nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒07‒11
fifty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Quantum macroeconomics theory By Ledenyov, Dimitri O.; Ledenyov, Viktor O.
  2. Simultaneous Monetary Policies in the Context of the Trilemma: Evidence from the Central Bank of Turkey By Yasin Kursat Onder; Mauricio Villamizar-Villegas
  3. Price Level Targeting and Risk Management* By Billi, Roberto
  4. The great plunge in oil prices: causes, consequences, and policy responses By John Baffes; M. Ayhan Kose; Franziska Ohnsorge; Marc Stocker
  5. Central bank policy paths and market forward rates: A simple model By De Graeve, Ferre; Iversen, Jens
  6. The role of external shocks for monetary policy in Colombia and Brazil: A Bayesian SVAR analysis By Christian Rohe; Matthias Hartermann
  7. Forward Guidance and the State of the Economy By Keen, Benjamin D.; Richter, Alexander; Throckmorton, Nathaniel
  8. Trends and cycles in China's macroeconomy By Chang, Chun; Chen, kaiji; Waggoner, Daniel F.; Zha, Tao
  9. Is the Intrinsic Value of Macroeconomic News Announcements Related to their Asset Price Impact? By Gilbert, Thomas; Scotti, Chiara; Strasser, Georg; Vega, Clara
  10. Limits to government debt sustainability By Jean-Marc Fournier; Falilou Fall
  11. The International Transmission of Credit Bubbles: Theory and Policy By Alberto Martin; Jaume Ventura
  12. Different types of central bank insolvency and the central role of seignorage By Reis, Ricardo
  13. Macroeconomic uncertainties, prudent debt targets and fiscal rules By Falilou Fall; Jean-Marc Fournier
  14. Subjective intertemporal substitution By Crump, Richard K.; Eusepi, Stefano; Tambalotti, Andrea; Topa, Giorgio
  15. Government Economic Policy, Sentiments, and Consumption By Atif Mian; Amir Sufi; Nasim Khoshkhou
  16. Debt into Growth: How Sovereign Debt Accelerated the First Industrial Revolution By Jaume Ventura; Hans-Joachim Voth
  17. Mortgage Finance and Technological Change By Robin Döttling; Enrico Perotti
  18. Measuring the Non-Linear Effects of Monetary Policy By Christian Matthes; Regis Barnichon
  19. Spatial Dependence in Regional Business Cycles: Evidence from Mexican States By Keisuke Kondo
  20. On the Importance of Sales for Aggregate Price Flexibility By Nicolas Vincent; Oleksiy Kryvtsov
  21. What Broke First? Characterizing Sources of Structural Change Prior to the Great Recession By Hull, Isaiah
  22. Prudent debt targets and fiscal frameworks By Falilou Fall; Debra Bloch; Jean-Marc Fournier; Peter Hoeller
  23. The Response of Macro Variables of Emerging and Developed Oil Importers to Oil Price Movements By Taghizadeh-Hesary, Farhad; Yoshino, Naoyuki; Hossein Abadi, Majid Mohammadi; Farboudmanesh, Rosa
  24. Optimal monetary policy in the presence of human capital depreciation during unemployment By Lien Laureys
  25. The QE experience: Worth a try? By Christophe Blot; Jérôme Creel; Paul Hubert; Fabien Labondance
  26. The Financial Economics of Gold - a survey By O'Connor, Fergal; Lucey, Brian; Batten, Jonathan; Baur, Dirk
  27. Der Einfluss des (negativen) Einlagesatzes der EZB auf die Kreditvergabe im Euroraum By Bucher, Monika; Neyer, Ulrike
  28. Time-Varying Fiscal Multipliers in an Agent-Based Model with Credit Rationing By Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  29. Learning-by-Sharing: Monetary Policy and the Information Content of Public Signals By Alexandre Kohlhas
  30. Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model By Gauvin, Ludovic; Rebillard, Cyril
  31. Reflections on Inflation Targeting and Financial Stability By Jacob Frenkel
  32. Small-scale nowcasting models of GDP for selected CESEE countries By Martin Feldkircher; Florian Huber; Josef Schreiner; Julia Woerz; Marcel Tirpak; Peter Toth
  33. Optimal policy for secondary education in developing countries By Dosmagambet, Yergali
  34. Towards Recoupling? Assessing the Global Impact of a Chinese Hard Landing through Trade and Commodity Price Channels. By L. Gauvin; C. Rebillard
  35. The Elasticity of Substitution Between Time and Market Goods: Evidence from the Great Recession By Aviv Nevo; Arlene Wong
  36. The Optimal Use of Government Purchases for Macroeconomic Stabilization By Pascal Michaillat; Emmanuel Saez
  37. Mixed Economy of Welfare Emerging in Poland: Outplacement and Non-Governmental Employment Agencies Examples By Klimczuk, Andrzej
  38. Human Capital and the Dynamic Effects of Trade By Auer, Raphael
  39. Dismissal Disputes and Endogenous Sorting By Garibaldi, Pietro; Pfann, Gerard Antonie
  40. Government debt indicators: Understanding the data By Debra Bloch; Falilou Fall
  41. On the optimal provision of social insurance By Krueger, Dirk; Ludwig, Alexander
  42. Central Bank Credibility, Reputation and Inflation Targeting in Historical Perspective By Michael David Bordo; Pierre Siklos
  43. Dismissal Disputes and Endogenous Sorting By Garibaldi, Pietro; Pfann, Gerard A.
  44. Stagnation Traps By Gianluca Benigno; Luca Fornaro
  45. The Euro crisis and its impact on national and European social policies By Maria Jepsen; Philippe Pochet; Christophe Degryse
  46. Measuring the frequency dynamics of financial and macroeconomic connectedness By Jozef Barunik; Tomas Krehlik
  47. The implications for trade and FDI flows from liberalisation of China's capital account By George Verikios
  48. State of the Future Index Results: Hungary By Bartha, Zoltán; Tóthné Szita, Klára
  49. Spillover effects of labour market reforms in a three-country world By Fries, Claudia
  50. Too Unexpected to Fail: Bail-Out Policy and Sudden Freezes By Arup Daripa
  51. Endogenously Procyclical Liquidity, Capital Reallocation, and q By Shouyong Shi; Melanie Cao
  52. Impuesto Sobre la Renta: dime cómo opera y te diré cómo redistribuye By Jorge Armando Rodríguez

  1. By: Ledenyov, Dimitri O.; Ledenyov, Viktor O.
    Abstract: The quantum macroeconomics theory is formulated for the first time, assuming that the business cycle has the discrete-time oscillations spectrum in analogy with the electronics excitations discrete-time spectrum in the Bohr’s atom model in the quantum physics. The quantum macroeconomics theory postulates that the discrete-time transitions from one level of GIP((t), GDP(t), GNP(t) to another level of GIP((t), GDP(t), GNP(t) will occur in the nonlinear dynamic economic systems at the time, when: 1) The land, labour and capital resources are added / released to the production/service processes in the form of quanta; 2) The disruptive scientific/technological/financial/social/political innovation is introduced, creating the resonance conditions necessary to amplify/attenuate the value of GIP((t), GDP(t), GNP(t), during the evolution process of the nonlinear dynamic economic system in the time domain. The authors think that the general information product on the time GIP((t), the general domestic product on the time GDP(t), and the general national product on the time GNP(t), are the discrete-time digital signals (the Ledenyov discrete-time digital waves with the Markov information) in distinction from the continuous-time signals (the Kitchin, Juglar, Kuznets, Kondratieff continuous waves), because of the discrete-time nature of the disruptive scientific/technological/financial/social/political innovations. The authors apply the quantum macroeconomics theory to research and develop a new software program for the accurate characterization and forecasting of GIP((t), GDP(t), GNP(t) dependences changes in the economies of scales and scopes in the time domain for the use by the central / commercial banks.
