a signicant influence of news reporting on the self-assessment of the surveyed companies. However, the fact that our news data are available on a higher frequency permits us to examine if a MIDAS approach (regressing the daily news data on the monthly survey data) leads to any gain in information. Our results show influence of particular days which could give an early hint how companies see their business environment before the actual survey results are available.
    Keywords: Media Data, News, Uncertainty, Business Situation, Mixed Frequency Data, MIDAS
    JEL: L82 E37 E32
    Date: 2015–06
  42. By: Bryson, Alex (National Institute of Economic and Social Research (NIESR)); Forth, John (National Institute of Economic and Social Research (NIESR))
    Abstract: The 2008 Great Recession was notable in the UK for three things: the enormity of the output shock; the muted unemployment response; and the very slow rate of recovery. We review the literature which finds most of the decline in productivity is within sector and within firm before presenting new micro-analysis of workplace-level behaviour between 2004 and 2011 to gain insights into the processes that may have contributed to this aggregate picture. We find clear evidence of labour intensification but employers appeared incapable of turning this effort into improved workplace level productivity. Widespread pay freezes and cuts were often initiated in direct response to the recession. Workplace closure rates were little different to those experienced prior to the recession, but there is some evidence of a "cleansing" effect with poorer performing workplaces being more likely to close. There is some evidence of labour "hoarding", especially hoarding of high skilled labour: this has had no discernible impact on the rate of innovation. There is no impact of recession on either the number of HRM practices workplaces invested in, nor their returns on those investments. There is no evidence that workplaces have benefited from Britain’s "flexible" labour market as indicated by using recruitment channels used by welfare recipients or the use of numerically flexible workers. On the contrary, workplaces with increasing unionisation appeared to benefit in terms of improved workplace performance.
    Keywords: productivity, recession
    JEL: D22 E22 E23 E24 J23 J24 J3
    Date: 2015–06
  43. By: Feld, Lars P.; Köhler, Ekkehard A.; Nientiedt, Daniel
    Abstract: German policy during the Eurozone crisis supposedly follows an ordoliberal tradition. In this paper, we discuss to what extent this contention holds and to what extent Germany pragmatically responded to different crisis phenomena. A proper analysis of ordoliberal thinking reveals that the European Monetary Union can be justified on ordoliberal grounds as an economic constitution for Europe in which several pillars supposedly aim at ensuring sound money in the Eurozone. The policies the German government pushed during the Eurozone crisis have been informed by the ordoliberal tradition. In particular, this tradition may explain why the German government has been hesitant to support the call for Eurobonds and has only reluctantly established the European Stability Mechanism (ESM). However, the decisions on the ESM and the acceptance of unconventional monetary policy in Europe show that German economic policy largely responded pragmatically to the challenges offered by the crisis.
    Keywords: ordoliberalism,Eurozone crisis,constitutional economics,monetary and fiscal policy
    JEL: B13 B26 B31 D78 E61 E63
    Date: 2015
  44. By: Jesus Ferreiro (Department of Applied Economics V, University of the Basque Country UPV/EHU); Catalina Galvez (Department of Applied Economics V, University of the Basque Country UPV/EHU); Ana Gonzalez (Department of Applied Economics V, University of the Basque Country UPV/EHU)
    Abstract: The aim of this paper is to analyse the relationship between the financial crisis and the real economic crisis in Spain. The main central hypothesis put forward by this study is that financialisation, which lies at the root of the financial crisis both in Spain and in other European and advanced economies, has also implied changes in the real and financial behaviour of private (i.e., households, non-financial corporations and financial corporations) and public agents that explain the extent and prolonged duration of the crisis in Spain.
    Keywords: Financialisation, models of growth, consumption, investment, financial balance sheets, income distribution
    JEL: E44 G21 O52
    Date: 2014–12–01
  45. By: Zsofia Barany (Département d'économie); Christian Siegel (University of Exeter)
    Abstract: We document that job polarization – contrary to the consensus – has started as early as the 1950s in the US: middle-wage workers have been losing both in terms of employment and average wage growth compared to low- and high-wage workers. Given that polarization is a long-run phenomenon and closely linked to the shift from manufacturing to services, we propose a structural change driven explanation, where we explicitly model the sectoral choice of workers. Our simple model does remarkably well not only in matching the evolution of sectoral employment, but also of relative wages over the past fifty years.
    Keywords: Job Polarization; Structural Change; Roy Model
    JEL: E24 J22 O41
    Date: 2015–06
  46. By: Svensson, Lars E O
    Abstract: Forward guidance about future policy settings, in the form of a published policy-rate path, has for many years been a natural part of normal monetary policy for several central banks, including the Reserve Bank of New Zealand and the Swedish Riksbank. More recently, the Federal Reserve has started to publish FOMC participants’ policy-rate projections. The Swedish, New Zealand, and U.S. experience of a published policy-rate path is examined, especially to what extent the market has anticipated the path (the predictability of the path) and to what extent market expectations line up with the path after publication (the credibility of the path). The recent Swedish experience is quite dramatic. In particular, it shows a case with a large discrepancy between a high and rising Riksbank path and a low and falling market path, with the market path providing a good forecast of the future policy rate. The discrepancy is explained by the Riksbank’s leaning against the wind in recent years and related circumstances. The New Zealand experience is less dramatic, but shows cases where the market implements either a substantially tighter or easier policy than intended by the RBNZ. There are also cases of the market being ahead of the RBNZ and the RBNZ later following the market. The U.S. experience includes a recent case of the market expecting and implementing substantially easier policy consistent with the FOMC projections, the possible explanation of which has been much discussed.
    Keywords: capital taxation; optimal taxation
    JEL: E52 E58 G14
    Date: 2015–06
  47. By: Alexis Stenfors (University of Leeds)
    Abstract: This study investigates the evolution of the Swedish financial system since the 1980s. The concept of financialisation, with its different elements and perspectives, is used as a lens through which the key historical developments are analysed. The aim of the study is two-fold. First, by highlighting some unique country-specific features, it addresses the profound changes that have taken place in the Swedish financial system during the last decades in relation to the ‘rise and fall’ of the so-called ‘Swedish model’. Second, in doing so, the study considers the appropriateness and applicability of standard attempts to categorise financial systems according to the weight of banks versus markets, states versus markets and so forth. The picture that emerges from the Swedish example in particular shows the need to go deeper and beyond these classifications in order to obtain or more nuanced understanding of the increasing role of financial markets in developed countries.
