nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒07‒04
eighty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Russia’s Monetary and Fiscal Policy in 2014 By Alexandra Bozhechkova; Pavel Trunin; Michael Khromov; Alexander Knobel; Anna Kiyutsevskaya
  2. Household debt and housing bubble: A Minskian approach to boom-bust cycles By Soon, Ryoo;
  3. The Russian Banking Sector in 2014 By Mikhail Khromov
  4. Jagged Cliffs and Stumbling Blocks: Interest Rate Pass-through Fragmentation during the Euro Area Crisis By Holton, Sarah; Rodriguez d’Acri, Costanza
  5. The Macroeconomic Pass-through Effects of Monetary Policy through Sign Restrictions Approach: In the Case of Albania By Gerti Shijaku
  6. Money, Interest Rates and Output Revisited By Joseph H. Haslag; Xue Li
  7. Governmentally amplified output volatility By Funashima, Yoshito
  8. The Welfare Cost of Inflation Risk Under Imperfect Insurance By Olivier Allais; Yann Algan; Edouard Challe; Xavier Ragot
  9. Optimal Fiscal Policy with Endogenous Product Variety By Chugh, Sanjay; Ghironi, Fabio
  10. Transmission of Quantitative Easing: The Role of Central Bank Reserves By Jens H.E. Christensen; Signe Krogstrup
  11. What has driven inflation dynamics in the Euro area, the United Kingdom and the United States By Melolinna, Marko
  13. Uncertainty and Contradiction: An Essay on the Business Cycle By Michalis Nikiforos
  14. A SVAR approach to evaluation of monetary policy in India By William A. Barnett; Soumya Suvra Bhadury; Taniya Ghosh
  15. Revisiting the transitional dynamics of business-cycle phases with mixed frequency data By Bessec, Marie
  16. Reassessing exchange rate overshooting in a monetary framework By Soumya Suvra Bhadury; Taniya Ghosh
  17. 移行経済における中央銀行の独立性とインフレーション抑制効果−−メタ分析−− By 上垣, 彰; 岩﨑, 一郎
  18. The Mortgage Interest Rates and Cash Rate Cycle Relationship and International Funding Cost: Evidence in the Context of Australia By Quynh Chau Pham; Benjamin Liu; Eduardo Roca
  19. The information content of money and credit for US activity By Albuquerque, Bruno; Baumann, Ursel; Seitz, Franz
  20. Global Liquidity, Capital Inflows and House Prices in ASEAN Economies By Matthew S. Yiu; Sahminan Sahminan
  21. Inequality of income and wealth in the long run: A Kaldorian perspective By Soon, Ryoo;
  22. The Informational Content of the Term-Spread in Forecasting the U.S. Inflation Rate: A Nonlinear Approach By Periklis Gogas; Theophilos Papadimitriou; Vasilios Plakandaras; Rangan Gupta
  23. Quantifying the Impact of Political Frictions on Public Policy By Grechyna, Daryna
  24. Price Drift before U.S. Macroeconomic News: Private Information about Public Announcements? By Alexander Kurov; Alessio Sancetta; Georg H. Strasser; Marketa Halova Wolfe
  25. Capturing the financial cycle in Europe By Stremmel, Hanno
  26. A new identification of fiscal shocks based on the information flow By Ricco, Giovanni
  27. Russia’s State Budget in 2014 By Sergey Belev; Maria Deshko; Arseny Mamedov; Evgenia Fomina
  28. Destabilizing carry trades By Guillaume Plantin; Hyun Song Shin
  29. Has the publication of minutes helped markets to predict the monetary policy decisions of the Bank of England's MPC? By El-Shagi, Makram; Jung, Alexander
  30. Is the nature of the demand regime relevant over the medium run? Some thoughts on the dynamic interaction between the exchange rate and demand regimes By Razmi, Arslan;
  31. What Determines Institutional Arrangements for Macroprudential Policy? By Eri Egawa; Akira Otani; Toshiyuki Sakiyama
  32. Money and Credit Redux By Chao Gu; Fabrizio Mattesini; Randall Wright
  33. Mortgage arrears in Europe: The impact of monetary and macroprudential policies By Petra Gerlach-Kristen; Seán Lyons
  34. Conservatism and liquidity traps By Schmidt, Sebastian; Nakata, Taisuke
  35. Development central banking : a review of issues and experiences By Epstein, Gerald
  36. Do Businessmen Make Good Governors? By Florian Neumeier
  37. The relationship between structural and cyclical features of the EU financial sector By Stremmel, Hanno; Zsámboki, Balázs
  38. The Rate of Time Preference of Government By Harashima, Taiji
  39. The Accumulation of Human and Nonhuman Capital, Revisited By Barbara M. Fraumeni; Michael S. Christian; Jon D. Samuels
  40. Russia’s Money Markets and Financial Institutions in 2014 By Alexander Abramov
  41. Bank Competition and Financial Stability: Much Ado About Nothing? By Tomáš Havránek; Marek Rusnak; Anna Sokolova
  42. Will the true labor share stand up? By Muck, Jakub; McAdam, Peter; Growiec, Jakub
  43. Measuring Inflation Expectations: Consumers' Heterogeneity and Nonlinearity By Abe, Naohito; Ueno, Yuko
  44. Habit Formation in Consumption: A Meta-Analysis By Tomas Havranek; Marek Rusnak; Anna Sokolova
  45. Risk and Risk Management in the Credit Card Industry By Florentin Butaru; QingQing Chen; Brian Clark; Sanmay Das; Andrew W. Lo; Akhtar Siddique
  46. Capital Tax as a Consequence of Bargaining By Saito, Yuta
  47. Robustness in Foreign Exchange Rate Forecasting Models: Economics-based Modelling After the Financial Crisis By Medel, Carlos; Camilleri, Gilmour; Hsu, Hsiang-Ling; Kania, Stefan; Touloumtzoglou, Miltiadis
  48. Changing Exchange Rate Pass-Through in Japan: Does It Indicate Changing Pricing Behavior? By Naoko Hara; Kazuhiro Hiraki; Yoshitaka Ichise
  49. Banking and currency crises: differential diagnostics for developed countries By Joy, Mark; Rusnák, Marek; Šmídková, Kateřina; Vašíček, Bořek
  50. Keynes tenía razón. lecciones no aprendidas y desafíos por afrontar By Jairo Alexander Neira Sánchez
  51. Money and Foreign Trade Ricardo’s “ Magic Numbers” By de Boyer des Roches, Jérôme
  52. Terrorism and Fiscal Policy Volatility in Developing Countries: Evidence from cross-country and Panel Data By Urbain Thierry YOGO
  53. Optimal health investment and preferences structure By Luc SOETE; AZOMAHOU; Bity DIENE; Mbaye DIENE
  54. Greece withdraws from Euro and runs on Bitcoin; April Fools Prank or Serious Possibility? By Bouoiyour, Jamal; Selmi, Refk
  55. Did the Intergenerational Solidarity Pact increase the employment rate of older workers in Belgium? A macro-econometric evaluation By Muriel Dejemeppe; Catherine Smith; Bruno Van der Linden
  56. Russian Industrial Enterprises in 2014 By Sergey Tsukhlo
  57. Macroeconomıc Analysıs And Graphıcal Interpretatıon Of Azerbaıjan Economy In 1991-2012 By Suleymanov, Elchin; Aliyev, Khatai
  58. What if oil is less substitutable? A New-Keynesian Model with Oil, Price and Wage Stickiness including Capital Accumulation By Verónica Acurio Vásconez
  59. Economic research and stress testing By McAndrews, James J.
  60. Replicating Japan's CPI Using Scanner Data By Satoshi Imai; Tsutomu Watanabe
  61. Aufwind im Westen Mittel-, Ost- und Südosteuropas: Wichtige Wachstumsimpulse für Österreich By Mario Holzner
  62. The U.S. economy and financial system in an international context By Musalem, Alberto G.
  63. Wall of Worries: Reflections on the Secular Stagnation Debate By Barry Eichengreen
  64. Business Cycles, Trend Elimination, and the HP Filter By Peter C. B. Phillips; Sainan Jin
  65. Fiscal consolidation policies in the context of Italy’s two recessions By Figari, Francesco; Fiorio, Carlo
  66. Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia By Morgan, Peter; Regis, Paulo Jose; Salike, Nimesh
  67. Role of the Central Bank in supporting economic diversification and productive employment in Cambodia By Khou, Vouthy; Cheng, Oudom; Leng, Soklong; Meng, Channarith
  69. Représentations sociales de la monnaie : contraste entre les citoyens et les porteurs de monnaies locales By Ariane TICHIT
  70. Egalitarianism Policy and Effective Demand under Globalization By Taro Abe
  71. Data is the new black: monetary policy by the numbers By Williams, John C.
  72. New Fractional Dickey and Fuller Test By Bensalma, Ahmed
  73. Designing Macro-prudential Policy in Mortgage Lending: Do First Time Buyers Default Less? By Kelly, Robert; O'Malley, Terence; O'Toole, Conor
  74. EU Exports to the World: Effects on Employment and Income By Iñaki Arto; José Manuel Rueda-Cantuche; Antonio F. Amores; Erik Dietzenbacher; Nuno Sousa; Letizia Montinari; Anil Markandya
  75. Oil and Unemployment in a New-Keynesian Model By Verónica Acurio Vásconez
  76. How does financialisation affect functional income distribution? A theoretical clarification and empirical assessment By Köhler, Karsten; Guschanski, Alexander; Stockhammer, Engelbert
  77. Macroprudential policy in a microprudential world By Williams, John C.
  78. Can the removal of VAT Exemptions support the Poor? The case of Niger By Luc SAVARD; Dorothée BOCCANFUSO; Celine DE QUATREBARBES
  79. Producers, Politicians, Warriors, and Forecasters: Who's Who in the Oil Market? By Medel, Carlos
  80. Study on the effects and incidence of labour taxation. Final report By The Consortium consisting of CPB, CAPP, CASE, CEPII, ETLA, IFO, IFS, IHS
  81. Evolving Informal Remittance Methods of Myanmar Migrant Workers in Thailand By Koji Kubo
  82. Minimum Distance Testing and Top Income Shares in Korea By Jin Seo Cho; Myung-Ho Park; Peter C. B. Phillips

  1. By: Alexandra Bozhechkova (Gaidar Institute for Economic Policy); Pavel Trunin (Gaidar Institute for Economic Policy); Michael Khromov (Gaidar Institute for Economic Policy); Alexander Knobel (Gaidar Institute for Economic Policy); Anna Kiyutsevskaya (RANEPA)
    Abstract: This paper deals with Russia's monetary policy in 2014
    Keywords: Russian economy; monetary policymoney market; inflation; balance of payments; exchange rate;
    JEL: E31 E43 E44 E51 E58 E52
    Date: 2015
  2. By: Soon, Ryoo (Department of Finance and Economics, Adelphi University);
    Abstract: This paper examines macroeconomic dynamics of household debt and housing prices. Drawing on Minsky's insights into financial instability and cycles, our framework combines household debt dynamics with behavioral asset price dynamics in a Keynesian macro model. We show that endogenous boom-bust cycles can emerge through the interaction between household debt and housing price dynamics. The resulting long waves are combined with a Kaldorian model of short-run business cycles.