    Keywords: quantum macroeconomics theory, quantum econophysics science, dependence of general information product on time GIP(t), dependence of general domestic product on time GDP(t), dependence of general national product on time GNP(t), discrete change levels of GIP(t)/GDP(t)/GNP(t), Ledenyov discrete-time digital waves, discrete-time digital signals generators, spectrum analysis / amplitude / frequency / wavelength / period / phase of discrete-time digital signal, mixing / harmonics / nonlinearities of discrete-time digital signal, continuous-time signals, Juglar fixed investment cycle, Kitchin inventory cycle, Kondratieff long wave cycle, Kuznets infrastructural investment cycle, econophysics, econometrics, nonlinear dynamic economic system, economy of scale and scope, macroeconomics.
    JEL: E0 E00 E01 E10 E20 E30 E32 E37 E40 E44 E50 E58 F4 F44 F47
    Date: 2015–07–06
  2. By: Yasin Kursat Onder; Mauricio Villamizar-Villegas
    Abstract: Many central banks that have opted for monetary autonomy have also been reluctant to relinquish control over the value of their currencies. As a result, they have operated through both interest rate and foreign exchange interventions. However, in the context of the monetary trilemma, both effects can potentially offset each other. Using daily data from the Central Bank of Turkey during the period of 2002 - 2010, we study the effects of simultaneous policies by first purging the intended monetary decisions from responses to real-time macroeconomic variables, and then determining their impact on economic activity. We find that the Central Bank of Turkey adjusted its policy rate mostly in response to inflation levels relative to both the yearly target and agents’ expectations, and conducted purchases and sales of foreign currency in response to exchange rate behavior. These responses varied depending on whether interventions were pre-announced. We also find that unannounced purchases of foreign currency had a significant effect in reducing exchange rate volatility but appeared to have no effect on exchange rate changes. On the other hand, changes in the policy rate significantly affected inflation but had no discernible effect on output growth.
    Keywords: Central bank intervention, simultaneous policies, monetary shocks, price puzzle, monetary policy trilemma, foreign exchange intervention
    JEL: E43 E52 E58 F31
    Date: 2015–07–03
  3. By: Billi, Roberto (Research Department, Central Bank of Sweden)
    Abstract: Many argue that, in the presence of a lower bound on nominal interest rates, central banks should use a risk management approach for setting policy, which implies committing to a more expansionary policy to deal with uncertainty about the economic recovery. Using a standard model for monetary policy analysis, I study the effects of an uncertain future for both price level targeting and nominal GDP level targeting. The results clarify that, during lower bound episodes, the extent to which policy can overcome uncertainty depends crucially on the choice of policy framework.
    Keywords: nominal level targets; optimal discretionary policy; zero lower bound
    JEL: E31 E52 E58
    Date: 2015–06–01
  4. By: John Baffes; M. Ayhan Kose; Franziska Ohnsorge; Marc Stocker
    Abstract: Following four years of relative stability at around $105 per barrel, oil prices have declined sharply since June 2014. This paper presents a comprehensive analysis of the sources of the recent decline in prices, and examines its macroeconomic, financial and policy implications. The recent drop in prices is a significant, but not an unprecedented event as it has some significant parallels with the price collapse in 1985-86. The recent decline has been driven by a number of factors: several years of upward surprises in the production of unconventional oil; weakening global demand; a significant shift in OPEC policy; unwinding of some geopolitical risks; and an appreciation of the U.S. dollar. Although the relative importance of each factor is difficult to pin down, OPEC’s renouncement of price support and rapid expansion of oil supply from unconventional sources appear to have played a crucial role since mid-2014. The oil price drop will lead to substantial income shifts from oil exporters to oil importers resulting in a net positive effect for global activity over the medium term. Although several factors could counteract its impact on global growth and inflation, the drop in oil prices will pose significant challenges for monetary, fiscal, and structural policies.
    Keywords: Commodity prices, 2014 oil price decline, macroeconomic implications, supply factors, demand factors, unconventional oil production, global output, and global inflation.
    JEL: Q40 Q41 Q43 F40 E32 E62
    Date: 2015–06
  5. By: De Graeve, Ferre (Research Department, Central Bank of Sweden); Iversen, Jens (Monetary Policy Department, Central Bank of Sweden)
    Abstract: Increasingly many central banks announce likely paths for future policy rates. Re- cent experience suggest that market forward rates can differ substantially from those announced. Models commonly adopted in policy analysis ignore such differences. This paper studies a simple model that can capture deviations between announced paths and market forward rates. We detail the macroeconomic transmission of such deviations both in the model and in the data and show how the model can inform policy deliberations.
    Keywords: Policy path; forward rate; forward guidance
    JEL: E43 E44 E58
    Date: 2015–06–01
  6. By: Christian Rohe; Matthias Hartermann
    Abstract: This paper identifies the effects of US interest rate and commodity price shocks on the monetary policy of two in flation targeting emerging economies from Latin America, Colombia and Brazil. We estimate country-specic Bayesian SVARs with block exogeneity restrictions and account for the fact that central banks in both countries use two different instruments of monetary policy, a policy interest rate and foreign exchange market interventions. Our findings show that the Colombian and, to a lesser degree, the Brazilian central bank use sterilized interventions as a systematic component of their infl ation targeting regimes, which are more accurately described as "in flation-targeting-cum-intervention". Foreign exchange interventions are used in both countries to set domestic interest rates more independently from US monetary policy and, in Colombia, to increase interest rates in response to rising import prices without further deteriorating the terms of trade. Our results also indicate a lower susceptibility to shocks emanating from outside Colombia or Brazil under this policy regime than what studies for the pre-infl ation targeting period have found.
    Keywords: External Shocks, Inflation Targeting, Foreign Exchange Intervention, Bayesian SVAR, Block Exogeneity
    JEL: C32 E52 E58 F31 O54
    Date: 2015–06
  7. By: Keen, Benjamin D. (Department of Economics, University of Oklahoma); Richter, Alexander (Department of Economics, Auburn University); Throckmorton, Nathaniel (Department of Economics, College of William & Mary)
    Abstract: This paper examines the economic effects of forward guidance using a New Keynesian model with a zero lower bound (ZLB) constraint on the short-term nominal interest rate. Forward guidance is modeled with anticipated news shocks to the monetary policy rule. There are five key findings: (1) the stimulative effect of forward guidance falls as the economy deteriorates or as households expect a slower recovery because there is a smaller margin to lower expected policy rates; (2) longer forward guidance horizons do not generate increasingly larger impact effects on output when the total amount of news is fixed, unlike with an exogenous interest rate peg; (3) in steady state, an unanticipated shock has a larger impact effect on output than a news shock, but a news shock has a larger cumulative effect in every state of the economy; (4) at the ZLB, the cumulative effect on output from lengthening the forward guidance horizon increases over short horizons but decreases thereafter, which indicates the central bank faces limits on how far forward guidance can extend into the future and continue to add stimulus; and (5) forward guidance is stimulative in the absence of other shocks, but the observed effect on output is smaller or even negative if another shock simultaneously reduces demand.