    Keywords: Sweden, Swedish model, welfare state, financialisation, financial system, financial crisis, banking crisis
    JEL: E44 F3 G2 N14 N24 O52 P16
    Date: 2014–10–28
  48. By: Taha Choukhmane (Yale University); Nicolas Coeurdacier (Département d'économie); Keyu Jin (London School of Economics and Political Science (LSE))
    Abstract: We investigate how the `one-child policy' has impacted China's household saving rate and human capital in the last three decades. In a life cycle model with endogenous fertility, intergenerational transfers and human capital accumulation, we show how fertility restrictions provide incentives for households to increase their offspring's education and to accumulate financial wealth in expectation of lower support from their children. Our quantitative OLG model calibrated to household level data shows that the policy significantly increased the human capital of the only child generation and can account for a third to 60% of the rise in aggregate savings. Equally important, it can capture much of the distinct shift in the level and shape of the age-saving profile observed from micro-level data estimates. Using the birth of twins (born under the one child policy) as an exogenous deviation from the policy, we provide an empirical out-of-sample check to our quantitative results; estimates on savings and education decisions are decidedly close between model and data.
    Keywords: Life Cycle Savings, Fertility, Human Capital, Intergenerational Transfers
    JEL: E21 D10 D91
    Date: 2014–09
  49. By: Alexis Stenfors (University of Leeds; University of Portsmouth)
    Abstract: This study on Sweden examines the Swedish financialisation process through the lens of the global financial crisis and the subsequent Eurozone sovereign debt crisis. The emphasis of the study is twofold. First, by acknowledging the rapid and widespread Swedish financialisation process, it traces the transformation of Sweden from a ‘debt-led consumption boom’ country towards an ‘export-led mercantilist’ regime. Second, by highlighting the country’s unique characteristics within such a classification, the study considers its ability to shield itself from some of the turbulence in the international financial markets following the recent crises. The outline of the report is as follows. Sections 1 and 2 provide a summary of key characteristics of the Swedish financialisation process since the 1980s. Section 3 studies the effects of the Swedish financialisation process in more detail by examining four channels in particular: investment, distribution, household consumption and the current account. Section 4 analyses the transmission mechanism of the global financial crisis and the Eurozone sovereign debt crisis vis-a-vis Sweden. Section 5 concludes.
    Keywords: Sweden, Swedish model, financialisation, financial system, financial crisis, banking crisis, Eurozone crisis
    JEL: E44 F3 G2 N14 N24 O52 P16
    Date: 2014–12–01
  50. By: Ghosh, Saibal; Kumar, Rakesh
    Abstract: The paper utilizes state-level data on household dependence on informal finance for an extended time span to examine whether it is impacted by a monetary contraction. The analysis suggests a substitution effect such that borrowing from moneylenders declines, whereas landlords and relatives turn out to be the preferred financing choices. In addition, the evidence also supports a hierarchy among these preferred financing choices. This suggests that monetary policy needs to take on board its impact on the hitherto neglected informal sector.
    Keywords: informal finance; monetary policy; India
    JEL: E52 O17
    Date: 2014–12
  51. By: Hashim, Khairul Khairiah; Masih, Mansur
    Abstract: This study discusses the relationship between stock price index and exchange rate in Malaysia. Establishing the relationship between stock prices and exchange rate is important for several reasons. Firstly, it may affect the economic decisions in terms of monetary policy and fiscal policy. Secondly, by understanding the relationship of stock prices and exchange rate, it will assist to predict the possibility of financial downturn. This study makes an attempt to examine the positive or negative relationship between stock prices and exchange rate. The causality between stock price and exchange rate is important in order to assist in making economic decision. This study employs MGARCH-DCC and wavelet approach, more specifically the continuous wavelet transform (CWT) and maximum overlap discrete wavelet transform (MODWT). The earlier studies used time-domain framework in their search for a relationship when the true relations might exist at different frequencies. The findings show that there is negative relationship between stock prices index and exchange rate in the case of Malaysia for both Islamic and conventional stock indices. The stock price index leads exchange rate in the long term investment horizon. This empirical research may have several implications for traders, portfolio managers and policymakers. It can be helpful for the traders in explaining the flow of information between stock and foreign exchange markets.
    Keywords: Stock volatility, exchange rates, MGARCH-DCC, Wavelets
    JEL: C22 C58 E44 G15
    Date: 2015–06–24
  52. By: Hakhu, Antra Bhatt (Tata Institute of Social Sciences)
    Abstract: The paper aims to explore the dynamics between components of public expenditure and public debt using an intertemporal optimization framework based on Turnovsky (2007). Public expenditure is classified as `productive' and `less-productive' based on the rationale that a proportion of the productive public expenditure (phi) corrects disequilibrium in the public debt in the long-run. The `second-order' conditions resulting from the model demonstrate that as phi increases, the marginal social value of a unit of capital reduces. Thus, beyond its optimal level, an increase in phi could still affect public debt inversely; however, this will be at the cost of `crowding out' of private investment. To test the theoretical representation and to analyse the relationship between public expenditure and debt, an empirical analysis using Indian Public Finance data (1980-2013) is carried out in this study. Time series methods are employed to test the hypothesis that capital expenditure of the government is productive public expenditure. The correlation, cointegration and ECM results show that real capital expenditure is cointegrated with real public debt of the Central and the General government. Additionally, in the long run, real capital expenditure adjusts to bring real public debt on a convergent path. The amount of disequilibrium corrected is 0.01 and 0.035 for the Central and the Consolidated General Government respectively. Key policy implications point towards a scope for increasing public capital expenditure in the Indian economy while complementing it with private investment stimulus to stabilize public debt in the long run.