    Keywords: household debt, asset bubble, limit cycle, financial instability hypothesis
    JEL: E12 E32 E44
    Date: 2015
  3. By: Mikhail Khromov (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with Russia's banking sector in 2014. The author focuses on relationship between banks and corporate customers, foreign transactions in the banking sector, banking regulation
    Keywords: Russian economy; banking sector; foreign transactions; banking regulation
    JEL: E41 E51 E58 E21 E24
    Date: 2015
  4. By: Holton, Sarah (Central Bank of Ireland); Rodriguez d’Acri, Costanza (Central Bank of Ireland)
    Abstract: The financial crisis has been characterised by fragmentation in the transmission of monetary policy, reflected in high dispersion in the cost of bank finance for euro area firms. This paper shows the first results using a new micro dataset on euro area banks to identify individual bank balance sheet characteristics that have contributed to this fragmentation. Interest rate pass-through heterogeneity is estimated using an error correction framework, which captures banks’ funding constraints and balance sheet structures. Our results show incomplete pass-through of changes in money market rates targeted by the central bank to firms’ lending rates charged by banks over the crisis, with increases in sovereign bond yields affecting the cost of finance for firms, particularly in stressed countries. We find that individual bank characteristics have an effect on the pass-through of policy rate cuts over the crisis, even after we control for changes in macroeconomic conditions across countries. The effect is greatest when looking at characteristics that capture bank funding difficulties, with riskier banks transmitting less of the policy rate cuts through to firms. This suggests that a recovery in banks’ balance sheets,funding capacities and risk perception will help reduce fragmentation in the transmission of monetary policy.
    Keywords: Interest rate pass-through, Monetary policy transmission, Financial crises.
    JEL: E52 E58 G01 G20 E43 E44
    Date: 2015–06
  5. By: Gerti Shijaku (Bank of Albania)
    Abstract: This paper examines the transmission mechanism of monetary policy in Albania during 2002 M01 - 2014 M12. The main question addresses the macroeconomic pass-through effects of a monetary policy shock, with regards to a conventional interest rate and possible different balance sheet policy changes. The analysis is based on a structural vector autoregressive model for Albanian economy that includes means of the Cholesky identification scheme and the sign restrictions approach. The former produces mixed results, that are either statistically insignificant or show a puzzle behavior. The latter is found to reduce bias, albeit with some supportive significant clear cut robustness evidences of the short run macroeconomic pass-through effects of a stimulus monetary policy that materialises within twelve periods. A stimulus monetary policy is found to support economic activity and increase price level. The effect is positive with regards to bank lending and monetary money stock variables. Exchange rate depreciates, accomplished by some higher stress on financial market condition. Both of these variables show a contemporaneously stronger response compared to the other variables. Analyses show that the greatest impact, through means of policy rate, is found to be on price level, bank lending and real money stock. In contrast, the greatest impact, through the liquidity effect, is on output, exchange rate and financial market conditions.
    Keywords: Monetary transmission mechanism, financial market condition, VAR, sign restriction identification.
    JEL: C11 C32 E12 E13 E52 E58
    Date: 2015–06–18
  6. By: Joseph H. Haslag (Department of Economics, University of Missouri-Columbia); Xue Li
    Abstract: There is a long tradition in economic research that studies the relationship between money, interest rates and output. In this paper, we specify VARs using cyclical measures of monetary aggregate, interest rates, and output to assess whether money has marginal predictive content for output. Because there is no consensus on how to identify the cyclical component, we consider four alternatives. One goal is to re-examine the result that when the interest rate variable is included, the marginal predictive content of money become insignificant. In addition, we decompose the monetary aggregates into base money and money multiplier components. In this way, we can determine whether inside money has marginal predictive content for output. We can also assess whether the interest rate has marginal predictive content for the money multiplier. The evidence suggests that with the M2 aggregate, movements in money do temporally precede movements in output. However, the evidence is strong that movements in interest rates temporally precede movements in output. The evidence is mixed regarding the movements in interest rates and future movements in the money multiplier.
    Keywords: Detrending methods, marginal predictive content, inside money vs. outside money, time-varying VAR
    JEL: E31 E32 E51
    Date: 2015–04–22
  7. By: Funashima, Yoshito
    Abstract: Predominant government behavior is decomposed by frequency into several periodic components: updating cycles of infrastructure, Kuznets cycles, fiscal policy over business cycles, and election cycles. Little is known, however, about the theoretical impact of such cyclical behavior in public finance on output fluctuations. Based on a standard neoclassical growth model, this study intends to examine the frequency at which public investment cycles are relevant to output fluctuations. We find an inverted U-shaped relationship between output volatility and length of cycle in public investment. Moreover, with a numerical setting, we show that periodic behavior in public investment at low frequencies—such as updating cycles of infrastructure and Kuznets cycles—can cause aggravated output resonance.
    Keywords: Output volatility; Public investment; Resonance; Frequency
    JEL: E32 E62
    Date: 2015–06
  8. By: Olivier Allais (Laboratoire de Recherche sur la Consommation); Yann Algan (Département d'économie); Edouard Challe (Department of Economics, Ecole Polytechnique); Xavier Ragot (OFCE)
    Abstract: What are the costs of inflation fluctuations and who bears those costs? In this paper, we investigate this question by means of a quantitative incomplete-market, heterogenous-agent model wherein households hold real and nominal assets and are subject to both idiosyncratic labor income shocks and aggregate inflation risk. A key feature of our analysis is a nonhomothetic specification for households' preferences towards money and consumption goods. Unlike traditional specifications, ours allows the model to reproduce the broad features of the distribution of monetary assets (in addition to being consistent with the distribution of nonmonetary assets). Inflation risk is found to generate significant welfare losses for most households, i.e., between 1 and 1.5 percent of permanent consumption. The loss is small or even negative for households at the very top of the productivity and/or wealth distribution.
    Keywords: Money-in-the-utility; Incomplete Markets; Inflation Risks; Welfare
    JEL: E21 E32 E41
    Date: 2015–05
  9. By: Chugh, Sanjay; Ghironi, Fabio
    Abstract: We study Ramsey-optimal fiscal policy in an economy in which product creation is the result of forward-looking investment decisions by firms. There are two main results. First, depending on the particular form of variety aggregation, firms' dividend payments may be either subsidized or taxed in the long run. This policy balances monopoly incentives for product creation with the welfare benefit of product variety. In the most empirically relevant form of variety aggregation, socially efficient outcomes entail a substantial tax on dividend income, removing the incentive for over-accumulation of capital, which takes the form of the stock of products. Similar intuitions determine the optimal setting of long-run producer entry subsidies. Second, optimal policy induces dramatically smaller, but efficient, fluctuations of both capital and labor markets than in a calibrated exogenous policy. Decentralization requires zero intertemporal distortions and constant static distortions over the cycle. The results relate to Ramsey theory, which we show by developing welfare-relevant concepts of efficiency that take into account product creation. The results on optimal entry subsidies provide guidance for the study of product market reforms in dynamic macro models.
    Keywords: Endogenous product variety; Optimal taxation; Producer entry; Wedge smoothing; Zero intertemporal distortions
    JEL: E20 E21 E22 E32 E62
    Date: 2015–06
  10. By: Jens H.E. Christensen; Signe Krogstrup
    Abstract: We argue that the issuance of central bank reserves per se can matter for the effectof central bank large-scale asset purchases-commonly known as quantitative easing- on long-term interest rates. This effect is independent of the assets purchased, and runs through a reserve-induced portfolio balance channel. For evidence we analyze the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities. We find that declines in long-term yields following the announcements mainly reflected reduced term premiums suggestive of reserve-induced portfolio balance effects.
    Keywords: unconventional monetary policy, reserve-induced portfolio balance channel, term structure modeling
    JEL: G12 E43 E52 E58
    Date: 2015
  11. By: Melolinna, Marko
    Abstract: This paper studies factors behind inflation dynamics in the euro area, the UK and the US. It introduces a factor-augmented vector autoregression (FAVAR) framework with sign restrictions to study the effects of fundamental macroeconomic shocks on inflation in the three economies. The FAVAR model framework is also applied to study the effects on inflation subcomponents in the more recent past. The FAVAR models suggest that headline inflation in the three economies has reacted in a relatively similar fashion to macroeconomic shocks over the last four decades, with demand shocks causing the most persistent effects on inflation. According to the subcomponent FAVAR models, the responses of inflation subcomponents to macroeconomic shocks have also been relatively similar in the three economies. However, there is evidence of a stronger foreign exchange channel of monetary policy transmission as well as supply shocks in the responses of non-energy tradable goods prices in the UK than the other two economies, while the reaction of services inflation has been more muted to all types of shocks in the euro area than the other two economies. JEL Classification: C22, C32, E31, E52
    Keywords: FAVAR, inflation, macroeconomic shocks, sign restrictions
    Date: 2015–06
  12. By: Bill Russell
    Abstract: ‘Modern’ theories of the Phillips curve imply that inflation is an integrated, or near integrated’ process. This paper explains this implication and why these ‘modern’ theories are logically inconsistent with what is commonly known about the statistical process of inflation.
    Keywords: Phillips curve, inflation, stationary, integrated, macroeconomics
    JEL: C10 C20 E31
    Date: 2015–06
  13. By: Michalis Nikiforos (Levy Economics Institute)
    Abstract: The paper develops a model of economic fluctuations in the medium run and their relation with the short-run macroeconomic equilibrium. The business cycle is the result of two separate forces. On the one hand, there is the Harrodian instability. On the other hand, this instability is contained by the inherent contradictions of capitalism. We focus on two of these contradictions, the profit-squeeze that results from the tightening of the labor market as employment and utilization increase and the financial instability hypothesis, as formulated by Hyman Minsky. With the inclusion of overhead labor, the model can explain the U-shaped behavior of the wage share along the business cycle (wage share decreases for low levels of utilization and increases for higher levels) that prevailed in most of the post-WWII period, as well as the decrease in the wage share as utilization increases that has been observed in the most recent cycles.
    Keywords: Cycles, Harrod, Oscillations, Distribution, Minsky
    JEL: B22 E11 E12 E32
    Date: 2015–06
  14. By: William A. Barnett (University of Kansas); Soumya Suvra Bhadury (University of Kansas); Taniya Ghosh (Indira Gandhi Institute of Development Research)
    Abstract: After almost 15 years, following the flagship exchange-rate paper written by Kim and Roubini (K&R henceforth); we revisit the widely relevant questions on monetary policy, exchange rate delayed overshooting, inflationary puzzle and weak monetary transmission mechanism in the Indian context. We further try to incorporate a superior form of the monetary measure called the Divisia monetary aggregate in the K&R setup. Our paper still rediscovers the efficacy of K&R contemporaneous restriction (customized for the Indian economy which is a developing G-20 nation unlike advanced G-6 nations that K&R worked with) especially when we compared with the recursive structure (which is plagued by price puzzle and exchange rate puzzle). The importance of bringing back 'Money' in the exchange rate model especially correctly measured monetary aggregate is convincingly illustrated when we contested across models with no-money, simple-sum monetary models and Divisia monetary models; in terms of impulse response (eliminating some of the persistent puzzles), variance decomposition analysis (policy variable explaining more of the exchange rate fluctuation) and out-of-sample forecasting (LER forecasting graph). Further, we do a flip-flop variance decomposition analysis, which leads us to conclude two important phenomena in the Indian economy, (i) weak link between the nominal-policy variable and the real-economic activity (ii) Indian monetary authority had inflation-targeting as one of their primary goals, in tune with the RBI Act. These two main results are robust, holding across different time period, dissimilar monetary aggregates and diverse exogenous model setups.