    Keywords: Monetary Policy; Forward Guidance; Zero Lower Bound; News Shocks
    JEL: E43 E58 E61
    Date: 2015–06–27
  8. By: Chang, Chun (Shanghai Jiaotong University); Chen, kaiji (Emory University); Waggoner, Daniel F. (Federal Reserve Bank of Atlanta); Zha, Tao (Federal Reserve Bank of Atlanta)
    Abstract: We make four contributions in this paper. First, we provide a core of macroeconomic time series usable for systematic research on China. Second, we document, through various empirical methods, the robust findings about striking patterns of trend and cycle. Third, we build a theoretical model that accounts for these facts. Fourth, the model's mechanism and assumptions are corroborated by institutional details, disaggregated data, and banking time series, all of which are distinctive 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 departure of our theoretical model from standard ones offers a constructive framework for studying China's modern macroeconomy.
    Keywords: reallocation; between-sector effect; total factor productivity growth; heavy versus light sectors; long-term versus short-term loans; labor share; lending frictions; incentive compatibility
    JEL: E2 E3 E5 F4 G1
    Date: 2015–06–01
  9. By: Gilbert, Thomas (Foster School of Business); Scotti, Chiara (Board of Governors of the Federal Reserve System (U.S.)); Strasser, Georg (Boston College); Vega, Clara (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The literature documents a heterogeneous asset price response to macroeconomic news announcements: Some announcements have a strong impact on asset prices and others do not. In order to explain these differences, we estimate a novel measure of the intrinsic value of a macroeconomic announcement, which we define as the announcement's ability to nowcast GDP growth, inflation, and the Federal Funds Target Rate. Using the same nowcasting framework, we then decompose this intrinsic value into the announcement's characteristics: its relation to fundamentals, timing, and revision noise. We find that in the 1998-2013 period, a significant fraction of the variation in the announcements' price impact on the Treasury bond futures market can be explained by differences in intrinsic value. Furthermore, our novel measure of timing explains significantly more of this variation than the announcements' relation to fundamentals, reporting lag (which previous studies have used as a measure of timing), or revision noise.
    Keywords: Macroeconomic announcements; central bank policy; coordination role of public information; learning; macroeconomic forecasting; price discovery
    JEL: E44 G14
    Date: 2015–04–23
  10. By: Jean-Marc Fournier; Falilou Fall
    Abstract: The recent euro area sovereign debt crisis has shown the importance of market reactions for the sustainability of debt. The objective of this paper is to calculate endogenous government debt limits given the markets assessment of the probability to default. The estimated primary balance reaction function to growing debt has the “fiscal fatigue” property (a loosening fiscal effort makes the primary balance insufficient to support rising debt) at high debt levels. It is the combination of this feature of the primary balance reaction function with the market interest rate reaction to growing debt that determines the government debt limit beyond which debt cannot be rolled over. An application of this framework to OECD countries over the period 1985 – 2013 shows that current debt limits are high for most of the OECD thanks to particularly low current interest rates. It shows also for some countries that current debt levels are not sustainable without a change in government behaviour as compared to the past. Most importantly, the framework illustrates the state contingent nature of debt limits and therefore the vulnerability of governments to a change in macroeconomic conditions and to market reactions.<P>Les limites à la viabilité de la dette publique<BR>La récente crise de la dette souveraine dans la zone euro a montré l’importance des réactions des marchés pour la viabilité de la dette. L’objectif de ce document est de calculer les limites endogènes de la dette publique compte tenu de l’évaluation que font les marchés de la probabilité de défaut. À de hauts niveaux d’endettement, la fonction de réaction estimée du solde primaire à une dette croissante présente la propriété de « fatigue budgétaire » (c’est-à-dire qu’un relâchement des efforts budgétaires aboutit à un solde primaire insuffisant pour soutenir l’accroissement de la dette). Cette propriété de la fonction de réaction du solde primaire, combinée à la réaction des marchés à l’accroissement de la dette via les taux d’intérêt, détermine la limite de la dette publique au-delà de laquelle celle-ci ne peut plus être refinancée. L’application de ce cadre aux pays de l’OCDE pour la période 1985-2013 montre que les limites actuelles de la dette sont hautes pour la majorité d’entre eux, grâce à des taux d’intérêt particulièrement bas actuellement. Elle montre également que les niveaux d’endettement actuels ne sont pas viables pour un certain nombre de pays. Surtout, ce cadre montre que les limites de la dette sont conditionnées par l’état de l’économie et que par conséquent, les États sont vulnérables à toute évolution de la situation macroéconomique et aux réactions des marchés.
    Keywords: sustainability, fiscal policy, debt, dette, viabilité de la dette publique, politique budgétaire
    JEL: E27 E44 E61 E62 H62 H63 H68
    Date: 2015–07–03
  11. By: Alberto Martin; Jaume Ventura
    Abstract: We live in a new world economy characterized by financial globalization and historically low interest rates. This environment is conducive to countries experiencing credit bubbles that have large macroeconomic effects at home and are quickly propagated abroad. In previous work, we built on the theory of rational bubbles to develop a framework to think about the origins and domestic effects of these credit bubbles. This paper extends that framework to include many countries and general preferences, and uses it to study how financial integration affects the properties of credit bubbles, how the latter are transmitted across countries, and the role of international policy coordination.
    Keywords: Önancial globalization, international capital áows, sudden stops, credit bubbles, international policy coordination
    JEL: E32 E44 O40
    Date: 2015–05
  12. By: Reis, Ricardo
    Abstract: A central bank is insolvent if its plans imply a Ponzi scheme on reserves so the price level becomes infinity. If the central bank enjoys fiscal support, in the form of a dividend rule that pays out net income every period, including when it is negative, it can never become insolvent independently of the fiscal authority. Otherwise, this note distinguishes between intertemporal insolvency, rule insolvency, and period insolvency. While period and rule solvency depend on analyzing dividend rules and sources of risk to net income, evaluating intertemporal solvency requires overcoming the difficult challenge of measuring the present value of seignorage.