    Keywords: Public Debt ; Sustainability ; Public expenditure ; Dynamic Optimization
    JEL: H63 E62 C61
    Date: 2015–05
  53. By: Baskaran, Thushyanthan; Blesse, Sebastian; Brender, Adi; Reingewertz, Yaniv
    Abstract: This paper examines whether revenue decentralization and direct external financial supervision affect the incidence and strength of political budget cycles, using a panel of Israeli municipalities during the period 1999-2009. We find that high dependence on central government transfers - as reflected in a low share of locally raised revenues in the municipality´s budget - exacerbates political budget cycles, while tight monitoring - exercised through central government appointment of external accountants to debt accumulating municipalities - eliminates them. These results suggest that political budget cycles can result from fiscal institutions that create soft budget constraints: that is, where incumbents and rational voters can expect that the costs of pre-election expansions will be partly covered later by the central government.
    Keywords: political budget cycles,soft budget constraint,local governments,decentralization
    JEL: D72 H72 H74 E62
    Date: 2015
  54. By: Zhao, Guo
    Abstract: I propose a dynamic production model based on the joint constraints of technology, budget and no arbitrage. It is shown that this no-arbitrage based production theory turns out to be a natural generalization of classical production theory based on profit maximization, and confers some methodological advantages over the traditional approach. This no-arbitrage framework for production emphasizes the general equilibrium of the economic system as a whole and constitutes a marriage of production theory and finance, containing the Modigliani-Miller theorem as a consequence. Further, this no-arbitrage based production theory constructs a bridge between microeconomics and macroeconomics, and successfully reconciles some long-standing contradictions arising from the classical theory. For example, it is shown that there does not exist an unconditional trade-off between inflation and output (Lucas 1973; Friedman and Schwartz 1982). This reconciles the long-standing confliction between Keynesian doctrine (Keynes 1936) and the empirical evidence, which was widely regarded as the failure of Keynesian revolution (Lucas and Sargent 1978). Comparative static analysis and dynamic analysis indicate that this model is consistent with the behavior of firms in reality, and can explain a wide range of economic phenomena, including the occurrence of stagflation, Balassa–Samuelson effect and economic growth. Finally, no-arbitrage based production theory gives rise to a new method of calculating the equilibrium exchange rate between any two countries with arbitrary production functions.
    Keywords: No Arbitrage, Modigliani-Miller Theorem, Ricardian Equivalence, Gibson paradox, Phillips curve, Purchasing Power Parity, Balassa-Samuelson effect, Lucas critique
    JEL: D2 E2 G0
    Date: 2014–04–05
  55. By: Silke Tober
    Abstract: Two recent proposals for overcoming the euro area crisis make the case for monetary financing of the public sector. Watt (2015) proposes that the ECB finances public investment directly, Pâris and Wyplosz (2014) contend that public debt may be effectively restructured by burying parts of it in the balance sheet of the Eurosystem. Both proposals place the ECB at the center of matters generally considered to be fiscal in order to circumvent existing fiscal and political constraints. This paper argues that neither monetary debt retirement nor monetary financing of EU investment are a free lunch. Both proposals fudge the line between monetary and fiscal policy thereby ignoring valid reasons for separating these two macroeconomic policy areas. All monetary policy measures impact on government finances; whether monetary policy actions cross the fiscal policy line, however, depends primarily on the underlying motivation of the action. In the case of the two proposals the motivation is unambiguously fiscal.
    Date: 2015
  56. By: Kocherlakota, Narayana R. (Federal Reserve Bank of Minneapolis)
    Date: 2014–07–08
  57. By: Micossi, Stefano
    Abstract: This Special Report examines the policies pursued by the European Central Bank (ECB) since the inception of the euro. The ECB was originally set up to pursue price stability, with an eye also to economic growth and financial stability as subsidiary goals, once the primary goal was secured. The application of a single monetary policy to a diverse economic area has entailed a pronounced pro-cyclicality in its real economic effects on the eurozone periphery. Later, monetary policy became the main policy instrument to tackle financial instability elicited by the failure of Lehman Brothers and the sovereign debt crisis in the eurozone. In the process, the ECB emerged as the lender of last resort in the sovereign debt markets of participating countries. Persistent economic depression and deflation eventually brought the ECB into the uncharted waters of unconventional policies. That the ECB could legally perform all of these tasks bears witness to the flexibility of the TFEU and its Statute, but its tools and operating procedures were stretched to their limit. In the end, the place of the ECB amongst EU policy-making institutions has been greatly enhanced, but has entailed repeated intrusions into the broader domain of economic policies – not least because of its market intervention policies – whose consequences have yet to be ascertained.
    Date: 2015–05
  58. By: Xavier Ragot (OFCE)
    Abstract: La divergence économique entre la France et l’Allemagne depuis 1993 est impressionnante. Alors que les deux pays étaient dans des situations comparables à la fin des années 1990, l’Allemagne est aujourd’hui au voi- sinage du plein emploi - en dépit d’inégalités en hausse - et est un des pays les plus exportateurs du monde. La France connait un chômage his- torique et voit ses performances commerciales se dégrader continûment. Plusieurs explications à cette divergence ont été proposées. Cet article quantifie la contribution particulière de la modération salariale allemande débutant outre-Rhin au milieu des années 1990 sur l’écart de performances économiques franco-allemand. En effet, les salaires allemands sont restés extraordinairement stables après la réunification allemande, et ce essen- tiellement dans les services. À l’aide d’un modèle quantitatif de commerce international, nous trouvons que la modération salariale allemande est res- ponsable de l’ordre de la moitié de l’écart de performances à l’exportation de la France par rapport à l’Allemagne, et explique environ 2% du taux de chômage français. Le problème de l’offre en France est essentiellement l le résultat du désajustement européen
    Keywords: France; Allemagne; divergence européenne; marché du travail
    JEL: E24 E66 E2
    Date: 2015–06
  59. By: Barnett, William
    Abstract: This essay is about my prior experiences as a rocket scientist on Apollo rocket engines, with comparison to my subsequent experiences at the Federal Reserve, and in academia, with emphasis upon differences in collaboration and scientific methodology. A primary difference is in the emphasis on measurement.
    Keywords: Measurement, bifurcation, rocket science, nonlinearity, collaboration.