    Keywords: Monetary Policy; Monetary Aggregates; Divisia; Structural VAR; Exchange Rate Overshooting; Liquidity Puzzle; Price Puzzle; Exchange Rate Puzzle; Forward Discount Bias Puzzle
    JEL: C32 E41 E51 E52 F31 F41 F47
    Date: 2015–06
  15. By: Bessec, Marie
    Abstract: This paper introduces a Markov-Switching model where transition probabilities depend on higher frequency indicators and their lags, through polynomial weighting schemes. The MSV-MIDAS model is estimated via maximum likel ihood methods. The estimation relies on a slightly modified version of Hamilton’s recursive filter. We use Monte Carlo simulations to assess the robustness of the estimation procedure and related test-statistics. The results show that ML provides accurate estimates, but they suggest some caution in the tests on the parameters involved in the transition probabilities. We apply this new model to the detection and forecast of business cycle turning points. We properly detect recessions in United States and United Kingdom by exploiting the link between GDP growth and higher frequency variables from financial and energy markets. Spread term is a particularly useful indicator to predict recessions in the United States, while stock returns have the strongest explanatory power around British turning points.
    Keywords: Markov-Switching; mixed frequency data; business cycles;
    JEL: C22 E32 E37
    Date: 2015–06
  16. By: Soumya Suvra Bhadury (University of Kansas); Taniya Ghosh (Indira Gandhi Institute of Development Research)
    Abstract: Money overtime has been deemphasized from most of the macroeconometric models of exchange rate making interest rate 'alone' the monetary policy instrument. One such model is Bjornland's (1999) Journal of International Economics and Monetary Policy and Exchange Rate Overshooting: Dornbusch was right after all. The model sets out to establish the empirical validity of Dornbusch exchange rate overshooting hypothesis for four small open economies. It does so though not with exact precision. When the same model is done using the correct econometric techniques, the impulse response functions for exchange rate due to a monetary policy shock are infact 'insignificant'. In this paper we revisit the Dornbusch exchange rate overshooting in a different model setting. A real money demand equations is added to the original model. Identification is achieved by imposing short-run and long-run restrictions while keeping the short-run interactions between the two variables monetary policy and exchange rate free. Classical neutrality of money is imposed according to which the monetary shocks are long-run neutral to certain real variables. Our paper rediscovers the validity of Dornbusch Overshooting hypothesis for Australia, Canada, Newzealand and Sweden when we compare it with Bjornland's model. More specifically, a contractionary monetary policy shock leads to exchange rate overshooting as predicted by Dornbusch. The exchange rate appreciates 'significantly' on impact to a monetary policy shock as shown by the impulse response functions and thereafter depreciates. Also the variance decomposition results justify our analysis by showing that money demand and money supply shocks explain siginificant portion of exchange rate fluctuations vis-a-vis Bjornland's original model.
    Keywords: Monetary Policy; Money Demand; Structural VAR; Short Run; Long Run; Exchange Rate Overshooting; Liquidity Puzzle; Price Puzzle; Exchange Rate Puzzle; Forward Discount Bias Puzzle
    JEL: C32 E41 E51 E52 F31 F41 F47
    Date: 2015–06
  17. By: 上垣, 彰; 岩﨑, 一郎
    Abstract: 本稿の目的は,中央銀行独立性のインフレーション抑制効果を実証的に検証した移行経済 研究とその他先進・開発途上経済研究のメタ分析による比較を通じて,中東欧・旧ソ連諸 国における中央銀行改革の成果を問うことにある。先行研究から抽出した合計282の推 定結果を用いたメタ統合の結果から,筆者らは,移行経済研究及び比較対象研究のいずれ も,研究分野全体として,中央銀行独立性のインフレーション抑制効果の検出に成功して いることを確認した。更に,研究間の様々な異質性を考慮したメタ回帰分析の推定結果か ら,推定量,物価変数タイプ,自由度,並びに研究水準は,移行経済に関する実証結果を 大きく左右する要因であることも判明した。また,移行経済研究と比較対象研究の抽出推 定結果をプールしたメタ回帰分析は,自由度と研究水準を制御した上では,効果サイズと 統計的有意性の双方について,両研究間に統計的に有意な差は存在しないことを示した。 この意味で,中東欧・旧ソ連諸国の中央銀行改革は,その他の国々に比肩する程の実質を 伴うものであったとの示唆が得られた。
    Keywords: central bank independence, inflation, transition economies, Central and Eastern Europe, former Soviet Union, meta-analysis, publication selection bias
    JEL: E31 E58 G18 P24 P34
    Date: 2015–06
  18. By: Quynh Chau Pham; Benjamin Liu; Eduardo Roca
    Keywords: Bank mortgage rates, cash rate, international funding cost
    JEL: E43 G21 E58
    Date: 2015–04
  19. By: Albuquerque, Bruno; Baumann, Ursel; Seitz, Franz
    Abstract: We analyse the forecasting power of different monetary aggregates and credit variables for US GDP. Special attention is paid to the influence of the recent financial market crisis. For that purpose, in the first step we use a three-variable single-equation framework with real GDP, an interest rate spread and a monetary or credit variable, in forecasting horizons of one to eight quarters. This first stage thus serves to pre-select the variables with the highest forecasting content. In a second step, we use the selected monetary and credit variables within different VAR models, and compare their forecasting properties against a benchmark VAR model with GDP and the term spread. Our findings suggest that narrow monetary aggregates, as well as different credit variables, comprise useful predictive information for economic dynamics beyond that contained in the term spread. However, this finding only holds true in a sample that includes the most recent financial crisis. Looking forward, an open question is whether this change in the relationship between money, credit, the term spread and economic activity has been the result of a permanent structural break or whether we might go back to the previous relationships. JEL Classification: E41, E52, E58
    Keywords: credit, forecasting, money
    Date: 2015–06
  20. By: Matthew S. Yiu (Hong Kong Monetary Authority and ASEAN+3 Macroeconomic Research Office); Sahminan Sahminan (Bank Indonesia and ASEAN+3 Macroeconomic Research Office)
    Abstract: Quantitative Easing (QE) policies, adopted by the advanced economies since 2009, have led to abundant global liquidity. In the same period, the ASEAN-5 economies (Indonesia, Malaysia, the Philippines, Singapore and Thailand) have recorded strong capital inflows, particularly portfolio inflows. Asset prices, in particular house prices in these economies, have also experienced excess buoyancy. This paper studies the relationship between global liquidity, house prices and capital flows. Empirically, capital inflows have had a positive effect on residential house prices in Indonesia, Malaysia, the Philippines and Singapore. After accounting for domestic demand (using real GDP growth as a proxy), capital inflows have still had a positive impact in Indonesia and Singapore. The authorities of these economies have implemented similar macroprudential measures to safeguard financial stability and reduce speculative activity. The effectiveness of the measures has been seen mainly through a reduction in housing transactions.
    Keywords: Capital Flows, Residential House Price, Macroprudential, ASEAN Economies
    JEL: E44 E58 G28 R31
    Date: 2015–06
  21. By: Soon, Ryoo (Department of Finance and Economics, Adelphi University);
    Abstract: The paper examines the determinants of income and wealth inequality in a Kaldorian model where the profit share adjusts to clear the goods market and the long-run output-capital ratio is constant. The approach is radically different from both the mainstream approach that stresses properties of production function and the Kaleckian approach that emphasizes the long-run adjustment of utilization. The Kaldorian model is used to identify several developments that may have caused increasing inequality in income and wealth since the early 1980s, including the shift of the power relation in corporate firms in favor of top managerial pay, the decline in the retention rate, increasing share buybacks, rising indebtedness of lower-income households, and the stock market boom in the 1990s. In contrast to Piketty's explanation, the decline in the natural rate of growth reduces inequality of income and wealth in this Kaldorian framework.
    Keywords: income and wealth distribution, managerial pay, financialization, stock- flow consistency
    JEL: E12 E21 E25 E44
    Date: 2015
  22. By: Periklis Gogas (Department of Economics, Democritus University of Thrace, Greece); Theophilos Papadimitriou (Department of Economics, Democritus University of Thrace, Greece); Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Greece); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: The difficulty in modelling inflation and the significance in discovering the underlying data generating process of inflation is expressed in an ample literature regarding inflation forecasting. In this paper we evaluate nonlinear machine learning and econometric methodologies in forecasting the U.S. inflation based on autoregressive and structural models of the term structure. We employ two nonlinear methodologies: the econometric Least Absolute Shrinkage and Selection Operator (LASSO) and the machine learning Support Vector Regression (SVR) method. The SVR has never been used before in inflation forecasting considering the term--spread as a regressor. In doing so, we use a long monthly dataset spanning the period 1871:1 – 2015:3 that covers the entire history of inflation in the U.S. economy. For comparison reasons we also use OLS regression models as benchmark. In order to evaluate the contribution of the term-spread in inflation forecasting in different time periods, we measure the out-of-sample forecasting performance of all models using rolling window regressions. Considering various forecasting horizons, the empirical evidence suggests that the structural models do not outperform the autoregressive ones, regardless of the model’s method. Thus we conclude that the term-spread models are not more accurate than autoregressive ones in inflation forecasting.
    Keywords: U.S. Inflation, forecasting, Support Vector Regression, LASSO
    JEL: C22 C45 C53 E31 E37
    Date: 2015–06
  23. By: Grechyna, Daryna
    Abstract: This paper evaluates the impact of political frictions on fiscal policy in a sample of developed countries. We use a model of fiscal policy that features a lack of commitment by the government, political turnover, and another political friction which can be interpreted either as political polarization or as public rent-seeking. Political turnover increases public debt levels, while political polarization or public rent-seeking lead to higher public spending. We find that political frictions account for 67% of variation in government debt, 36% of variation in government spending, and 24% of variation in taxes in twenty two developed countries.
    Keywords: fiscal policy; political turnover; political polarization; public rent-seeking.
    JEL: E61 E62 H21 H63
    Date: 2015–06
  24. By: Alexander Kurov (Department of Finance, West Virginia University); Alessio Sancetta (Royal Holloway, University of London); Georg H. Strasser (Department of Economics, Boston College); Marketa Halova Wolfe (Skidmore College)
    Abstract: We examine stock index and Treasury futures markets around releases of U.S. macroeconomic announcements from 2003 to 2014. Since 2008 seven out of 18 market-moving announcements show evidence of substantial informed trading before the official release time. Prices begin to move in the "correct" direction about 30 minutes before the release time. The pre-announcement price move accounts on average for about half of the total price adjustment. This pre-announcement price drift has not been documented before. We examine four possible explanations. The evidence points to leakage and proprietary data collection as the most likely causes of the new drift.