    Keywords: central bank capital; fiscal support; monetary policy
    JEL: E42 E58 E59
    Date: 2015–07
  13. By: Falilou Fall; Jean-Marc Fournier
    Abstract: The sharp rise in debt experienced by most OECD countries raises questions about the prudent debt level countries should target. It also raises questions about the fiscal frameworks needed to reach them and to accommodate cyclical fluctuations along the path towards a prudent debt target. The objective of this paper is to define long-run prudent debt targets for OECD countries and country-specific fiscal rules. To this end, a semi-structural macroeconomic model for OECD countries and primary balance reaction functions are estimated. The shocks derived from these estimations are used to assess uncertainties surrounding the development of macroeconomic variables. The model is simulated up to 2040 to derive the prudent debt target for each country and design country-specific fiscal rules.<P>Incertitudes macroéconomiques, cibles prudentes d'endettement et règles budgétaires<BR>La forte hausse de la dette que connaissent la majorité des pays de l’OCDE interroge sur le niveau prudent d’endettement que les pays doivent cibler. Elle interroge également sur les cadres budgétaires nécessaires pour y parvenir et absorber les fluctuations de la conjoncture tout au long de la trajectoire vers une cible prudente d’endettement. L’objectif de ce document est de définir des cibles prudentes d’endettement pour les pays de l’OCDE et des règles budgétaires propres à chacun d’entre eux. À cet effet, on procède à l’estimation d’un modèle macroéconomique semi-structurel des pays de l’OCDE et de fonctions de réaction du solde primaire. Les chocs calculés à partir de ces estimations servent à évaluer les incertitudes entourant l’évolution de variables macroéconomiques. La simulation est effectuée jusqu’en 2040 pour déduire le niveau d’endettement prudent pour chaque pays et élaborer des règles budgétaires propres à chacun.
    Keywords: fiscal rules, fiscal policy, debt, dette, règle budgétaire, politique budgétaire
    JEL: E27 E61 E62 H62 H68
    Date: 2015–07–03
  14. By: Crump, Richard K. (Federal Reserve Bank of New York); Eusepi, Stefano (Federal Reserve Bank of New York); Tambalotti, Andrea (Federal Reserve Bank of New York); Topa, Giorgio (Federal Reserve Bank of New York)
    Abstract: We estimate the elasticity of intertemporal substitution (EIS)—the elasticity of expected consumption growth with respect to variation in the real interest rate—using subjective expectations from the newly released FRBNY Survey of Consumer Expectations (SCE). This dataset is unique, since it includes consumers’ expectations of both consumption growth and inflation, with the latter providing subjective variation in ex ante real interest rates. As a result, we can estimate a subjective version of the consumption Euler equation, without having to take a stand on the process of expectation formation. Our main finding is that this subjective EIS is precisely and robustly estimated to be around 0.8 in the general population, consistent with typical macroeconomic calibrations of the Euler equation. However, we find some evidence that the EIS rises to slightly above one for high-income individuals, consistent with the assumptions in asset pricing models featuring long-run risks or rare disasters.
    Keywords: subjective expectations; inflation expectations; Euler equation; elasticity of intertemporal substitution
    JEL: D12 D84 E21
    Date: 2015–07–01
  15. By: Atif Mian; Amir Sufi; Nasim Khoshkhou
    Abstract: We examine how consumption responds to changes in sentiment regarding government economic policy using cross-sectional variation across counties in the ideological predisposition of constituents. When the incumbent party loses a presidential election, individuals in counties more ideologically predisposed toward the losing party experience a dramatic and discontinuous relative decrease in optimism on government economic policy. Using the interaction of constituent ideology in a county with election timing as an instrument, we estimate the impact of government policy sentiment shocks on consumer spending, and we find a very small effect that cannot be statistically distinguished from zero. The small magnitude of the effect is estimated precisely. For example, we can reject the hypothesis that pessimism regarding government economic policy effectiveness during the Great Recession had as large an effect on consumption as the negative shock to household net worth coming from the collapse in house prices.
    JEL: E20 E21 E60
    Date: 2015–07
  16. By: Jaume Ventura; Hans-Joachim Voth
    Abstract: Why did the country that borrowed the most industrialize first? Earlier research has viewed the explosion of debt in 18th century Britain as either detrimental, or as neutral for economic growth. In this paper, we argue instead that Britain’s borrowing boom was beneficial. The massive issuance of liquidly traded bonds allowed the nobility to switch out of low-return investments such as agricultural improvements. This switch lowered factor demand by old sectors and increased profits in new, rising ones such as textiles and iron. Because external financing contributed little to the Industrial Revolution, this boost in profits in new industries accelerated structural change, making Britain more industrial more quickly. The absence of an effective transfer of financial resources from old to new sectors also helps to explain why the Industrial Revolution led to massive social change – because the rich nobility did not lend to or invest in the revolutionizing industries, it failed to capture the high returns to capital in these sectors, leading to relative economic decline.
    Keywords: crowding out, debt crises, Industrial Revolution, Ricardian equivalence, mis-allocation, financial repression, structural change, productivity
    JEL: E22 E25 E62 H56 H60 N13 N23
    Date: 2015–05
  17. By: Robin Döttling (University of Amsterdam, the Netherlands); Enrico Perotti (University of Amsterdam, the Netherlands)
    Abstract: We explore how house prices evolve under technological progress, when housing serves for consumption as well as store of value. Technological change leads to human capital substituting physical capital and manual labor. Reduced use of physical capital implies that firms have less tangible collateral to pledge for external finance. This results in lower business demand for credit and a decline in interest rates. Over time, savings are redirected to mortgage credit, where houses serve as collateral. Under fixed land supply, house prices rise in real terms. The combination of growing wage inequality and mortgage credit leads to high household leverage for low-skill workers, increasing default rates and foreclosures. Restraining mortgage borrowing is more effective than subsidies to limit mortgage defaults, by containing both leverage and house price appreciation. It also leads to lower interest rates, supporting more corporate investment and higher wages.
    Keywords: Inequality; mortgage credit; housing; human capital; skill-biased technological change
    JEL: D33 E22 E44 R21
    Date: 2015–07–06
  18. By: Christian Matthes (Federal Reserve Bank of Richmond); Regis Barnichon (CREI)
    Abstract: This paper proposes a method to identify the non-linear effects of structural shocks by using Gaussian basis functions to parametrize impulse response functions. We apply our approach to monetary policy and find that the effect of a monetary intervention depends strongly on (i) the sign of the intervention, (ii) the size of the intervention, and (iii) the state of the business cycle at the time of the intervention. A contractionary policy has a strong adverse effect on output, much stronger than linear estimates suggest, but an expansionary policy has, on average, no significant effect on output. An expansionary policy can have some expansionary effect on output, but only if the intervention is large and during a recession. Even so, a contractionary policy is always more potent than its expansionary counterpart.
    Date: 2015
  19. By: Keisuke Kondo (Research Institute of Economy, Trade and Industry)
    Abstract: This paper investigates how a region-specific shock propagates outward toward neighboring regions when regional business cycles are spatially dependent. For this purpose, we model business cycles by introducing a spatial autoregressive process into a Markov switching model. The advantage of this model is that it enabled us to numerically simulate spatial spillover effects. Therefore, we were able to demonstrate how the economic crisis in 2008–2009 spread across Mexican states. We found that business cycles across these states were spatially dependent and that a regime switch from expansion to recession caused conditions in the neighboring economies to deteriorate.
    Keywords: Spatial dependence, Spatial spillover effects, Regional business cycles, Markov switching model, Markov chain monte carlo
    JEL: C33 E32
    Date: 2015–07
  20. By: Nicolas Vincent (HEC Montréal); Oleksiy Kryvtsov (Bank of Canada)
    Abstract: Macroeconomists traditionally ignore temporary price mark-downs ("sales") under the assumption that they are unrelated to aggregate phenomena. We challenge this view. First, we provide evidence from the U.K. and U.S. CPI micro data that the frequency of sales is strongly countercyclical. Second, we build a general equilibrium model in which sales arise endogenously. In response to a monetary contraction, firms facing rigid regular prices post more sales, and households search more intensively. The resulting fall in the aggregate price level can be significantly larger than if sales were ignored, implying a much smaller response of real consumption to monetary shocks.