    JEL: C51 C52 C81 E5 E51
    Date: 2015–06–23
  60. By: Pascal Assmuth (Center for Mathematical Economics, Bielefeld University)
    Abstract: The total output of an economy usually follows cyclical movements which are accompanied by similar movements in stock prices. The common explanation relies on the demand side. It points out that stock market wealth drives consumption which triggers production afterward. This paper focuses on influences via the supply side of the economy. The aim of the paper is to explore channels where stock price patterns influence the amount of credit taken by firms. We examine trend and volatility cycles at the stock market for their impact on the real economy. For each one we find an application to the investment behaviour of firms. There are three channels addressed: the stock market valuation as piece of information for the assessment of a firm's creditworthiness, the influence on restructuring prospects in times of financial distress and the stock market related remuneration of the top management affecting capital demand. We ask to which extent a channel may contribute to the stock price - output relation when there is mutual feedback. A model 'a la Delli Gatti et al. (2005) drives the results. Firms take credit to finance their production which determines their financial fragility. If their stochastic revenue is too low, they are bankrupt and leave the economy. The capital loss hurts the bank's equity base and future credit supply is diminished. This causes business cycles. Results show that if the bank assesses creditworthiness according to the stock price then idiosyncratic stock price fluctuations have only a slight effect as they disturb selection and hinder growth. If stock market optimism matters for bankruptcy ruling the level of stock owners' influence does not matter. If optimism is wide spread among stock investors however, investment behaviour is also correlated through the stock prices and this results in huge real economy cycles without any long-term growth. If volatility is considered in the decision of managers they act more prudently and this fosters growth.
    Keywords: Heterogeneous Agents Models, Financial Fragility, Stock Prices, Business Cycles
    JEL: E32 G30 C63
    Date: 2015–04
  61. By: Koté, Lassine; Sorgho, Zakaria; Ouedraogo, Carine
    Abstract: This paper examines the mobility of capital within fourteen (14) ECOWAS Members over the period 1980-2011 using Feldstein-Horioka’s Model. First, we investigate the free-flow of capital within the ECOWAS States, and secondly, we analyze the capital flows accounting the governance of state: high governance (country GOUV1) and low governance (GOUV2 countries). Using an autoregressive lag model, we estimate the coefficients of money savings. The results show that the capital is relatively more fluid within ECOWAS comparing to Europeans developed countries. Specifically, capital flows are more mobile in non-UEMOA countries and countries’ GOUV1 than in those of WAEMU and countries’ GOUV2. Further, the results show that the common currency is not a determinant of the free-flow of capital within the ECOWAS while the good governance is a fundamental factor.
    Keywords: ECOWAS, Mobility of capital, ARDL model Feldstein-Horioka's Model.
    JEL: E22 E6 E63
    Date: 2015–06
  62. By: Steven Lugauer (Department of Economics, University of Notre Dame); Jinlan Ni (University of Nebraska at Omaha); Zhichao Yin (Southwestern University of Finance and Economics)
    Abstract: This paper examines the impact of family size on household saving. We first study a theoretical life-cycle model that includes finite lifetimes and saving for retirement and in which parents care about the consumption of their dependent children. The model implies a negative relationship between the number of dependent children in the family and the household’s saving rate. Then, we test the model’s implications using a new data set on household finances in China. We use the differential enforcement of the one-child policy across counties to address the endogeneity between household saving and fertility decisions within a standard two-stage least squares Tobit regression. We find that Chinese families with fewer dependent children have significantly higher saving rates. The regressions also indicate that saving rates vary with age and tend to be higher for households with more workers, higher education, better health, and more assets.
    Keywords: China, Household Saving, Demographics, Overlapping Generations
    JEL: D12 D91 E21 J11 O12
    Date: 2014–06
  63. By: Sergio Lagoa (Instituto Universitário de Lisboa – ISCTE and Dinamia’Cet-IUL); Emanuel Leao (Instituto Universitário de Lisboa – ISCTE and Dinamia’Cet-IUL); Ricardo Paes Mamede (Instituto Universitário de Lisboa – ISCTE and Dinamia’Cet-IUL); Ricardo Barradas (Instituto Universitário de Lisboa – ISCTE and Dinamia’Cet-IUL)
    Abstract: The notion of 'financialisation' broadly refers to the growing weight of finance in contemporary economies. Taking this into account, the present study focus on the long-run macroeconomic development and recent financial and economic crisis of the Portuguese economy. Contrary to Greece, Ireland, and Spain, the dismal performance of the Portuguese economy is not solely a post-subprime crisis phenomenon. The sharp discontinuity in GDP growth around the turn of the century is a distinctive feature of Portugal in the EU context and, although several factors account for this discontinuity, the process of financialisation of the Portuguese economy is an essential part of the explanation. This process in Portugal was essentially characterised by a large increase in bank credit to the private sector, resulting from a combination of demand- and supply-side factors that produced a wide availability of credit at historically low interest rates. Thus, we suggest that the Portuguese experience can be labelled a ‘debt-led domestic demand growth’ model. However, after 2000 the Portuguese economy experienced a succession of shocks, and an exhaustion of the domestic debt-led growth at a much earlier stage than other countries, resulting in a sharp economic slowdown, with negative consequences for public finances. The high levels of public and private indebtedness were a decisive factor behind the steep rise in the Portuguese sovereign bonds interest rates between 2010 and 2012. Finally, we assess the impact of financialisation in the current account, investment, consumption, and inequality; articulating these domains with the general growth model. Our conclusion is that the increase in the importance of finance ended having a clear negative impact on the three former domains, while the negative impact on income inequality was less pronounced.
    Keywords: Portugal, financialisation, credit, economic growth, investment, consumption, trade balance, income inequality, financial and economic crisis
    JEL: E00 G01 O11 O16 O52 P16
    Date: 2014–12–01
  64. By: Hamidi Sahneh, Mehdi
    Abstract: This paper provides new conditions under which the shocks recovered from the estimates of structural vector autoregressions are fundamental. I prove that the Wold innovations are unpredictable if and only if the model is fundamental. I propose a test based on a generalized spectral density to check the unpredictability of the Wold innovations. The test is applied to study the dynamic effects of government spending on economic activity. I find that standard SVAR models commonly employed in the literature are non-fundamental. Moreover, I formally show that introduction of a narrative variable that measures anticipation restores fundamentalness.