    Keywords: Macroeconomic news announcements; financial markets; pre-announcement effect; drift; informed trading
    JEL: E44 G14 G15
    Date: 2015–06–25
  25. By: Stremmel, Hanno
    Abstract: In this study, we approximate the financial cycle in Europe by combining potential common and relevant financial indicators. We consider different credit aggregates and asset prices but also incorporate banking sector indicators for 11 European countries. We develop seven different synthetic financial cycle measures in order to best capture the characteristics of the financial cycle. We assess the various financial cycle measures using both graphical and statistical investigation techniques. The best fitted financial cycle measure includes the following financial ingredients: credit to GDP ratio, credit growth and house prices to income ratio. This study also highlights potential applications for the financial cycle measure in the macro-prudential policy context. JEL Classification: E30, E44, E61, G18, G28
    Keywords: financial crises, financial cycle, financial regulation, medium-term
    Date: 2015–06
  26. By: Ricco, Giovanni
    Abstract: Can discretionary increases in government spending stimulate the economy? We answer this question by taking into account both the information flow on fiscal measures and the role played by information frictions. Using a novel set of empirical proxies for fiscal news and agents’ misperceptions, our approach identifies three types of innovations to government spending that modify the agents’ information set at different horizons: before, upon and after the actual change materialises. Borrowing from the psychological literature, we name them expected, unexpected and misexpected fiscal changes. By missing this important distinction, we show that standard identification strategies blend unexpected and misexpected changes in a way that leads to significant underestimation of the effects of fiscal policy. An application to US data reveals that once information rigidities are fully accounted for, expected fiscal changes stimulate economic activity and private investments with a cumulative output multiplier around 1.5. JEL Classification: C32, E32, E62
    Keywords: fiscal foresight, fiscal shocks, government spending, government spending news, large Bayesian VARs, structural VARs, survey of professional forecasters
    Date: 2015–06
  27. By: Sergey Belev (Gaidar Institute for Economic Policy); Maria Deshko (Gaidar Institute for Economic Policy); Arseny Mamedov (Gaidar Institute for Economic Policy); Evgenia Fomina (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with Russia's federal budget
    Keywords: Russian economy, budget parameters, budgetary system, budget outlays, revenues, public debt
    JEL: E62 H20 H50 H61 H70
    Date: 2015
  28. By: Guillaume Plantin (Département d'économie); Hyun Song Shin (Princeton University)
    Abstract: We offer a model of currency carry trades in which carry traders generate self-sustained excess returns if they coordinate on supplying excessive capital to a target economy. The interest-rate differential between their funding currency and the target currency is their coordination device. Such self-fulfilling pro table currency trades arise when the central bank of the target economy ignores the impact of carry-trade in flows on domestic asset prices, and responds only to their effect on inflation. We solve for a unique equilibrium that exhibits the classic pattern of the carry-trade recipient currency appreciating for extended periods, punctuated by sharp falls.
    Keywords: Currency Carry Trades; Inflation Targeting; Financial Instability
    JEL: G01 G15 E58
    Date: 2015–04
  29. By: El-Shagi, Makram; Jung, Alexander
    Abstract: This paper examines whether the minutes of the Bank of England’s Monetary Policy Committee (MPC) have provided markets with additional information about the future course of monetary policy. The paper conducts an econometric approach based on an Ordered Probit model explaining future policy rate changes (sample 1998 to 2014), and the Vuong test for model selection, which helps to identify changes in the market assessment around the release of MPC minutes. Our results suggest that the Bank of England’s published minutes of the MPC’s deliberations have indeed helped markets in forming their expectations on future monetary policy decisions. JEL Classification: C34, D78, E52, E58
    Keywords: Communication, monetary policy committee, MPC minutes, Probit, Vuong test
    Date: 2015–06
  30. By: Razmi, Arslan (Department of Economics, University of Massachusetts, Amherst);
    Abstract: Is growth in capitalist economies wage-led or profit-led? Empirical studies have found conflicting results for different countries and periods. Possible reasons may include differences in the monetary policy/exchange rate regimes across countries and between macro behavior in the short- and medium-runs. I theoretically explore these possibilities using a portfolio balance framework to keep track of asset stocks and wealth effects over time. With fixed exchange rates, the Central Banks need to intervene in the asset market via official reserve transactions results in assigning a crucial role to the current account in constraining accumulation and output. The binding nature of this constraint vanishes with flexible exchange rates. The most important message that emerges is that, once we impose plausible constraints on dynamic behavior, factors other than the nature of the demand regime determine the effect of redistribution on utilization, income, and accumulation over the medium run. The demand regime loses relevance for reasons that vary with the exchange rate regime.
    Keywords: Demand regime, wage-led growth, stagnationism, exhilarationism, neo-Kaleckian models, distribution, portfolio balance model, wealth effects.
    JEL: F32 F43 E25 E42 E64
    Date: 2015
  31. By: Eri Egawa (Financial Infrastructure Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: eri.; Akira Otani (Head of Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: akira.; Toshiyuki Sakiyama (Associate Director, Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: We use information on institutional arrangements for macroprudential policy in 66 countries to examine the recent developments in and characteristics on institutional arrangements for macroprudential policy. Then we conduct empirical analyses on drivers behind the choice of institutional arrangements, especially the roles of a central bank and a government. We show that many countries have recently developed their institutional arrangements with respect to the set-up of a mandate for macroprudential policy and a multi-agency communication/coordination framework. In addition, the current arrangements can be largely divided into two types: centralization in the central bank, where the central bank or a committee of the central bank is the sole owner of the macroprudential mandate; and coordination by the government, where the government coordinates views or policies among multiple agencies with the macroprudential mandate as the sole chairperson of the financial stability committee. Our empirical analyses suggest that wide-ranging features including economic and financial characteristics, the exchange rate regime, and the degree of democracy influence the differences in the roles the central bank and the government play in macroprudential policy in each country.
    Keywords: Macroprudential policy, Ordered probit analyses, Institutional arrangements, Financial stability committee
    JEL: E58 E61 G28 O57
    Date: 2015–06
  32. By: Chao Gu (University of Missouri-Columbia); Fabrizio Mattesini; Randall Wright
    Abstract: We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money can be essential, but then credit is irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for exogenous or endogenous policy and debt limits, secured or unsecured lending, and a general class of pricing mechanisms. While we show how to overturn some results, the benchmark model suggests credit might matter less than people think.
    Keywords: Money, Credit, Debt, Essentiality, Neutrality
    JEL: E42 E51
    Date: 2015–03–29
  33. By: Petra Gerlach-Kristen; Seán Lyons
    Abstract: Mortgage arrears arise if a household faces affordability problems and/or is in negative equity. Because widespread arrears pose a risk to the stability of banks and limit households' future access to credit, a crucial question is how monetary or macroprudential policies influence their incidence. We use a European household data set to analyse what drives arrears and find that affordability problems, such as unemployment, low income and high mortgage payments, matter, which suggests that monetary policy has an impact. Households facing the dual trigger of affordability problems and negative equity are more likely to go into longer-term arrears; macroprudential regulation preventing high loan-to-value (LTV) ratios can thus also have an impact.
    Keywords: Arrears, negative equity, monetary policy, loan-to-value ratios
    JEL: D14 E58 G28
    Date: 2015
  34. By: Schmidt, Sebastian; Nakata, Taisuke
    Abstract: In an economy with an occasionally binding zero lower bound (ZLB) constraint, the anticipation of future ZLB episodes creates a trade-off for discretionary central banks between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. Appointing Rogoff’s (1985) conservative central banker mitigates this deflationary bias away from the ZLB and enhances welfare by improving allocations both at and away from the ZLB. JEL Classification: E52, E61
    Keywords: Deflationary Bias, Inflation Conservatism, Inflation Targeting, Liquidity Traps, Zero Lower Bound
    Date: 2015–06
  35. By: Epstein, Gerald
    Keywords: banking, monetary system, economic recession, financial market, inflation, stabilization, developing countries, activité bancaire, système monétaire, récession économique, marché financier, inflation, stabilisation, pays en développement, actividad bancaria, sistema monetario, recesión económica, mercado financiero, inflación, estabilización, países en desarrollo
    Date: 2015
  36. By: Florian Neumeier (University of Marburg)
    Abstract: This paper empirically evaluates the economic performance of U.S. state governors who came to the position from a business background (CEO governors), focusing on the growth rate of real personal income per capita, unemployment rate, and income inequality. Methodologically, we apply a matching method to account for the endogeneity of political selection. Using entropy balancing, we identify credible counterfactuals for CEO governors, that is, governors without a business background who took office under similar economic and fiscal situations. We find, first, that businesspeople tend to take office in times of economic and fiscal strain. Second, the tenures of CEO governors are associated with a 0.6 percentage points higher annual income growth rate and a 0.6 percentage points lower unemployment rate than are the tenures of non-CEO governors. Also, state-level income inequality decreases when CEO governors hold office, indicating that low-income households benefit from the economic upswing. Third, the positive effect of having a CEO governor increases with time in office. Fourth, Republican CEO governors perform slightly better than their Democratic colleagues.
    Keywords: U.S. Governors, U.S. politics, U.S. states, economic growth, unemployment, income inequality, businessmen, CEO, entropy balancing
    JEL: C21 E24 E60 O47
    Date: 2015
  37. By: Stremmel, Hanno; Zsámboki, Balázs
    Abstract: In this study, we explore the relationship between certain structural features of the banking sectors in EU Member States and the performance of the respective banking sectors over the financial cycle. Using the financial cycle indicator developed by Stremmel (2015), we estimate the impact of the structural features of the banking sector on the amplitude of the financial cycle. Our results suggest that the concentration of the banking sector, the share of foreign banks, the size and stability of financial institutions, the share of foreign currency loans and financial inter-linkages contribute to the amplitude and hence the variability of financial cycles. This study provides important insights into the appropriate design of various structural and cyclical policy instruments as well. JEL Classification: E44, E61, G18, G21, G28
    Keywords: banking sector characteristics, financial cycle, financial regulation, financial structure
    Date: 2015–06
  38. By: Harashima, Taiji
    Abstract: Here, I examine the mechanism by which the rate of time preference (RTP) of government is formed and present a model of government RTP. The RTP of government has been largely neglected in the study of economics, but it is an important factor in inflation acceleration. The model presented indicates that the RTP of government is determined by the expected RTPs of the median voter and the representative household, as well as the strength of the government’s fluid intelligence. The model also indicates, however, that households actually use “beliefs” or heuristics to generate their expected RTPs of government.
    Keywords: Time preference; Government; Inflation; Rationality; Fluid intelligence
    JEL: B20 E31 H10
    Date: 2015–07–02
  39. By: Barbara M. Fraumeni; Michael S. Christian; Jon D. Samuels
    Abstract: In the 25 years since Jorgenson and Fraumeni (1989) published their first article on human capital, the U.S. National Income and Product Accounts (NIPA) and the SNA have changed significantly. The contribution of this paper is two-fold: Creation of a contemporary set of accounts which integrate human capital measures into the latest comprehensive revision of the U.S. national income accounts and an analysis of trends in human capital and national income account aggregates over the post-war period. The paper is a national income accounting paper with production and factor outlay, income, receipt and expenditure, capital accumulation , and wealth accounts. All of these accounts are tied to the NIPA accounts, and supplemented with human capital estimates. A key feature of the human capital accounts is presentation of human capital estimates in current and constant prices. The time period covered is 1949-84 and 1998-2009. We update the human capital national income accounts and examine trends in the aggregate time series. The results in the original Jorgenson and Fraumeni paper are for 1982 and the aggregate time series are from 1949-1984. Subsequent research by Christian (2012) developed modified Jorgenson-Fraumeni (J-F) human capital estimates from 1998 through 2009. Unfortunately there is a gap in coverage. Nonetheless, a comparison of the aggregates and their trends between the earlier and later period will be informative. The accounting tables in this new paper are for 2009, the latest base year for the NIPA accounts.