    Date: 2015
  21. By: Hull, Isaiah (Research Department, Central Bank of Sweden)
    Abstract: This paper identifies and characterizes episodes of structural change in the 27 years that preceded the Great Recession. This is done by performing Bai-Perron (2003a, 2003b) tests on 61,843 time series that span 34 countries, which collectively accounted for 81% of Gross World Product in 2013. Three major stylized facts are established. First, the rate of structural change increased throughout the early 1990s, stabilized in 2003, and then decreased slowly until 2007. Second, there were three large spikes in the pace of structural change after the 1990-1991 recession: 1993-1994, 2001-2003, and 2007-2009. The latter two overlap with recessions in the U.S. and many other major economies, but the first does not. This spike is associated with structural change in residential investment, consumption, exchange rates, and real estate. Across countries, the degree of structural change is highest in China during this episode. Third, the periods 1993-1994 and 1997-2000 contain heavy structural change in real estate and lending; however, the rate of structural change in house price and construction series was more pronounced in and after 2001.
    Keywords: Great Recession; Macroeconomics; Econometrics; Break Tests; Structural Stability
    JEL: C01 C59 E30 E60 R20
    Date: 2015–06–01
  22. By: Falilou Fall; Debra Bloch; Jean-Marc Fournier; Peter Hoeller
    Abstract: The sharp rise in debt experienced by most OECD countries raises questions about debt indicators and the prudent government debt level countries should target. It also raises questions about the fiscal frameworks needed to reach the prudent debt level and to accommodate cyclical fluctuations along the convergence path towards a prudent debt target. The objective of this paper is to define long-run prudent debt targets for OECD countries and country-specific fiscal rules. The paper presents a comprehensive analysis of government liabilities and assets and formulates recommendations for debt indicators. It also reviews the different linkages between government debt and the economic activity. The lessons from these analyses are combined with an assessment of the uncertainties surrounding the development of macroeconomic variables to define a prudent debt target. Different fiscal rules are compared with regard their impact on fiscal discipline and the risk of recession for country-specific fiscal rules recommendations.<P>Cibles de dette prudentes et cadres budgétaires<BR>La montée rapide de l’endettement public dans la plupart des pays de l'OCDE soulève des questions sur le niveau prudent de dette que les pays doivent cibler. Il soulève également des questions sur les cadres budgétaires nécessaires pour les atteindre et qui fournissent une marge de manœuvre suffisante pour faire face à des chocs négatifs. Ce document examine les dettes publiques explicites et implicites, ainsi que les actifs qui sont utiles dans l'évaluation des risques budgétaires et la viabilité budgétaire à long terme. Il souligne également les liens positifs et négatifs entre la dette publique et l'activité économique. Les leçons tirées de ces analyses sont combinées avec une évaluation des incertitudes macroéconomiques pour définir une cible prudente de dette. Différentes règles budgétaires sont comparées à l'égard de leur impact sur la discipline budgétaire et le risque de récession, conduisant à des recommandations pour les règles budgétaires qui tiennent compte des spécificités de chaque pays.
    Keywords: fiscal rules, fiscal policy, debt, dette, règle budgétaire, politique budgétaire
    JEL: E27 E61 E62 H62 H68
    Date: 2015–07
  23. By: Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Hossein Abadi, Majid Mohammadi (Asian Development Bank Institute); Farboudmanesh, Rosa (Asian Development Bank Institute)
    Abstract: This paper assesses the impact of crude oil price movements on two macro variables—the gross domestic product (GDP) growth rate and consumer price index inflation rate—in the developed economies of the United States and Japan, and an emerging economy, the People’s Republic of China (PRC). These countries were chosen for this research because they are the world’s three largest oil consumers. The main objective of this study is to see whether these economies are still reactive to oil price movements. The results obtained suggest that the impact of oil price fluctuations on the GDP growth of the developed oil importers is much lower than on the GDP growth of the emerging economy. The main reasons for this lie in fuel substitution (higher use of nuclear energy, gas, and renewables), a declining population (for Japan), the shale gas revolution (for the United States), and strategic oil stocks and government-mandated energy efficiency targets in developed economies. All of these factors make developed economies more resistant to oil shocks. On the other hand, the impact of oil price movements on the PRC’s inflation rate was found to be milder than in the two developed countries that were examined. The main cause for this is that the PRC experiences a larger forward shift in its aggregate supply due to higher growth, which allows it to avoid a massive increase in price levels following oil price shocks.
    Keywords: oil price movements; oil importers; oil consumption; fuel substitution; price shocks
    JEL: E31 O57 Q43
    Date: 2015–07–07
  24. By: Lien Laureys (Bank of England)
    Abstract: When workers are exposed to human capital depreciation during periods of unemployment, hiring affects the unemployment pool's composition in terms of skills, and hence the economy’s production potential. Introducing human capital depreciation during unemployment into an otherwise standard New Keynesian model with search frictions in the labour market leads to the finding that the flexible price allocation is no longer constrained-efficient even when the standard Hosios condition holds. This is because it generates a composition externality in job creation: firms ignore how their hiring decisions affect the extent to which the unemployed workers’ skills erode, and hence the output that can be produced by new matches. Consequently, it might be desirable from a social point of view for monetary policy to deviate from strict inflation targeting. But quantitative analysis shows that although optimal price inflation is no longer zero, strict inflation targeting stays close to the optimal policy.
    Date: 2015
  25. By: Christophe Blot (OFCE); Jérôme Creel (OFCE); Paul Hubert (OFCE); Fabien Labondance (Centre de REcherches sur les Stratégies Economiques (CRESE))
    Abstract: The ECB has decided to implement large-scale quantitative easing (QE) measures since March 2015 until September 2016. This unconventional monetary policy has had a variety of precedents, in the Japanese, UK and US economies. These experiments have been effective at modifying government and corporate bond yields, mostly in the UK and US and to a lesser extent in Japan. This conclusion is not context-free. The European QE has started in a deflation era which requires more activism and cooperation from the ECB and Euro area governments than in the UK and the US when their central banks embarked in QE. The success of the European QE will also depend substantially on the depreciation of the Euro and will require clear communication by the ECB that it is prepared to accept a large depreciation at least until the inflation rate goes back to its target.
    Keywords: Monetary policy; Quantitative easing
    JEL: E52
    Date: 2015–04
  26. By: O'Connor, Fergal; Lucey, Brian; Batten, Jonathan; Baur, Dirk
    Abstract: We review the literature on gold as an investment. We summarize a wide variety of literature. We begin with a review of how the gold markets operate, including the under researched leasing market; we proceed to examine research on physical gold demand and supply, gold mine economics and move onto analyses of gold as an investment. Additional sections provide context on gold market efficiency, the issue of gold market bubbles, gold’s relation to inflation and interest rates, and the very nascent literature on the behavioural aspects of gold.