    Keywords: Fundamentalness; Identification; Invertible Moving Average; Vector Autoregressive
    JEL: C32 C5 E62
    Date: 2015–06–15
  65. By: Schnabl, Gunther
    Abstract: Das Papier identifiziert auf der Grundlage der monetären Überinvestitionstheorien von Wicksell (1898), Mises (1912) and Hayek (1929, 1937) expansive Geldpolitik als Ursache für Boom-und-Krisen-Zyklen auf den Finanzmärkten sowie für langfristige Stagnation. Das Absenken der Leitzinsen gegen Null wird als Ursache für eine sinkende Grenzleistungsfähigkeit der Investitionen gesehen, da der Bankensektor schleichend nationalisiert wird und strukturelle Verzerrungen zementiert werden. Eine asymmetrische Geldpolitik begünstigt eine Substitution von Realinvestitionen durch Finanzinvestitionen, von privaten Investitionen durch öffentliche Investitionen sowie Umverteilung von mittleren und unteren Einkommensschichten hin zu oberen Einkommensschichten. Der von strukturell sinkenden Zinsen begünstigte Anstieg der Staatsverschuldung sowie eine durch Umverteilungseffekte der Geldpolitik verursachte Reallohnrepression werden als Gründe für die Hysterese sehr expansiver Geldpolitik identifiziert. Es wird ein Anheben der Leitzinsen empfohlen, um die Allokations- und Signalfunktion der Zinsen, das Haftungsprinzip, eine hohe Grenzleistungsfähigkeit der Investitionen und damit eine nachhaltige Wachstumsdynamik wiederherzustellen.
    Keywords: Hayek,Mises,monetäre Überinvestitionstheorie,asymmetrische Geldpolitik,Finanzmarktkrisen,Grenzleistungsfähigkeit der Investitionen,Stagnation
    JEL: E52 E58 F42 E63
    Date: 2015
  66. By: Gerard Cornilleau (OFCE); Jerome Creel (OFCE & ESCP Europe)
    Abstract: The classification of France in any category is generally very difficult when the time dimension is taken into consideration. Indeed, France has gone through different situations, from current account deficit to surplus, and from surplus to deficit, which makes it difficult to apply to France a one-category-fits-all diagnosis. Nevertheless, drawing on the cyclicality of the public deficit and the steady contribution of households’ consumption to the GDP growth rate, a mild domestic demand-led economy is certainly the best approach to describing the French economy and its connections with financialisation. The 2009 crisis has reduced corporate mark ups, as it is normal during a recession, but we do not observe a long term deviation and the mark-up for the whole economy, on a historical basis, is at a relatively satisfactory level as the share of gross operating surplus in value added has remained higher by one percentage point than the average level of the pre-oil-shocks- period. The crises of the 1990s and 2000s did not cut corporate profitability as the first oil shock did. The idea of a structural deterioration in profitability is therefore not confirmed by macroeconomic data. This is certainly worth being brought closer to the change in income sharing which happened in the early 1980s: the policy of wage restraint implemented in 1982, coupled with rising unemployment, brought back wages evolution at a level consistent with a balanced economic growth, hence in line with productivity growth. France has not gone through financialisationrelated imbalances like, e.g. a real estate bubble. Fluctuations of the French economy can thus be attributed to external shocks, and not to structural imbalances. This conclusion is at odds with the political impetus in favor of the implementation of so-called structural reforms in France.
    Keywords: current account imbalances, distribution of income, financialisation, financial and economic crisis, France
    JEL: D31 D33 E25 E65 F40
    Date: 2014–12–01
  67. By: Dirk Drechsel (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Samad Sarferaz (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Matthias Bannert (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper analyzes the effects of macroeconomic shocks on prices and output at different levels of aggregation using a bottom up approach. We show how to generate firm level impulse responses by incorporating experimental settings into surveys and by exposing firm executives to treatment scenarios. Aggregation then results in industry level and economy wide impulse responses. We further show that the effects obtained from survey experiments can be mapped into impulse responses retrieved from VARs. We apply the procedure to study the effects of oil price shocks using a representative sample of over 1000 Swiss firms. At the aggregate and industry level our findings confirm, with some notable exceptions, results from a standard VAR. At the micro level we analyze the driving forces behind firm specific impulse responses, controlling for several firm characteristics via panel data analysis and thereby solving existing puzzles.
    Keywords: Survey based impulse responses, survey experiments, macroeconomic shock identification, firm level data, oil price shock
    JEL: C32 C83 C99 E31
    Date: 2015–06
  68. By: Robert W Vivian and Nicholas Spearman
    Abstract: Although the phrase ‘banks create money’ forms part of popular discourse, it has precipitated a factually incorrect understanding of a bank’s role in the money creation process. Bank money creation is the result of an underlying value-for-value exchange transaction; the bank facilitates the transaction, takes over responsibility for obligations created and records the money created—the bank is not the source of money creation. This has long been understood, even if it is not immediately evident, but contemporary explanations have confounded the issue. In exploring and explaining this fact, we clarify the bank’s primary function as financial intermediary between buyer and seller as opposed to borrower and lender. We also address a further problematic belief—that banks create money out of nothing. This opinion has gained popularity, fueling criticism of the banking system by the general public.
    Keywords: Money creation, money supply, Financial intermediation
    JEL: E50 G20
    Date: 2015
  69. By: Mei Li (Department of Economics and Finance, University of Guelph); Frank Milne (Department of Economics, Queen’s University); Junfeng Qiu (Economics and Management Academy, Central University of Finance and Economics)
    Abstract: This paper establishes a theoretical model to examine the LOLR policy when a central bank can distinguish solvent banks from insolvent ones only imperfectly. The major results that our model produces are as follows: (1) The pooling equilibria in which, on one hand, all the banks borrow from the central bank and, on the other hand, all the banks do not borrow from the central bank could exist given certain market beliefs off the equilibrium path. However, neither equilibrium is socially efficient because insolvent banks will continue to hold their unproductive assets, rather than efficiently liquidating them. (2) Higher precision in central bank screening will improve social welfare not only by identifying insolvent banks and forcing them to efficiently liquidate their assets, but also by reducing moral hazard and deterring banks from choosing risky assets in the first place. (3) If a central bank can commit to a specific precision level before the banks choose their assets, rather than conducting a discretionary LOLR policy, it will choose a higher precision level to reduce moral hazard and will attain higher social welfare.