    JEL: D24 E01 E24
    Date: 2015–06
  40. By: Alexander Abramov (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with a wide scope of issues, starting with the post-crisis recovery of Russia's financial market. The author analyzes the market for shares issued by Russian companies, investigates dependence on the global conjuncture of prices and inflow and outflow of foreign portfolio investment. He also studies currency exchange rate, looks at the competition on the domestic share market, and analyzes preliminary results of the merger of the RTS and MICEX. The article deals with the market for ruble-denominated bonds. The author provides analysis of financial market risks and looks at the development of Russia's domestic savings system.
    Keywords: Russia's financial market; portfolio investment; exchange rate; share market; financial institutions; bond market;
    JEL: J14 G15 G32 E44
    Date: 2015
  41. By: Tomáš Havránek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Marek Rusnak (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Anna Sokolova (Higher School of Economics, Moscow)
    Abstract: We examine 567 estimates of habit formation from 69 studies published in peer-reviewed journals. In contrast to previous results for most fields of empirical economics, we find no publication bias in the literature. The median estimated strength of habit formation equals 0.4, but the estimates vary widely both within and across studies. We use Bayesian model averaging to assign a pattern to this variance while taking into account model uncertainty. Studies using micro data report consistently smaller estimates than macro studies: 0.1 vs. 0.6 on average. The difference remains large when we control for 21 other study aspects, such as data frequency, geographical coverage, variable definition, estimation approach, and publication characteristics. We also find that estimates of external habit formation tend to be substantially larger than those of internal habits, that evidence for habits weakens when researchers use higher data frequencies, and that estimates differ systematically across countries.
    Keywords: Habit formation, consumption, meta-analysis, publication bias, Bayesian model averaging
    JEL: C83 D12 E21
    Date: 2015–05
  42. By: Muck, Jakub; McAdam, Peter; Growiec, Jakub
    Abstract: We document the consequences of ambiguity in the empirical definition of the macroeconomic labor share. Depending on its definition, the properties of short-run fluctuations, medium-run swings, and long-run stochastic trends of the labor share may vary substantially. Based on a range of historical US time series, we carry out a systematic exploration of discrepancies between the alternative labor share definitions in terms of the observed stochastic trends, shares of short-, medium- and long-run variation in total volatility of the series, degree of persistence, mean-reversion properties, and susceptibility to structural breaks. We conclude that while short-run properties of the labor shares (represented by cyclical variation below 8 years) are relatively consistent across all definitions, their medium-run swings (8-50 years) and long-run trends ( 50 years) diverge substantially. As important applications, we document the implications of our findings for growth accounting, the identification of short-run responses of the labor share to technology shocks and for estimating inflation. JEL Classification: C82, E25, E32
    Keywords: labor share, mean reversion, persistence, spectral analysis, structural breaks
    Date: 2015–06
  43. By: Abe, Naohito; Ueno, Yuko
    Abstract: Using the results of detailed random experiments, we find clear evidence of the effects of information provision on consumers’ inflation expectations. The responses of expectations to new information are nonlinear, including those of a sizable share of individuals who do not change their expectations. We document that the updates of consumers are quite heterogeneous, leading to a varied extent of revisions in the face of new information. One possible interpretation is the heterogeneity in consumers’ knowledge of inflation-related issues, as well as the difference in the content of the information. Consumers learn and update their expectations vis-à-vis future inflation based on new information, through a mechanism that is more complex than a simple learning model.
    Keywords: Inflation expectations, Information, Heterogeneous updating, Nonlinearity, Survey experiments
    JEL: E31 C81 D80
    Date: 2015–06
  44. By: Tomas Havranek; Marek Rusnak; Anna Sokolova
    Abstract: We examine 567 estimates of habit formation from 69 studies published in peer-reviewed journals. In contrast to previous results for most fields of empirical economics, we find no publication bias in the literature. The median estimated strength of habit formation equals 0.4, but the estimates vary widely both within and across studies. We use Bayesian model averaging to assign a pattern to this variance while taking into account model uncertainty. Studies using micro data report consistently smaller estimates than macro studies: 0.1 vs. 0.6 on average. The difference remains large when we control for 21 other study aspects, such as data frequency, geographical coverage, variable definition, estimation approach, and publication characteristics. We also find that estimates of external habit formation tend to be substantially larger than those of internal habits, that evidence for habits weakens when researchers use higher data frequencies, and that estimates differ systematically across countries.
    Keywords: Bayesian model averaging, consumption, habit formation, meta-analysis, publication bias
    JEL: C83 D12 E21
    Date: 2015–05
  45. By: Florentin Butaru; QingQing Chen; Brian Clark; Sanmay Das; Andrew W. Lo; Akhtar Siddique
    Abstract: Using account level credit-card data from six major commercial banks from January 2009 to December 2013, we apply machine-learning techniques to combined consumer-tradeline, credit-bureau, and macroeconomic variables to predict delinquency. In addition to providing accurate measures of loss probabilities and credit risk, our models can also be used to analyze and compare risk management practices and the drivers of delinquency across the banks. We find substantial heterogeneity in risk factors, sensitivities, and predictability of delinquency across banks, implying that no single model applies to all six institutions. We measure the efficacy of a bank’s risk-management process by the percentage of delinquent accounts that a bank manages effectively, and find that efficacy also varies widely across institutions. These results suggest the need for a more customized approached to the supervision and regulation of financial institutions, in which capital ratios, loss reserves, and other parameters are specified individually for each institution according to its credit-risk model exposures and forecasts.
    JEL: D12 D14 D18 E21 E51 G01 G17 G21
    Date: 2015–06
  46. By: Saito, Yuta
    Abstract: We study an OLG model in which heterogenous agents bargain over capital taxation. In our model, both of the balance of bargaining power and threat point, that standard median voter models have not considered, are endogenized. We show that the two key features are crucial determinants for political as well as economic outcomes.
    Keywords: Legislative bargaining; wealth inequality; capital taxation
    JEL: E62 H20 H30 P48
    Date: 2015–06–30
  47. By: Medel, Carlos; Camilleri, Gilmour; Hsu, Hsiang-Ling; Kania, Stefan; Touloumtzoglou, Miltiadis
    Abstract: The aim of this article is to analyse the out-of-sample behaviour of a bunch of statistical and economics-based models when forecasting exchange rates (FX) for the UK, Japan, and the Euro Zone in relation to the US. A special focus is given to the commodity prices boom of 2007-8 and the financial crisis of 2008-9. We analyse the forecasting behaviour of six economic plus three statistical models when forecasting from one up to 60-steps-ahead, using a monthly dataset comprising from 1981.1 to 2014.6. We first analyse forecasting errors until mid-2006 to then compare to those obtained until mid-2014. Our six economics-based models can be classified in three groups: interest rate spreads, monetary fundamentals, and PPP with global measures. Our results indicate that there are indeed changes of the first best models when considering the different spans. Interest rate models tend to be better predicting using the short sample; also showing a better tracking when crisis hit. With the longer sample the models based on price differentials are more promising; however, with heterogeneous results across countries. These results are important since shed some light on what model specification use when facing different FX volatility.
    Keywords: Foreign exchange rates; Economic forecasting; Financial crisis
    JEL: C32 C53 E17 E37
    Date: 2015–06–07
  48. By: Naoko Hara (Bank of Japan); Kazuhiro Hiraki (Bank of Japan); Yoshitaka Ichise (Bank of Japan)
    Abstract: This paper empirically explores recent changes in the exchange rate pass-through in Japan. We take a two-pronged approach. First, we estimate the exchange rate pass-through into domestic prices using time-varying parameter estimation. Second, we decompose the estimated exchange rate pass-through into the responsiveness of marginal costs to the exchange rate and the responsiveness of inflation to marginal costs. The estimation results show that the rates of exchange rate pass-through into the Producer Price Index and the Consumer Price Index have been increasing since the late 2000s. Evidence from international input-output tables suggests that the import-intensity of Japan's manufacturing sector has increased considerably over the last decade. We find that although the increasing dependence on imports in production (as well as in the retail sector) accounts for part of the rise in exchange rate pass-through, a larger part of the rise is due to greater responsiveness of inflation to marginal costs. This finding hints at a structural change in firms' pricing behavior since the late 2000s.
    Keywords: Exchange Rate Pass-Through; Phillips Curve; Time-Varying Parameter Estimation; Markov Chain Monte Carlo Estimation; International Input-Output Tables
    JEL: C11 E31 F41
    Date: 2015–06–25
  49. By: Joy, Mark; Rusnák, Marek; Šmídková, Kateřina; Vašíček, Bořek
    Abstract: We identify a set of “rules of thumb” that characterise economic, financial and structural conditions preceding the onset of banking and currency crises in 36 advanced economies over 1970–2010. We use the Classification and Regression Tree methodology (CART) and its Random Forest (RF) extension, which permits the detection of key variables driving binary crisis outcomes, allows for interactions among key variables and determines critical tipping points. We distinguish between basic country conditions, country structural characteristics and international developments. We find that crises are more varied than they are similar. For banking crises we find that low net interest rate spreads in the banking sector and a shallow or inverted yield curve are their most important forerunners in the short term, whereas in the longer term it is high house price inflation. For currency crises, high domestic short-term rates coupled with overvalued exchange rates are the most powerful short-term predictors. We find that both country structural characteristics and international developments are relevant banking crisis predictors. Currency crises, however, seem to be driven more by country idiosyncratic, short-term developments. We find that some variables, such as the domestic credit gap, provide important unconditional signals, but it is difficult to use them as conditional signals and, more importantly, to find relevant threshold values. JEL Classification: C14, E44, F37, F47, G01
    Keywords: Banking crises, binary classification tree, currency crises, early warning indicators
    Date: 2015–06
  50. By: Jairo Alexander Neira Sánchez
    Abstract: Las crisis financieras en Estados Unidos y Europa han vuelto a poner sobre el debate la pertinencia y veracidad de los postulados keynesianos. Por ese motivo es relevante estudiar cuál habría sido la posición de Keynes respecto a la formación de las crisis y las diferentes medidas de política económica emprendidas para la recuperación. El ensayo plantea como objetivo principal demostrar que Keynes tenía razón y, en relación a la coyuntura económica, hay muchos argumentos que tendría por decir, especialmente sobre la crisis mundial, el desigualdad, la pobreza y la falta de desarrollo. Para los efectos planteados, el ensayo está dividido en una introducción, dos partes generales y las consideraciones finales. En la primera parte se presenta una aproximación a la teoría keynesiana, principalmente en lo concerniente a los espíritus animales, la teoría de las expectativas, la demanda y oferta monetaria, la demanda agregada, el efecto multiplicador y las consideraciones sobre política fiscal y monetaria. En la segunda parte se estudian las crisis de Estados Unidos y Europa utilizando el contexto histórico y aplicando los planteamientos keynesianos previamente presentados, con el fin de exponer cuáles serían los argumentos de Keynes respecto a la coyuntura económica y qué papel jugaría su teoría. Por último se presentarán las consideraciones finales en donde se recogen los principales argumentos y reflexiones del ensayo.
    Keywords: Economía, Keynes, demanda agregada, consumo, ahorro, inversión, empleo, racionalidad, irracionalidad, política fiscal, política monetaria, gasto público, crisis.