    Keywords: Gold, survey, review
    JEL: E44 F33 G15 L72 Q31
    Date: 2015–07–08
  27. By: Bucher, Monika; Neyer, Ulrike
    Abstract: Mit einer extremen Niedrigzinspolitik, die mit negativen Einlagesätzen einhergeht, versucht die Europäische Zentralbank, die Kreditvergabe im Euroraum zu stimulieren. Dieser Beitrag diskutiert, welchen Einfluss Veränderungen des Einlagesatzes auf das Kreditangebot der Banken haben. Es wird argumentiert, dass eine Senkung des Einlagesatzes, die den Abstand zwischen dem Hauptrefinanzierungssatz und dem Einlagesatz erhöht, kontraktiv auf das Kreditangebot in den Peripherieländern wirkt. In den Kernländern ist der Effekt nicht eindeutig. Für die Effekte in beiden Regionen ist es unerheblich, ob der Einlagesatz positiv oder negativ ist. Aber ein negativer Einlagesatz wirkt bei einigen Banken in den Kernländern wie eine zusätzliche "steuerliche" Belastung.
    Keywords: Geldpolitik,Interbankenmarkt,Kreditvergabe,negative Zinssätze,Einlagesatz
    JEL: E52 E58 G21
    Date: 2015
  28. By: Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
    Abstract: We build an agent-based model populated by households with heterogenous and time-varying nancial conditions in order to study how scal multipliers can change over the business cycle and are aected by the state of credit markets. We nd that decit-spending scal policy dampens the eect of bankruptcy shocks and lowers their persistence. Moreover, the size and dynamics of government spending multipli- ers are related to the degree and persistence of credit rationing in the economy. On the contrary, in presence of balanced-budget rules, output permanently falls below pre-shock levels and the ensuing multipliers fall below one and are much lower than the ones emerging from the decit-spending policy. Finally, we show that dierent conditions in the credit market signicantly aect the size and the evolution of scal multipliers.
    Keywords: fiscal multipliers, agent-based models, credit-rationing, balance-sheet recession, bankruptcy shocks
    Date: 2015–09–07
  29. By: Alexandre Kohlhas (Stockholm University)
    Abstract: This paper studies the effect of a central bank releasing public information about the state of the economy in a dispersed information business cycle model in which market participants learn from the distribution of prices, economy-wide output and the level of the interest rate. It demonstrates how central bank information disclosure can increase the information content of public signals by making expectations of future central bank actions closer to common knowledge. This effect is shown in a calibrated business cycle model to completely offset the standard learning externality of additional public information. Central bank information disclosure can thus decrease the level of uncertainty about the state of the economy for everyone -- even the central bank itself. This qualifies the "anti-disclosure" result in Morris and Shin (2005) and Amador and Weill (2010).
    Date: 2015
  30. By: Gauvin, Ludovic; Rebillard, Cyril
    Abstract: China’s rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. At a time when concerns about the sustainability of China’s growth model are increasingly rising, this paper assesses to what extent a hard landing in China would impact commodity exporters. After reviewing the main arguments pointing to a hard landing scenario – historical rebalancing precedents, overinvestment, unsustainable debt trends, and a growing real estate bubble – we focus on a sample of twenty-five countries, and use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil price separately to account for their different end-use patterns and consumption intensity in China, and we identify two specific transmission channels to commodity exporters: through exports (with both volume and price effects), and through investment (a fall in commodity prices reducing incentives to invest in the mining sector). According to our estimates, Latin American countries would be hardest hit – with a 6 percent cumulated growth loss after five years – followed by Asia (ex. China); advanced economies would be less affected. The "growth gap" between emerging and advanced economies would be considerably reduced, leading to partial recoupling.
    Keywords: China; hard landing; spillovers; global VAR; conditional forecast; emerging economies; commodities; recoupling
    JEL: C32 E17 E32 F44 F47 Q02
    Date: 2013–10
  31. By: Jacob Frenkel
    Abstract: Transcript of Jacob Frenkel’s1 presentation on reflectionson Inflation Targeting and Financial Stability
    Date: 2015–06–26
  32. By: Martin Feldkircher (Oesterreichische Nationalbank); Florian Huber (Oesterreichische Nationalbank); Josef Schreiner (Oesterreichische Nationalbank); Julia Woerz (Oesterreichische Nationalbank); Marcel Tirpak (National Bank of Slovakia, Research Department); Peter Toth (National Bank of Slovakia, Research Department)
    Abstract: In this article, we describe short-term forecasting models of economic activity for seven countries in Central, Eastern and Southeastern Europe (CESEE) and compare their forecasting performance since the outbreak of the Great Recession. To build these models, we use four variants of bridge equations and a dynamic factor model for each country. Given the differences in availability of monthly indicators across countries and the rather short time period over which these indicators are available, we favor smallscale forecasting models. We selected monthly indicators on the basis of expert judgment, correlation analysis and Bayesian model averaging techniques. While our odels generally outperform a purely time-series based forecast for all CESEE countries, there is no single technique that consistently produces the best out-of-sample forecast. To maximize forecasting accuracy, we therefore recommend selecting a country-specific suite of well-performing models for every CESEE economy.
    Keywords: Nowcasting, bridge equations, dynamic factor models, Bayesian model averaging,Central-, Eastern- and South-Eastern Europe
    JEL: C52 C53 E37
    Date: 2015–06
  33. By: Dosmagambet, Yergali
    Abstract: This paper shows that an accelerated increase in educational attainments in many East Asian countries derives from a dramatic augmentation of working population with vocational education relative to general education. This is consistent with the recent literature, which argues that the ratio of vocational-to-general education tends to be higher in middle-income countries. We explore an analytical approach to open up fresh insights into the composition of secondary education and prove the existence of optimal trajectory that ensures a positive expansion rate of secondary education at early stage of development. Also, we demonstrate that the actual path of vocational-to-general education in Taiwan is very similar to what can be defined by optimal policy for secondary education, which has resulted in a rapid increase in average years of schooling since 1978.
    Keywords: Employment,Economic growth,Education,Human Capital
    JEL: E24 I20 I25 J24
    Date: 2015
  34. By: L. Gauvin; C. Rebillard
    Abstract: China’s rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. At a time when concerns about the sustainability of China’s growth model are rising, this paper assesses to what extent a hard landing in China would impact other countries, with a focus on trade and commodity price channels. After reviewing the main arguments pointing to a hard landing scenario – historical rebalancing precedents, overinvestment, unsustainable debt trends, and a growing real estate bubble – we focus on a sample of thirty-six countries, and use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil markets separately to account for their different end-use patterns and consumption intensity in China, and we identify three specific transmission channels to net commodity exporters: through real exports, through income effects (related to commodity prices), and through investment (a fall in commodity prices reducing incentives to invest in the mining and energy sectors); we also look at the role played by the exchange rate as a shock absorber. According to our estimates, emerging economies (ex. China) would be hardest hit – with a 7.5 percent cumulated growth loss after five years –, in particular in South-East Asia but also in commodity-exporting regions such as Latin America; advanced economies would be less affected. The "growth gap" between emerging and advanced economies would be considerably reduced, leading to partial recoupling.
    Keywords: China, hard landing, spillovers, global VAR, conditional forecast, commodities, recoupling
    JEL: C32 F44 E32 E17 F47 Q02
    Date: 2015
  35. By: Aviv Nevo; Arlene Wong
    Abstract: We document a change in household shopping behavior during the Great Recession. Households purchased more on sale, larger sizes and generic products, increased coupon usage, and shopping at discount stores. We estimate that the returns to these shopping activities declined during the recession and therefore this behavior implies a significant decrease in households’ opportunity cost of time. Using the estimated cost of time and time use data, we estimate a high elasticity of substitution between market expenditure and time spent on non-market work. We find that households smooth a sizable fraction of consumption by varying their time allocation during recessions.