    Keywords: Central Bank Screening; Moral Hazard; Lender of Last Resort
    JEL: E58 G20
    Date: 2015
  70. By: Tassos Giannitsis; Stavros Zografakis
    Abstract: This report attempts to examine the impact of the crisis and crisis policies on incomes, inequality and poverty in Greece. Based on extensive income and tax data, it investigates changes in incomes, direct, indirect and property taxation and their incidence between 2008 and 2012-13, their impact on pre- and post-tax inequality and the resulting social reclassifications within the Greek society. The report is distinguishing income by sources at the deciles level, including the top 1% and 0.1%, household and individual income while focusing also on the sub-groups of the 'same households' and the 'same individuals'. Furthermore, the analysis combines unemployment and income data and uses an 'index of despair' reflecting the pressure felt by households hit from salary drop and unemployment. The findings suggest that pauperisation hit large parts of the society, that policies had very differentiated effects on different groups and that, therefore, average values obscure contrasting changes in inequality regarding particular sub-groups, that during the crisis all income classes comprise winners and losers and last, but not least, that many macro-variables and social indicators were the result of a deficient crisis management approach and ideological inflexibility coupled to established political interests, making the exit from the crisis more complicated and painful. The findings of this analysis should be assessed in the light of the severe economic depression caused by the Troika's policies.
    Keywords: income distribution, fiscal policy, crisis management
    JEL: D31 E62 H12
    Date: 2015
  71. By: Galo Nuño (Banco de España); Cristiana Belu Manescu (European Commission)
    Abstract: The aim of this paper is to analyse the impact of the so-called «shale oil revolution» on oil prices and economic growth. We employ a general equilibrium model of the world oil market in which Saudi Arabia is the dominant firm, with the rest of the producers as a competitive fringe. Our results suggest that most of the expected increase in US oil supply due to the shale oil revolution has already been incorporated into prices and that it will produce an additional increase of 0.2 percent in the GDP of oil importers in the period 2010-2018. We also employ the model to analyse the collapse in oil prices in the second half of 2014 and conclude that it was mainly due to positive unanticipated supply shocks.
    Keywords: Saudi Arabia, general equilibrium, shale oil
    JEL: Q41 Q47 E17
    Date: 2015–06
  72. By: K.R. Shanmugam (Madras School of Economics)
    Abstract: Non-Bank Financial Institutions (NBFIs) or shadow banks are internationally recognized as financial intermediaries. There have been debates in the literature on the exact relation (complementary or substitutability) between non-banking and banking sectors and between financial sector development/liberalization and economic growth. This study analyzes these issues using the data from 25 major nations in the world during 2006-13 and panel data methodology. Results of the study suggest that (i) NBFIs hold nearly 22 percent of the total financial system assets; (ii) both credit risk and funding risk associated with interconnectedness between banks and non-banks sectors was larger for NBFIs than for banks in almost all nations; (iii) banks and Non-banking institutions are competing each other; (iv) financial sector represented by banking sector plays a significant role in determining GDP growth of nations, thereby confirming the Schumpeterian idea of finance spurring growth and (v) the economic growth and non-banking sectors growth are positively related, supporting the Robinsonian conjecture of economic growth leading to more dynamic financial sector development. The NBFI regulation is generally underdeveloped in almost all countries. The most nations do not have policy instruments that are specially designed for dealing with systemic risks associated with NBFIs. A perpetual challenge for financial regulators and supervisors in various nations is to choose appropriate regulatory mechanism suited to their countries.
    Keywords: Non-Bank Financial Sector, Regulation, Systemic Risk, Global Economies
    JEL: E44 G21
    Date: 2015–04
  73. By: Nellie Zhang
    Abstract: This paper uncovers trends in payment timing in Canada’s Large Value Transfer System (LVTS) from 2003 to 2011. Descriptive analysis shows that LVTS payment activity has not been peaking in the late afternoon since 2008, and the improvement was most significant in 2009. Ordinary least squares regressions are conducted to identify various factors that might have contributed to the changes in the payment value time distribution. The main findings include that a larger proportion of high-value payments results in later payment submission and hence settlement; as an important source of intraday liquidity, a higher CDSX payout value tends to speed up LVTS transactions. Several changes in the system parameters—such as increases in the frequencies of the Jumbo algorithm and Jumbo queue expiry—also quickened the settlement. In addition, the results suggest that the temporary exceptional liquidity initiatives introduced in late 2008 and a large increase in settlement balances were major contributors to the earlier settlement of LVTS payments.
    Keywords: Payment clearing and settlement systems
    JEL: E E5 E50 G G2 G20
    Date: 2015
  74. By: Burda, Michael C. (Humboldt University Berlin); Genadek, Katie R. (University of Minnesota); Hamermesh, Daniel S. (Royal Holloway; University of Texas at Austin)
    Abstract: Using the American Time Use Survey (ATUS) 2003-12, we estimate time spent by workers in non-work while on the job. Non-work time is substantial and varies positively with the local unemployment rate. While the average time spent by workers in non-work conditional on any positive non-work rises with the unemployment rate, the fraction of workers who report time in non-work varies pro-cyclically, declining in recessions. These results are consistent with a model in which heterogeneous workers are paid efficiency wages to refrain from loafing on the job. That model correctly predicts relationships of the incidence and conditional amounts of non-work with wage rates and measures of unemployment benefits in state data linked to the ATUS, and it is consistent with observed occupational differences in non-work.
    Keywords: time use, non-work, loafing, shirking, efficiency wage, labor productivity
    JEL: J22 E24
    Date: 2015–06
  75. By: Jérôme Creel (OFCE Sciences Po & ESCP-Europe); Maurizio Iacopetta (OFCE-SciencesPo & SKEMA Business School)
    Abstract: We make the case for investigating the gap between the potential and the actual level of production, and review contributions that point to the reduced power of standard policy in- struments in presence of a prolonged gap. We also highlight di¢ culties in measuring where an economy stands relative to its potential. We review links between human capital accumulation and technology, and sketch a basic Schumpeterian model that puts at the center stage of the growth process investments in innovation and the foundation of new Örms, arguably two key sources of growth that could revitalize the faltering European Economies. The gap between the short and long run behavior is illustrated through quantitative experiments.