    JEL: E12 E21
    Date: 2014–02–07
  51. By: de Boyer des Roches, Jérôme
    Abstract: The aim of this paper is to present and compare Ricardo’s monetary and foreign exchange analysis in the writings of 1809-1811 on one side, and in the chapter seven of his 1817 book on the other side. By means of a numerical example, the second section recalls the main features of the 1809-1811 analysis. According to Ricardo, the value of money in two trading countries must be equal for the foreign exchange equilibrium to be reached. Several notions such as the price specie flow mechanism, the quantity theory and the criticism of Thornton’s gold point mechanism are emphasized in this section. The third section presents the theory of the comparative advantage developed in chapter seven of the Principles; more than half of this text is consecrated to monetary components. Emphasis is placed on the distinct effects and mechanisms that intervene in the dynamics of money prices and wages that led to international specialization. The numerical example is used to bring to light the quantity of labour effect, the gold points mechanism, the quantity of money effect and the substitution of imports for production effect that lead to the money prices - i.e. £45, £50, £50, £45 , – linked to the "magic numbers" – i.e. 80, 90, 120, 100 . The fourth section studies first the disconnection established by Ricardo in chapter seven of the Principles between the values of currencies and exchange rates, and concludes. Our research provides the following conclusions. Firstly, Ricardo’s statement of the comparative advantage theory involves the monetary theory; specifically it presupposes the validity of the quantity theory. The specie inflow (outflow) in one country drops (increases) the value of money in this country. Secondly, according to the comparative advantage theory, “England would give the produce of the labour of 100 (English) men, for the produce of the labour of 80 (Portuguese)” (Ricardo, 1817, p; 135). It entails that the money price of the produce of 80 Portuguese men is equal to the money price of the produce of 100 English. It means that the money price of the produce of a given quantity of labour is 25% higher in Portugal than in England; i.e. that the value of a given quantity of money is 20% lower in Portugal than in England. Third, the specie flow between countries is not described with Hume’s price specie flow mechanism, but with Thornton’s gold points mechanism. Fourth, fixed exchange rate under gold standard does not involve gold has the same value in various countries. The symmetrical changes, in two countries, in the quantities of money, that lead to symmetrical changes in the values of money, do not modify the market prices of gold in any of these countries. To conclude, the seventh chapter of the Principles does not support Ricardo’s monetary view at the time of the Bullion Committee.
    Keywords: Monnaie; Commerce international;
    JEL: B13 E30 F10 F30
    Date: 2015–03
  52. By: Urbain Thierry YOGO
    Abstract: This paper investigates the effect of terrorism on fiscal policy volatility in developing countries. Using both cross-country and panel data analysis for 66 countries from 1970 to 2012, we find that an increase in the number of terrorist incidents raise the volatility of the discretionary component of fiscal policy. In addition, the analysis shows that fiscal volatility is positively influenced by the volatility of output growth, the consumer price inflation volatility, the degree of fractionalization of both the government and the opposition. The results also show that the volatility is higher is countries of small size and lower in more democratic countries. Our results are robust to reverse causality, endogeneity bias and the presence of various controls. This paper complements and extends the previous literature by providing the evidence that terrorism substantially increases the uncertainty surrounding the conduct of fiscal policy in developing countries.
    Keywords: fiscal policy, Terrorism, fiscal policy volatility
    JEL: O11 D74 H30 E60
    Date: 2015–06
  53. By: Luc SOETE; AZOMAHOU; Bity DIENE (Université d'Auvergne(UdA)); Mbaye DIENE
    Abstract: This paper develops a general equilibrium framework to study the role of preferences structure (additive, multiplicative and convex combination of both) in connecting consumption, health investment, stock of health and capital, and their effects on the wage rate and on productivity. We show that the elasticities of health production, health investment and health cost determine jointly how health influences the wage rate. We examine the steady state and the equilibrium dynamics of the model. In the case of additive preferences, the existence of equilibrium and the stability of the dynamic system require that the ratio of the elasticities of the cost of health and health investment is greater than the elasticity of the production function of health. Health stock can have either positive or negative effects on wage rate. The reverse holds for multiplicative preferences and the effect of health stock on wage rate is always positive. L ongevity is a decreasing convex-concave function of the elasticity of inter-temporal substitution of health. We also compare the relative behavior of opportunity costs of health under preferences structure.
    Keywords: Consumption, health investment, preferences structure, wage rates, longevity, opportunity costs
    JEL: E21 I15 C62 C61
    Date: 2015–04
  54. By: Bouoiyour, Jamal; Selmi, Refk
    Abstract: This paper assesses whether the way in which the Greek crisis was communicated by media and social networking increase the debt deal uncertainty and the possibility of abandoning the euro in favor of Bitcoin. Through an improved frequency approach, we attempt to disentangle short-, medium- and long-run causality between Google Trends (search queries) and Twitter (social media) data related to the Greek crisis and Bitcoin unconditionally and conditioning upon relevant control variables. Our results unambiguously show a short-run unidirectional causality running from search queries and the number of tweets to the use of Bitcoin. These findings remain meaningful when a number of control variables are accounted for, while the cycle length becomes shorter. These results change substantially by the arrival of the left-wing Syriza party in power, on January 25th, 2015, with its radical approach to debt negotiations. The cycle becomes longer (short- and medium-run). Not surprisingly, doubts have increased as to whether Athens can appropriately settle its debt repayment obligations. This study indicates that Greece’s withdrawal from euro and running on Bitcoin is likely to be an April fool’s joke rather than serious possibility. It also proves a sharp distinguishability among Googlers and Twitters.
    Keywords: Greek crisis; Social media; Google Trends; Bitcoin; frequency domain causality.
    JEL: E30 F34 G15
    Date: 2015–06–27
  55. By: Muriel Dejemeppe (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Catherine Smith (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Bruno Van der Linden (FNRS, UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and IZA)
    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 macro-econometric 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: 2015–06–18
  56. By: Sergey Tsukhlo (Gaidar Institute for Economic Policy)
    Abstract: The section is prepared using data of monthly business surveys conducted by the Gaidar Institute for Economic Policy (IEP) among managers of industrial enterprises since September 1992. The surveys are based on the European harmonized methodology and encompass the entire territory of the Russian Federation. The size of the panel is about 1000 enterprises that employ over 13% of the total number of employed in industry. The panel is biased towards large enterprises in each of the selected branches. The rate of response to questionnaires ranges from 70% to 75%.
    Keywords: Russian industry performance; lending to industry; labor problems; anti-crisis government measures;
    JEL: C53 E37 L21 L52
    Date: 2014
  57. By: Suleymanov, Elchin; Aliyev, Khatai
    Abstract: The aim of this research is to analyze macroeconomic performance and discuss transition indicators in Azerbaijan economy for 1991-2012. After regaining independence in 1991, Azerbaijan implemented economic transition process toward market economy. In first years of independence serious economic recession was observed. However, after 1995, restructuring of the economy was started. In this sense, signing “Contract of the Century” was a turning point toward oil based high speed economic growth or oil boom period. Thus, by opening “Baku-Tbilisi-Ceyhan” pipeline in 2005, Azerbaijan’s macroeconomic indicators experienced with considerable growth for following years. On the other hand, Azerbaijan officially declared the end of economic transition process in its economy in 2009. Here, the author discusses political-economic and economic process in whole period as well as analyzes macroeconomic performance with and without oil & gas contribution. In addition, the author questions if economic transition was ended in Azerbaijan economy. After all, it is concluded that oil & gas production has serious impact over macroeconomic indicators and transition indicators for Azerbaijan implies the end of economic transition partly, not totally.
    Keywords: Azerbaijan economy, macroeconomic analysis, oil & gas, economic transition
    JEL: E0 E00 Q4 Q43
    Date: 2015–05–19
  58. By: Verónica Acurio Vásconez (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: The recent literature on fossil energy has already stated that oil is not perfectly substitutable to other inputs, considering fossil fuel as a critical production factor in different combinations. However, the estimations of substitution elasticity are in a wide range between 0.004 and 0.64. This paper addresses this phenomenon by enlarging the DSGE model developed in Acurio-Vásconez et al. (2015) by changing the Cobb-Douglas production and consumption functions assumed there, for composite Constant Elasticity of Substitution (CES) functions. Additionally, the paper introduces nominal wage and price rigidities through a Calvo setting. Finally, using Bayesian methods, the model is estimated on quarterly U.S. data over the period 1984:Q1-2007:Q3 and then analyzed. The estimation of oil's elasticity of substitution are 0.14 in production and 0.51 in consumption. Moreover, thanks to the low substitutability of oil, the model recovers and explains four well-known stylized facts after the oil price shock in the 2000's: the absent of recession, coupled with a low persistent increase in inflation rate, a decrease in real wages and a low price elasticity of oil demand in the short run. Furthermore, ceteris paribus, the reduction of nominal wage rigidity amplifies the increase in inflation and the decrease in consumption. Thus in this model more wage flexibility does not seem to attenuate the impact of an oil shock.
    Abstract: La littérature récente sur énergie a déjà établit que le pétrole n'est pas parfaitement substituable aux autres facteurs, en considérant l'énergie fossile comme étant un facteur de production critique en différentes combinaisons. Cependant, les valeurs estimées de l'élasticité de substitution se trouvent dans un large rang, entre 0.004 et 0.64. Cet article évoque ce phénomène en élargissant le modèle DSGE développe en Acurio Vásconez et al. (2015) en modifiant les fonctions de production et consommation supposées Cobb-Douglas par des fonctions à élasticité de substitution constante (CES). Cet article introduit aussi des rigidités de salaire et des prix à la Calvo. Finalement, en utilisant des techniques Bayésiennes, le modèle est estimé sur les données trimestrielles aux Etats-Unis, pour la période 1984:Q1 - 2007:Q3 et après analysé. L'estimation de l'élasticité de substitution du pétrole est 0.14 dans le secteur productif et 0.51 pour les ménages. De plus, grâce à la faible substituabilité du pétrole, ce modèle récupère et explique quatre fait stylisés observés après le choc pétrolier des années 2000 : l'absence de récession, jumelée avec une faible mais persistante augmentation du taux d'inflation, une décroissance des salaires réels et une faible élasticité de prix de la demande de pétrole dans le court terme. En outre, le modèle montre que, ceteris paribus, la réduction de la rigidité des salaires nominales amplifie l'augmentation de l'inflation et la diminution de la consommation. Donc dans ce modèle, plus de flexibilité de salaires ne semble pas atténuer l'impact d'un choc pétrolier.
    Date: 2015–05
  59. By: McAndrews, James J. (Federal Reserve Bank of New York)
    Abstract: Remarks at the Fourth Annual Stress Test Modeling Symposium, Federal Reserve Bank of Boston, Boston, Massachusetts.