    JEL: D12 E31 J22
    Date: 2015–07
  36. By: Pascal Michaillat (Economics Department London School of Economics (LSE); Centre for Macroeconomics (CFM)); Emmanuel Saez (Department of Economics University of California-Berkeley)
    Abstract: This paper extends Samuelson’s theory of optimal government purchases by considering the contribution of government purchases to macroeconomic stabilization. We consider a matching model in which unemployment can be too high or too low. We derive a sufficient-statistics formula for optimal government purchases. Our formula is the Samuelson formula plus a correction term proportional to the government-purchases multiplier and the gap between actual and efficient unemployment rate. Optimal government purchases are above the Samuelson level when the correction term is positive—for instance, when the multiplier is positive and unemployment is inefficiently high. Our formula indicates that US government purchases, which are mildly countercyclical, are optimal under a small multiplier of 0.03. If the multiplier is larger, US government purchases are not countercyclical enough. Our formula implies significant increases in government purchases during slumps. For instance, with a multiplier of 0.5 and other statistics calibrated to the US economy, when the unemployment rate rises from the US average of 5.9% to 9%, the optimal government purchases-output ratio increases from 16.6% to 19.8%. However, the optimal ratio increases less for multipliers above 0.5 because with higher multipliers, the unemployment gap can be filled with fewer government purchases. For instance, with a multiplier of 2, the optimal ratio only increases from 16.6% to 17.6%.
    Keywords: government purchases, business cycles, multiplier, unemployment, matching
    Date: 2015–06
  37. By: Klimczuk, Andrzej
    Abstract: One of the key challenges of social policy in Poland in the early 21st century is to adapt its management to the requirements of a service economy. Essential conditions for the mixed economy of welfare have been already created after adjustments of the subsystems of national social policy during the first years of membership in the European Union since 2004. Labour market policies (LMPs) already include the relationships between providers from the public sector, the commercial sector, and the non-governmental sector. However, the tasks and services of individual entities and institutions still lack coordination and integration. This paper focus on the examples of possibilities for their development by combining the activation (enabling) policy with concepts of the governance and welfare mix. The paper presents the results of the author’s research on the implementation of welfare mix solutions in the field of professional activation of the unemployed people in Poland. Two case studies are included (1) the implementation of outplacement programs that are based on the cooperation between different entities; and (2) the cooperation between the public employment services and non-governmental employment agencies in the activation of people with disabilities in the labour market. Moreover, basic concepts of ongoing reforms of active labour market policies (ALMPs) in Poland were discussed. The summary contains the practical recommendations and possible directions for further research in the field of integration of employment services.
    Keywords: activation policy, cross-sectoral cooperation, disability, employment agencies, labour market policy, local partnerships and pacts, outplacement, unemployment, welfare mix, mixed economy of welfare
    JEL: E24 J14 J24 J28 J64 Z18
    Date: 2015–05
  38. By: Auer, Raphael
    Abstract: This paper examines the cross-country income and welfare consequences of trade-induced human capital (dis-)accumulation. The model is based on heterogeneous workers who make educational decisions in the presence of complete markets. When such heterogeneous workers invest in schooling, high type agents earn a surplus from their investment. In the presence of cross-country differences in skill-augmenting technology, trade shifts this surplus to rich countries that can use skills more efficiently. Thus, while the static gains from trade may lead to convergence, the dynamic gains from trade occur to initially rich countries, thus leading to cross-country divergence of income and welfare. The second part of the paper endogenizes world prices, documenting that as trade liberalization concentrates skills in countries with a high level of skill augmenting technology, it thereby increases the effective global supply of skilled labor. Despite the resulting decline in the price of skill-intensive goods, trade is shown to be skill-biased.
    Keywords: economic growth; employment; factor content of trade; human capital; import competition
    JEL: E24 F11 F14 F16 J24 O11 O4
    Date: 2015–07
  39. By: Garibaldi, Pietro; Pfann, Gerard Antonie
    Abstract: Dismissal disputes occur mostly in recessions and often lead to long and costly contract termination procedures. This paper investigates how dispute procedures may affect the job-matching process. First we present a simple accounting framework that corresponds with general dismissal legislation, but is sufficiently flexible to accommodate country-specific legislation. Detailed information from a sample of 2,191 disputes that occurred in the Netherlands between 2006 and 2009 is used to adjust the framework to Dutch institutional specificity. The resulting equilibrium matching model is solved to explain endogenous sorting between lengthy and costly firing procedures. The model also rationalizes the longevity of the dual Dutch model and its political resilience.
    Keywords: Disputes; Firing; Legislation; Sorting
    JEL: E24 J08 J38 K31
    Date: 2015–07
  40. By: Debra Bloch; Falilou Fall
    Abstract: There is no single “best” indicator for analysing general government debt. This paper examines the various issues in defining and measuring debt, and explores other data which could be useful, both within and beyond the general government debt concept, to better track and analyse fiscal risks and sustainability issues. Measures from the broadest view of debt – gross financial liabilities – to the most comprehensive accounting of asset and liability positions – net worth – are all helpful metrics. So, too, are narrower data on specific issues, such as future pension liabilities, government guarantees and debt composition. Better data reporting, including more complete metadata and broader data collection, are needed to allow for an arsenal of comparable debt concepts to better anticipate future fiscal pressures.<P>Indicateurs de dette publique : comprendre les données<BR>Aucun indicateur n’est meilleur que les autres pour analyser la dette publique. Ce document passe en revue les différentes questions qui se posent pour définir et mesurer la dette, et analyse d’autres données qui pourraient être utiles, dans le périmètre de définition de la dette des administrations publiques et au-delà, pour mieux identifier et analyser les risques budgétaires et les questions de viabilité à long terme. Les mesures de la dette, dans son acception la plus large – engagements financiers bruts – jusqu’à la comptabilisation la plus exhaustive des positions créditrices et débitrices – situation financière nette –, sont tous des indicateurs utiles. Comme le sont également les données plus ciblées sur certaines questions précises comme les engagements futurs au titre des retraites, les garanties de l’État ou la composition de la dette. Il convient d’améliorer la transmission de données, y compris de métadonnées plus complètes, et d’élargir la collecte de données pour élaborer tout un arsenal de définitions comparables de la dette afin de mieux anticiper les tensions futures sur le budget.
    Keywords: public debt, contingent liability, general government, national accounts, net worth, government guarantee, comptabilité, dette publique, administration publique
    JEL: E01 E62 H6
    Date: 2015–07–03
  41. By: Krueger, Dirk; Ludwig, Alexander
    Abstract: In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the importance of two different channels through which academic talent is transmitted across generations (persistence of innate ability vs. the impact of parental education) for the optimal design of these policies and model different forms of labor as imperfect substitutes, thereby generating general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers. We show that subsidizing higher education has important redistributive benefits, by shrinking the college wage premium in general equilibrium. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.