    Date: 2015–05
  76. By: Jappelli, Tullio; Padula, Mario
    Abstract: In 2000 Italy replaced its traditional system of severance pay for public employees with a new system. Under the old regime, severance pay was proportional to the final salary before retirement; under the new regime it is proportional to lifetime earnings. This reform entails substantial losses for future generations of public employees, in the range of €20,000-30,000, depending on seniority. Using a difference-in-difference framework, we estimate the impact of this unanticipated change in lifetime resources, on the current consumption and wealth accumulation of employees affected by the reform. In line with theoretical simulations, we find that each euro reduction in severance pay reduces the average propensity to consume by 3 cents and increases the wealth-income ratio by 0.32. The response is stronger for younger workers and for households where both spouses are public sector employees.
    Keywords: Severance Pay,Consumption,Wealth Accumulation
    JEL: D12 D91 E21
    Date: 2015
  77. By: Dejemeppe, Muriel (Université catholique de Louvain); Smith, Catherine (Catholic University Louvain); Van der Linden, Bruno (IRES, Université catholique de Louvain)
    Abstract: In December 2005, the Belgian government adopted the law on the Intergenerational Solidarity Pact (ISP) aiming at increasing the employment rate of older workers. The main policies of the ISP consist in a pension bonus, reductions in employers' social security contributions and measures discouraging early retirement while encouraging working time reductions at the end of the career. We aim at evaluating the overall effectiveness of the ISP in rising the employment rate of older workers. To that purpose, we compare the actual evolution of the employment rate after the implementation of the policies to its predicted (counterfactual) evolution based on the estimation of a macroeconometric model in a period prior to the ISP. The results suggest a slight positive impact of the ISP on the employment rate of older workers but to the detriment of the younger workers. However, there is a lack of statistical power to draw firm conclusions on the overall effect of the ISP.
    Keywords: aging, evaluation of labor market policies, macro-econometrics
    JEL: J21 J26 H53 E32
    Date: 2015–06
  78. By: Barbara M. Fraumeni
    Abstract: According to the World Bank and the United Nations, human capital is the largest component of human wealth for most countries in the world. There is no question that human capital is critical to individual and society well-being and both present and future growth. This presentation draws upon an analysis of human capital measures for 18 countries, including the three most populous countries in the world: China, India, and the United States. This paper will focus on two human capital issues, which are considerations in choosing a human capital measure: the size of the educational attainment gap between those younger and older, and differences in rankings using alternative human capital measures. In a number of countries, younger individuals (age 25-24) have a significantly higher educational attainment than older individuals (aged 55-64). For these countries, expectations are that economic growth and well-being will improve over the longer term. Lifetime income measures which explicitly include the expected future work history and income of all individuals in a country are preferred over other measures if these gaps matter. The answer to the question: “What is the human capital ranking of countries?” depends upon the reference measure. Six types of measures are considered: PISA test scores, PIAAC, Barro-Lee educational attainment, Inclusive Wealth human capital, Jorgenson-Fraumeni lifetime income, and World Bank intangible capital. What explains the significant differences in the rankings? Is it important unmeasured attributes or country specific institutions and labor markets? Is it a failure of standard economic assumptions, such as individuals being paid what they are worth, to predict labor market outcomes? It is critical to answer these questions before choosing a human capital measure to predict economic growth and well-being in general, and notably the impact of younger cohorts being more highly educated than older cohorts.
    JEL: E24 I25
    Date: 2015–06
  79. By: Vergard H. Larsen; Leif Anders Thorsrud
    Abstract: We decompose a major business newspaper according to the topics it writes about, and show that the topics have predictive power for key economic variables and, especially noteworthy, for asset prices. Unexpected innovations to an aggregated news index, derived as a weighted average of the topics with the highest predictive scores, cause large and persistent economic fluctuations, a permanent increase in productivity, and are especially associated with financial markets, credit and borrowing. Unexpected innovations to asset prices, orthogonal to news shocks and labeled as noise, have only temporary positive effects.
    Keywords: Machine learning, Latent Dirichlet Allocation (LDA), Bayesian Dynamic Threshold Model, Business Cycles
    Date: 2015–06
  80. By: Stelios Bekiros (European University Institute (EUI) and IPAG Business School); Rangan Gupta (Department of Economics, University of Pretoria and IPAG Business School); Anandamayee Majumdar (Center for Advanced Statistics and Econometrics, Soochow University, Suzhou, China)
    Abstract: Information on economic policy uncertainty does matter in predicting the US equity premium, especially when accounting for structural instabilities and omitted nonlinearities in their relationship, via a quantile predictive regression approach over the monthly period 1900:1-2014:2. Unlike as suggested by a linear mean-based predictive model, the extended quantile regression model with the incorporation of the EPU proxy, enhances significantly the out-of-sample stock return predictability. This is observed especially when the market is neutral, exhibits a side or mildly upward trending behavior, yet not when the market appears to turn highly bullish.
    Keywords: stock markets, economic uncertainty, predictability, quantile regression
    JEL: C22 C53 E60 G10
    Date: 2015–06
  81. By: Iqbal A. Syed (School of Economics and CAER, UNSW Business School, UNSW)
    Abstract: This paper develops an algorithm, called the sales spotter, which identifies the sale prices in the transaction price series provided in point-of-sale data. The goal of the sales spotter is to identify the maximum number of sale prices while minimizing the incorrect attribution of non-sale price reductions to sale prices. The spotter is developed and the values of its parameters are selected by analysing around 7.5 million agged sales in a US supermarket scanner data. At the optimal values of the parameters, the spotter identifies 84% of authentic agged sale weeks in the data.
    Keywords: Keynes, post-Keynesians, methodology, path dependency, economic policy
    JEL: E30 M37
    Date: 2015–06
  82. By: Dilger, Alexander
    Abstract: The optimal currency for a country is an important topic. While it is difficult to identify the best option overall, for all stakeholders and including political considerations, it is easier to answer the more limited question of the title: Which currency is best for business in a small country? Several kinds of currencies are discussed and three criteria that business companies are interested in are applied. Although there are opposing considerations, the best compromise for business in a small country seems to be a currency board with a fixed exchange rate that can be adapted in case of a crisis. A currency board is also the best protection against speculative attacks. The anchor currency should be that of the largest trading partner, especially if the trade with it is much larger than with all other ones.