    Keywords: stress testing; Comprehensive Capital Analysis and Review (CCAR); DFAST stress tests; economic cycles; fire sales; spillover; feedback effects; Comprehensive Liquidity Analysis and Review (CLAR); Lucas Critique; stress scenarios; Office of Federal Housing Enterprise Oversight (OFHEO)
    JEL: E58
    Date: 2015–06–24
  60. By: Satoshi Imai (Statistics Bureau of Japan); Tsutomu Watanabe (The University of Tokyo)
    Abstract: We examine how precisely one can reproduce the CPI constructed based on price surveys using scanner data. Specifically, we closely follow the procedure adopted by the Statistics Bureau of Japan when we sample outlets, products, and prices from our scanner data and aggregate them to construct a scanner data-based price index. We show that the following holds the key to precise replication of the CPI. First, the scanner databased index crucially depends on how often one replaces the products sampled. The scanner data index shows a substantial deviation from the actual CPI when one chooses a value for the parameter associated with product replacement such that replacement occurs frequently, but the deviation becomes much smaller if one picks a parameter value such that product replacement occurs only infrequently. Second, even when products are replaced only infrequently, the scanner data index differs significantly from the actual CPI in terms of volatility. The standard deviation of the scanner data-based monthly inflation rate is 1.54 percent, which is more than three times as large as that for actual CPI inflation. We decompose the difference in volatility between the two indexes into various factors, showing that it mainly stems from the difference in price rigidity for individual products. We propose a filtering technique to make individual prices in the scanner data stickier, thereby making scanner data-based inflation less volatile.
    Date: 2015–06
  61. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Zusammenfassung Aufwind im Westen der MOSOEL In den mittel-, ost- und südosteuropäischen Ländern (MOSOEL) klafft der Ausblick für das Wirtschaftswachstum auch weiterhin auseinander für die meisten der neuen EU-Mitgliedstaaten (NMS) wird eine langsame Beschleunigung des BIP-Wachstums beginnend mit diesem Jahr erwartet. Für 2015 soll das Wachstum durchschnittlich auf 3% ansteigen, um 0,2 Prozentpunkte mehr als im Vorjahr. Die Erholung erfolgt um ein Jahr früher als erwartet. Wesentlicher Faktor ist die bessere Entwicklung in der Eurozone. Auch am Westbalkan wird eine (wenn auch weniger dynamische) Verbesserung der Wachstumsaussichten für die gesamte Prognoseperiode 2015-2017 erwartet. Die wirtschaftliche Entwicklung 2015 in Weißrussland, Kasachstan, Russland und der Ukraine wird düster ausfallen und zum Teil noch schlechter sein als bisher erwartet. Für diese Länder sind die mittelfristigen Wirtschaftsaussichten auch mit substantiellen Risiken behaftet. Insgesamt sollte aber das verstärkte Wachstum in den MOSOEL für die österreichische Wirtschaft als Nachfrageimpuls dienen. Insbesondere die NMS sind für Österreich von zunehmender Bedeutung.   English Summary Western CESEE countries in the ascendant The outlook for GDP growth in the Central, East and Southeast Europe (CESEE) region remains divergent we expect a gradual acceleration of GDP growth for most of the EU’s new Member States (NMS) starting this year. For 2015 growth is expected to increase to 3% on average, by 0.2 pp more as compared to last year. The recovery comes a year earlier than expected mainly based on favourable developments in the euro area. In the Western Balkans growth prospects will also improve over the whole forecast period 2015-2017, though slightly less dynamically. Growth performance in Belarus, Kazakhstan, Russia and Ukraine in 2015, however, will be dismal and partly worse than expected; the medium-term outlook for these countries is also fairly uncertain with considerable downside risks. Overall though, we should expect stronger CESEE growth to act as a demand stimulus for the Austrian economy. The NMS in particular are of increasing importance for Austria.
    Keywords: macroeconomic analysis, international trade, competitiveness, consumption, investment, savings, global financial crisis
    JEL: E20 F34 G01 O52 O57 P24 P27 P33 P52
    Date: 2015–07
  62. By: Musalem, Alberto G. (Federal Reserve Bank of New York)
    Abstract: Remarks at the Institute of International Bankers Annual General Meeting, New York City.
    Keywords: spillovers; normalization; emerging market economies (EME); Fed communication; Regulation YY
    JEL: E66 F02
    Date: 2015–06–24
  63. By: Barry Eichengreen (George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley (E-mail:
    Abstract: This paper offers some reflections on the debate over secular stagnation. It expresses doubts about explanations for the secular decline in real interest rates and economic growth rates that emphasize the possibility of a global savings glut attributable to the rapid growth of emerging markets and increases in income inequality in the advanced economies. It invokes historical evidence to question whether the commercial potential of new advances in technology have been exhausted. The most convincing explanation for the observed excess of desired saving over desired investment and corresponding low level of real interest rates, it concludes, is probably a sharp, ongoing fall in the relative price of investment goods since the middle of the 20th century. Whether this decline will continue is uncertain. The bottom line is that the case for secular stagnation is at best unproven.
    Keywords: Secular stagnation, Real interest rates, Economic growth
    JEL: E00 N1
    Date: 2015–06
  64. By: Peter C. B. Phillips (Cowles Foundation, Yale University); Sainan Jin (Singapore Management University)
    Abstract: We analyze trend elimination methods and business cycle estimation by data filtering of the type introduced by Whittaker (1923) and popularized in economics in a particular form by Hodrick and Prescott (1980/1997; HP). A limit theory is developed for the HP filter for various classes of stochastic trend, trend break, and trend stationary data. Properties of the filtered series are shown to depend closely on the choice of the smoothing parameter (lambda). For instance, when lambda = O(n^4) where n is the sample size, and the HP filter is applied to an I(1) process, the filter does not remove the stochastic trend in the limit as n approaches infinity. Instead, the filter produces a smoothed Gaussian limit process that is differentiable to the 4'th order. The residual 'cyclical' process has the random wandering non-differentiable characteristics of Brownian motion, thereby explaining the frequently observed 'spurious cycle' effect of the HP filter. On the other hand, when lambda = o(n), the filter reproduces the limit Brownian motion and eliminates the stochastic trend giving a zero 'cyclical' process. Simulations reveal that the lambda = O(n^4) limit theory provides a good approximation to the actual HP filter for sample sizes common in practical work. When it is used as a trend removal device, the HP filter therefore typically fails to eliminate stochastic trends, contrary to what is now standard belief in applied macroeconomics. The findings are related to recent public debates about the long run effects of the global financial crisis.
    Keywords: Detrending, Graduation, Hodrick Prescott filter, Integrated process, Limit theory, Smoothing, Trend break, Whittaker filter
    JEL: C32
    Date: 2015–06
  65. By: Figari, Francesco; Fiorio, Carlo
    Abstract: The Italian Great Recession has a double-dip pattern. After the start of the global financial crisis, Italy experienced a second serious recession in 2011 because of the sovereign debt crisis. The reaction of Italian governments was mild at the beginning and more convinced since the start of the sovereign debt crisis in 2011. Adopted policies contributed to realign public finances at a sustainable level, while household real income decreased by 13 per cent and quite unevenly along the household income distribution. The medium-term outlook is still uncertain: a great deal depends on the capacity of the Italian economy to reduce the level of public debt and to return to sustained economic growth, which has been very weak for more than a decade.
    Date: 2015–06–23
  66. By: Morgan, Peter (Asian Development Bank Institute); Regis, Paulo Jose (Asian Development Bank Institute); Salike, Nimesh (Asian Development Bank Institute)
    Abstract: Credit creation in the housing market has been a key source of systemic financial risk, and therefore is at the center of the debate on macroprudential policies. The loan-to-value (LTV) ratio is a widely used macroprudential tool aimed at moderating mortgage loan creation, and its effectiveness needs to be estimated empirically. This paper is unique in that it analyzes the effect of LTV on mortgage lending, the direct channel of influence, using a large sample of banks in 10 Asian economies. It uses estimation techniques to deal with the large presence of outliers in the data. Robust-to-outlier estimations show that economies with LTV polices have expanded residential mortgage loans by 6.7% per year, while non-LTV economies have expanded by 14.6%, which suggests LTV policies have been effective.
    Keywords: loan-to-value policy; residential mortgage loans; macroprudential policy; financial risk
    JEL: C23 E58 G21 G28
    Date: 2015–06–24
  67. By: Khou, Vouthy; Cheng, Oudom; Leng, Soklong; Meng, Channarith
    Abstract: This study was undertaken by a team from the National Bank of Cambodia (NBC). It is a prime example of collaboration between a major national institution responsible for the conduct of monetary and financial policy and the ILO.
    Keywords: economic growth, bank, employment creation, Cambodia, croissance économique, banque, création d'emploi, Cambodge, crecimiento económico, banco, creación de empleos, Camboya
    Date: 2015
  68. By: Chun Chang; Kaiji Chen; Tao Zha
    Abstract: We make four contributions in this paper. First, we provide a core of macroe- conomic time series usable for systematic research on China. Second, we document, through various empirical methods, the robust ndings about striking patterns of trend and cycle. Third, we build a theoretical model that accounts for these facts. Fourth, the model's mech- anism and assumptions are corroborated by institutional details, disaggregated data, and banking time series, all of which are distinctive of Chinese characteristics. We argue that preferential credit policy for promoting heavy industries accounts for the unusual cyclical patterns as well as the post-1990s economic transition featured by the persistently rising investment rate, the declining labor income share, and a growing foreign surplus. The de- parture of our theoretical model from standard ones oers a constructive framework for studying China's modern macroeconomy.
    Date: 2015–05
  69. By: Ariane TICHIT (Centre d'Etudes et de Recherches sur le Développement International(CERDI))
    Abstract: This article analyzes the social representations of money from survey data. More specifically, it tests how holders of a complementary currency project have a distinct perception of money compared to other citizens. The main results confirm the existence of significant differences between the two groups. The structure of their representations shows that money is less tied to official institutions, the symbol of the sovereign State, to work and wages than for the representative population group. This confirms a number of theoretical works that see these social innovations as protest projects of the standard system, questioning the sovereignty State currency and close to the concepts of unconditional income. Local currencies, by differences in social representations they contain, could well be generators of societal change.
    Keywords: social representations of money, survey data, Abric method, complementary currencies
    JEL: E42 D71
    Date: 2015–06
  70. By: Taro Abe
    Abstract: The study examines egalitarianism policies in terms of the relationship between la- bor and capital and extends the model developed by the economist Bowles. We intro- duce the demand factor to the Bowles model (2012), which discussed the effectiveness of the income and asset redistribution policies in a global economy. The improvement of productivity and the decrease in the ratio of monitoring labor through asset-based redistribution increase the real wage rate because of its lure for foreign capital. At this point in the Bowles model, the labor supply increases and then employment increases. In contrast, in our model, with the addition of the demand factor, the improvement of productivity increases employment, but the decrease in monitoring labor does not always increase employment as both demand and supply increase. This means that asset-based redistribution in a global economy is not always effective.
    Keywords: Egalitarianism, Redistribution, Effective Demand, Globalization
    JEL: E12 J80 J88
    Date: 2015–06
  71. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to NBER East Asia Seminar on Economics, San Francisco, California, June 19, 2015
    Date: 2015–06–19
  72. By: Bensalma, Ahmed
    Abstract: The aim of this paper is motivated by the following question: “If a series were best characterized by fractional process, would a researcher be able to detect that fact by using conventional Dickey-Fuller (1979) test?” To answer this question, in simple framework, we propose a new fractional Dickey-Fuller (F-DF) test, different from the test of Dolado, Gonzalo and Mayoral (2002).
    Keywords: Fractional unit root, Dickey-Fuller Test, Fractional integration parameter.