    Abstract: Die optimale Währung für ein Land ist ein wichtiges Thema. Während es schwierig ist, die beste Option überhaupt zu identifizieren, für alle Stakeholder und unter Einbezug politischer Überlegungen, ist es einfacher die begrenztere Titelfrage zu beantworten: Welche Währung ist am besten für Unternehmen in einem kleinen Land? Dazu werden verschiedenen Arten von Währungen diskutiert und drei Kriterien angewandt, an denen Unternehmen interessiert sind. Obgleich es gegenläufige Überlegungen gibt, scheint der beste Kompromiss für Unternehmen in einem kleinen Land eine devisengesicherte Anbindung an eine Ankerwährung zu sein mit einem festen Wechselkurs und Anpassungsmöglichkeiten im Falle einer Krise. Solch eine Anbindung ist auch der beste Schutz gegen spekulative Angriffe. Die Ankerwährung sollte die Währung des größten Handelspartners sein, insbesondere wenn der Handel mit diesem deutlich größer ist als mit allen anderen.
    JEL: E42 F31 G01 M21
    Date: 2015
  83. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland); Marcin Waniek (University of Warsaw)
    Abstract: We propose a politically feasible instrument for a nearly optimal transition from a pay-as-you-go to a funded scheme in a defined contribution pension system. It consists of compensating the transition generations in the form of pension benefits indexation more generous than would have prevailed in a clean DC system. Thus, this instrument allows to smoothen the welfare costs of transition over future generations via some small implicit debt. Our instrument proves robust to a number of parametric and modeling choices.
    Keywords: defined contribution, pay-as-you-go, pre-funded, pension system
    JEL: H55 E17 C60
    Date: 2015
  84. By: Tiozzo Pezzoli, Luca
    Abstract: This paper investigates the relevance of hidden factors in international bond risk premia to forecast future excess bond returns and macroeconomic variables such as economic growth and ination rate. Using maximum likelihood estimation of a linear Gaussian state-space model, adopted to explain the dynamics of expected excess bond returns of a given country, associated selection criteria detect as relevant, factors otherwise judged negligible by the classical explained variance approach adopted by Cochrane and Piazzesi (2005) and Cochrane and Piazzesi (2008). We call these factors hidden, meaning that they are not visible through the lens of a principal component analysis of expected excess bond returns. We find that these hidden factors are useful predictors of both future economic growth and ination rate given that they add forecasting power over and above the information contained both in the Cochrane and Piazzesi (2008) and in yield curve factors. These empirical findings are robust across different sample periods and countries as well as with respect to the interpolation technique used in the construction of the international bond yield data sets.
    Keywords: Financial econometrics; Interest rates; International finance;
    JEL: C52 E43 G12 G15
    Date: 2014–12
  85. By: Naveen Srinivasan (Madras School of Economics); Vidya Mahambare (Great Lakes Institute of Management, Chennai); M. Ramachandran (Professor, Department of Economics, Pondicherry University)
    Abstract: The build up of international reserves by many Asian countries over the last decade or so has attracted widespread interest and debate. This paper seeks to make a contribution to this discussion from the point of view of India. The empirical results are designed to identify the extent to which the accumulation of reserves in India has been driven by two motives which are commonly identified with respect to the recent accumulation of reserves by the Asian EMEs, namely a demand to have insurance against external shocks and a demand to have a high level of export competitiveness, so as to have export-led growth. Our results provide evidence in support of both the motives in explaining India’s international reserves accumulation strategy, although, their relative importance does seem to vary overtime depending on external factors. This in turn offers some helpful insights into the causes and likely future path of the global imbalances.
    Keywords: Reserve accretion; Capital controls; Exports competitiveness
    JEL: E58 F31 F32
    Date: 2015–04
  86. By: Geiger, Niels
    Abstract: This paper is devoted to the question of operationalising the development of behavioural economics, focussing on trends in the academic literature. The main research goal is to provide a quantitative assessment in order to answer the question of whether or not behavioural economics has gained in relative importance in the past few years. After an introduction and a short summary of the history of behavioural economics, several studies are laid out and evaluated. The results generally confirm the story as it is usually told in the literature, and add some notable additional insights.
    Keywords: behavioural economics,bounded rationality,culturomics
    JEL: D03 E61 E65
    Date: 2014–09
  87. By: Stergios Skaperdas (Department of Economics, University of California-Irvine University)
    Abstract: The long-running Greek public debt crisis has been accompanied by an information war that has obscured what has occurred. The misconceptions, self- deceptions, and myths associated with the crisis have been at least partly responsible for the obviously inadequate response to the crisis and for the damage to the economies and societies of primarily Greece but also of other Eurozone countries. I argue against seven such myths about the effects of default, the primary cause of the crisis, the likely effects of an exit from the eurozone, the bargaining power of the Greek government in its negotiations with the EU/ECB/IMF troika, and others. I also discuss the context of the wider slippage of democracy in the European Union and future prospects.
    Keywords: Eurozone; Greece; Debt; Default
    JEL: D70 E50 H50 H60
    Date: 2015–06
  88. By: Kristel Jacquier (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We investigate the impact of reforms on employment protection for temporary contracts on Total Factor Productivity (TFP) using panel data of industries across 14 European countries. Within-industry variation over the period 1992-2007 is exploited to capture reforms. The legislation on temporary contracts (EPT) affects the use of such contracts, making it a valid instrument to prove a causal relationship between a change in legislation and macroeconomic performances. Indeed, the two stage estimates emphasize the negative relationship between the share of temporary employment and TFP at the industrial level. Marginal effects prove that increasing regulation on temporary jobs has a strong negative impact on the use of fixed-term contracts if employment protection on regular contract (EPR) is low. When employment protection on open-ended contract reaches its highest level; this effect is stronger. Our study shows that asymmetric institutional change might indeed leads to lower productivity growth through a surge in temporary employment
    Keywords: Productivity; employment protection
    JEL: E02 O43
    Date: 2015–03

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