    JEL: C1 C22 C4 C51 C58 E2 E5
    Date: 2015–05–27
  73. By: Kelly, Robert (Central Bank of Ireland); O'Malley, Terence (Central Bank of Ireland); O'Toole, Conor (Central Bank of Ireland)
    Abstract: Macro-prudential policy is designed to address risk at a systemwide level, an example of which is mortgage default following a period of excessive residential property lending. Policy tools to address this risk, such as caps on loan-to-value (LTV) and loan-to-income (LTI) ratios should by design reflect the risk profile of lending. This research considers the heterogeneity of default risk between first time buyers and second and subsequent buyers and finds that first time buyers have lower default rates having controlled for borrower and loan characteristics. The potential implications for the macro prudential policy setting are empirically analysed: the default-differential between the two groups linearly increases with LTI and a non-linear difference is found to be maximised at 80-85 per cent for LTV. In addition, the role for a rule designed on house valuation is examined, with results showing a diminishing default-differential as valuations increase. This research is consistent with differential regulatory treatment of first time buyers with default risk remaining comparable to the remainder of mortgage lending.
    Keywords: Macro Prudential, Credit Risk, Mortgages, Ireland
    JEL: E32 E51 F30 G21 G28
    Date: 2015–06
  74. By: Iñaki Arto (Basque Center for Climate Change (BC3)); José Manuel Rueda-Cantuche (European Commission – JRC - IPTS); Antonio F. Amores (European Commission – JRC - IPTS); Erik Dietzenbacher (University of Groningen - Faculty of Economics and Business); Nuno Sousa (European Commission - TRADE); Letizia Montinari (European Commission – JRC - IPTS); Anil Markandya (Basque Center for Climate Change (BC3))
    Abstract: For the European Commission a main priority has been to ensure that comprehensive, reliable and comparable economic information is available to support evidence-based policymaking in this regard. As part of such efforts, the DG Joint Research Centre (JRC) of the European Commission has been actively collaborating over the past few years with DG TRADE to construct a series of trade, employment and income indicators based on the World Input-Output Database (WIOD). The main motivation of this report is to provide scientific evidence of the effects of international trade on the EU-27 employment and income. This report is meant to be a valuable statistical tool for DG TRADE to be used in bilateral trade negotiations, European Commission preparatory studies and/or Communications and to show the relevance of international trade in terms of employment and value added creation.
    Keywords: Employment, income, international trade, exports, European Union
    JEL: C67 F14 F15 F16 D33 E01 E24
    Date: 2015–06
  75. By: Verónica Acurio Vásconez (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: The effects of oil shocks in inflation and growth have been widely discussed in the literature, however few have focused on the impact of oil price increases on unemployment. In order to shed some light on this problem, this paper develops a medium scale Dynamic Stochastic General Equilibrium model (DSGE) that allows for oil utilization in production and consumption as in Acurio-Vásconez (2015); unemployment as in Mortensen & Pissarides (1994); and staggered nominal wage contracting as in Gertler & Trigari (2009). It then analyzes the effects of oil price increases on the economy. The model recovers most of the well-known stylized facts observed after the oil shock in the 2000s'. A sensitivity analysis shows that the reduction of the bargaining power of households to negotiate wage contracts reduces the impact of an oil shock in unemployment, without affecting negatively GDP. However, it also shows that the reduction of bargaining power, together with wage flexibility strongly reduces the increase in unemployment after an oil shock, but causes a decrease in real wages, which reduces household income and affects GDP.
    Abstract: Les effets des chocs pétroliers sur l'inflation et la croissance ont été largement étudiés dans la littérature, cependant peu d'études ont traité l'impact de l'augmentation du prix du pétrole sur le chômage. Afin de faire la lumière sur la question, cet article développe un modèle d'équilibre général dynamique stochastique (DSGE) de taille moyenne où : le pétrole est utilisé en production et consommation comme dans Acurio-Vásconez (2015) ; le chômage est introduit comme dans Mortensen & Pissarides (1994) ; et les salaires nominales sont construits comme dans Gertler & Trigari (2009). On analyse ensuite les effets de l'augmentation du prix du pétrole dans l'économie. Le modèle récupère la plupart des effets stylisés observés après le choc pétrolier des années 2000. L'étude de sensibilité montre que la réduction du pouvoir de négociation salariale des ménages permet d'atténuer l'impact positif du choc pétrolier sur le chômage, sans affecter négativement le PIB. Cependant, il montre aussi que la réduction du pouvoir de négociation ensemble avec la flexibilisation des salaires réduit l'augmentation du chômage après un choc pétrolier, mais il provoque une diminution des salaires réels, ce qui réduit le revenu des ménages et impacte le PIB.
    Date: 2015–05
  76. By: Köhler, Karsten (Berlin School of Economics and Law); Guschanski, Alexander (University of Greenwich); Stockhammer, Engelbert (Kingston University London)
    Abstract: While it is frequently asserted that financialisation has contributed to the decline in the wage share there are only few econometric studies, which usually focus on a single aspect of financialisation. This paper provides a theoretical clarification and a systematic empirical investigation. We identify four arguments why financialisation would affect the wage share: (1) a political economy approach focusing on the exit options of firms, (2) a neo-Kaleckian approach stressing the role of financial overhead costs for firms, (3) increased competition on capital markets stressed by neo-Marxian approaches and the critical shareholder value literature, and (4) the role of household debt in increasing workers’ financial vulnerability and undermining their class consciousness. The paper compiles a comprehensive set of empirical measures of financialisation and uses it to test the theoretical hypotheses by a panel regression of 14 OECD countries over the 1989-2011 period. We find strong evidence for negative effects of household debt and evidence for negative effects of financial deregulation.
    Keywords: financialisation; functional income distribution; panel regression
    JEL: E25 G34 G35
    Date: 2015–06–22
  77. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Symposium on Asian Banking and Finance, Singapore, May 28, 2015
    Date: 2015–05–28
    Abstract: What is the best pro-poor value-added tax (VAT) design to increase public revenue in developing countries: A perfect uniform tax, a multiple-rate system, or a tighter tax base with a high rate? This debate remains relevant, even though many studies have analyzed the economic impact of VAT reforms. Most of these studies have considered VAT as a consumption tax when analyzing the social impact of VAT reforms. However, if VAT exemptions are implemented or if the tax administration is inefficient in issuing refunds for VAT credits, then VAT increases producer’s tax burden and viewing the VAT only as a consumption tax becomes inaccurate. In order to take into account these complexities we built the first micro-macro computable general equilibrium model of Niger’s economy in order to shed some light on the best pro-poor VAT design. The main result of the model reveals that broadening the tax base while maintaining a high VAT rate will lead to an important increase in poverty. Lowering the rate or maintaining exemptions on agricultural goods have the least impact on poverty. However, the social impact of exemptions depends on the net effect of the additional tax burden supported by producers and the increase in domestic demand.
    Keywords: Computable general equilibrium model, micro-simulation, Value Added Tax, distributional analysis, niger
    JEL: I32 H22 E62 D58
    Date: 2015–05
  79. By: Medel, Carlos
    Abstract: To what extent geopolitical tensions in major oil-producer countries and unexpected news related to the Organisation of the Petroleum Exporting Countries (OPEC) affect oil price? What are the effects of non-market externalities in oil price? Are oil price forecasters aware or affected by such externalities when making their predictions? In this article, I analyse the influence of these events on oil price by means of Granger causality, using an unique measure accounting for these events (2001-12). I found evidence favouring OPEC countries'-related news as an oil price driver, influencing short-term forecasts, and reducing the consensus when unanticipated news are available.
    Keywords: Oil-producer countries; OPEC; Oil price; Granger causality
    JEL: C12 C22 E66 Q41
    Date: 2015–06–26
  80. By: The Consortium consisting of CPB, CAPP, CASE, CEPII, ETLA, IFO, IFS, IHS
    Abstract: In the aftermath of the financial crisis most European countries are continuing to face employment problems. In a number of Member States government intervention has further resulted in increasing debt levels and high tax burdens overall and in particular on labour. Therefore well-targeted tax reforms seem to be in order to improve the labour market outcomes. It is often implicitly assumed that a decrease on the employee side, i.e. in the personal income tax rate or the employee part of social security contribution, leads to a higher labour supply. Similarly, a decrease in the employer labour taxes is often assumed to raise the demand of labour. However, the economic literature argues that in the presence of labour market imperfection economic incidence of a tax change is often different from the legal incidence. In this case the impact of a tax change on labour market outcomes depends on the interaction of the demand and the supply side of the market. This interaction is determined by the behaviou al responses of economic operators, measured by elasticities. Higher (demand or supply) elasticities will cause larger responses to tax changes, with the relatively less elastic side bearing a higher tax burden. Against this background four main goals of this study emerge. First, is to identify from the literature which labour market imperfections result in employment problems and to attribute them to the labour supply or on the labour demand side. Given the heterogeneity in the labour market situation of different groups, we also set out to identify which socioeconomic groups are most vulnerable to employment problems. The next step is to review the literature which assesses the short-run and long-run economic incidence of labour taxation. To further break down the incidence into its underlying determinants we also review the literature on the (tax) elasticities of labour supply and labour demand. Then the literature on the influence of the economic environment on the tax incidence outcome, most notably the wage setting mechanisms and the institutional background, is reviewed. Finally the findings of the literature review are brought together in a framework of indicators to identify the potential of tax reforms to reduce tax related employment problems.
    Keywords: European Union, labour taxation, tax reforms
    JEL: H20 H29 E62
    Date: 2015–06
  81. By: Koji Kubo (Institute of Developing Economies, Japan External Trade Organization)
    Abstract: We shed light on diverse informal remittance methods of Myanmar migrant workers in Thailand. Based on the questionnaire survey of migrant workers, we examine the determinants in their choice of informal remittance methods. The empirical results indicate that the accessibility of payment points in Myanmar is an important determinant; migrants sending remittances to town can choose potentially more efficient operators who employ bank branches as payment points. On the assumption that informal operators’ use of bank branches stimulates competition among them, we argue that expanding branch network of Myanmar banks adds to efficiency of the informal remittance market.
    Keywords: migrant worker remittances, informal remittance methods, Myanmar
    JEL: E26 O16 O17
    Date: 2015–06
  82. By: Jin Seo Cho (School of Economics, Yonsei University); Myung-Ho Park (Korea Institute of Public Finance); Peter C. B. Phillips (Cowles Foundation, Yale University)
    Abstract: We study Kolmogorov-Smirnov goodness of fit tests for evaluating distributional hypotheses where unknown parameters need to be fitted. Following work of Pollard (1979), our approach uses a Cramér-von Mises minimum distance estimator for parameter estimation. The asymptotic null distribution of the resulting test statistic is represented by invariance principle arguments as a functional of a Brownian bridge in a simple regression format for which asymptotic critical values are readily delivered by simulations. Asymptotic power is examined under fixed and local alternatives and finite sample performance of the test is evaluated in simulations. The test is applied to measure top income shares using Korean income tax return data over 2007 to 2012. When the data relate to the upper 0.1% or higher tail of the income distribution, the conventional assumption of a Pareto tail distribution cannot be rejected. But the Pareto tail hypothesis is rejected for the top 1.0% or 0.5% incomes at the 5% significance level.
    Keywords: Brownian bridge, Cramér-von Mises statistic, Distribution-free asymptotics, Null distribution, Minimum distance estimator, Empirical distribution, goodness-of-fit test, Crámer-von Mises distance, Top income shares, Pareto interpolation
    JEL: C12 C13 D31 E01 O15
    Date: 2015–06

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