    Keywords: Progressive Taxation,Education Subsidy,Transitional Dynamics
    JEL: E62 H21 H24
    Date: 2015
  42. By: Michael David Bordo; Pierre Siklos
    Date: 2015–06–26
  43. By: Garibaldi, Pietro (University of Turin); Pfann, Gerard A. (Maastricht University)
    Abstract: Dismissal disputes occur mostly in recessions and often lead to long and costly contract termination procedures. This paper investigates how dispute procedures may affect the job-matching process. First we present a simple accounting frame- work that corresponds with general dismissal legislation, but is sufficiently flexible to accommodate country-specific legislation. Detailed information from a sample of 2,191 disputes that occurred in the Netherlands between 2006 and 2009 is used to adjust the framework to Dutch institutional specificity. The resulting equilibrium matching model is solved to explain endogenous sorting between lengthy and costly firing procedures. The model also rationalizes the longevity of the dual Dutch model and its political resilience.
    Keywords: disputes, firing, legislation, sorting
    JEL: E24 J08 J38 K31
    Date: 2015–06
  44. By: Gianluca Benigno; Luca Fornaro
    Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to permanent, or very persistent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms’ investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
    Keywords: secular stagnation, liquidity traps, growth traps, endogenous growth, sunspots
    Date: 2015–05
  45. By: Maria Jepsen; Philippe Pochet; Christophe Degryse
    Abstract: This critical working paper looks at the series of political choices, circumstances and windows of opportunity that have enabled one particular vision of the model of EU monetary union to gain acceptance. In the context of this model, political union is not considered an accessible way to manage the crisis, for the rescue of the euro is regarded as feasible only in a more competitive economy.
    Keywords: Economic policy, Social policy, Welfare state
    Date: 2013–10
  46. By: Jozef Barunik; Tomas Krehlik
    Abstract: We propose a general framework for measuring frequency dynamics of connectedness in economic variables based on spectral representation of variance decompositions. We argue that the frequency dynamics is insightful when studying the connectedness of variables as shocks with heterogeneous frequency responses will create frequency dependent connections of different strength that remain hidden when time domain measures are used. Two applications support the usefulness of the discussion, guide a user to apply the methods in different situations, and contribute to the literature with important findings about sources of connectedness. Giving up the assumption of global stationarity of stock market data and approximating the dynamics locally, we document rich time-frequency dynamics of connectedness in US market risk in the first application. Controlling for common shocks due to common stochastic trends which dominate the connections, we identify connections of global economy at business cycle frequencies of 18 up to 96 months in the second application. In addition, we study the effects of cross-sectional dependence on the connectedness of variables.
    Date: 2015–07
  47. By: George Verikios
    Abstract: We model the partial liberalisation of the capital account by China using a dynamic CGE model of the world economy. Our results indicate that a reduced capital controls on FDI would lead to a significant increase in FDI capital in China and a significant reduction in the cost of capital in China relative to the rest of the world. Further, we observe an increase in capital stocks in all regions, which benefits all regions in terms of GDP and GNP. The economies of China (1.7%), East Asia (1.3%) and Australia/New Zealand (0.5%) grow most strongly. The rental price of capital falls significantly in these regions, which lowers domestic costs and they experience a real depreciation of the exchange rate and thus increased exports relative to other regions. We also observe an across-the-board increase in the saving rate driven by the rise in the price of consumption relative to investment (saving) in all regions.
    Keywords: capital controls, China, computable general equilibrium, FDI, multinational firms, trade
    JEL: C68 E22 F21 F23 F40
    Date: 2014–01
  48. By: Bartha, Zoltán; Tóthné Szita, Klára
    Abstract: State of the Future Index for Hungary. Time series collected for 1995-2014, extrapolated to 2025.
    Keywords: State of the Future Index, SOFI, Hungary, life expectancy, corruption
    JEL: C82 E61 O52
    Date: 2015–02–17
  49. By: Fries, Claudia
    Abstract: I extend the model-based literature on spillover effects of labour market reforms on foreign (un-)employment by allowing for third-country effects. When the workhorse two-country model is enlarged to include a third country, a reform causes an additional indirect effect through a terms-of-trade shift between the foreign countries. To quantify the increase or reduction in the overall spillover by means of this channel, simulations based on empirically realistic scenarios are carried out. Thereby, the indirect effect turns out to be too small to overturn the direct effect or to increase it considerably. Differences in the reform spillover effects between foreign countries are mainly due to differences in characteristics which influence the size of the direct impact.
    Keywords: spillover,labour market reforms,third-country effects,indirect effects,dynamic general equilibrium models
    JEL: E24 F42
    Date: 2015
  50. By: Arup Daripa (Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: I present a mechanism that relies on the interaction of coordination and ambiguity (Knightian uncertainty) and makes precise how a loss of confidence can arise in loan markets, leading to a systemic liquidity crisis. The paper studies a simple global-game coordination model among lenders to a financial intermediary and shows how a market haircut arises in equilibrium. I show how the haircut responds to a variety of parameters. In particular, I show that coordination is non-robust to ambiguity in investor signals and becomes fragile in an environment with ambiguity. This leads to the haircut jumping up suddenly, possibly to 100% when enough lenders are ambiguity-sensitive. Further, I show that the fragility of coordination implies that in such an environment, policy itself becomes a systemic trigger. If the regulator fails to rescue an institution that the market expects to be saved, which in turn changes market expectation about policy for other institutions even slightly, an immediate systemic collapse of liquidity ensues. The results explain both the contagious run on liquidity markets at the advent of the recent crisis as well as the liquidity market freeze after the Lehman collapse. While what matters for the possibility run is whether an institution is too-unexpected-to-fail (TUTF), it is likely that institutions typically considered too-big-to-fail (TBTF) are also likely to be TUTF. The results then show that TBTF institutions limit the spread of crises, and breaking up a TBTF increases systemic vulnerability. Further, the results cast some doubt on the efficacy of the ring-fencing policy proposed by the UK banking commission.
    Keywords: Short-term debt, systemic liquidity crises, coordination, ambiguity, bail-out policy, liquidity policy.
    JEL: G2 C7 E5
    Date: 2015–04
  51. By: Shouyong Shi (Pennsylvania State University); Melanie Cao
    Abstract: By analyzing a stochastic equilibrium with endogenous liquidity in the capital market, this paper explains the puzzling fact that capital reallocation across firms is procyclical while dispersion in Tobin's q across firms is acyclical or counter cyclical. Capital is reallocated across firms through a frictional market modeled by search and matching. The market tightness captures liquidity in this market and is endogenously determined as buyers choose whether to enter the market. Capital creation is also endogenous as capital makers choose whether to incur a cost to make capital. When aggregate productivity increases, more capital is created. At the same time, more buyers enter the capital market to buy capital in an attempt to capture the increased value of a productive firm. As a result, market liquidity increases and more capital is reallocated. The price of capital increases, which increases q of low-value firms and reduces q of high-value firms. The mean and standard deviation in q across firms respond ambiguously to an increase in aggregate productivity. These results are robust to the addition of heterogeneity in firm-specific productivity.
    Date: 2015
  52. By: Jorge Armando Rodríguez
    Abstract: Este artículo examina las características del impuesto sobre la renta colombiano y la manera en que ellas moldean su potencial distributivo. El escrito llama la atención sobre la importancia de distinguir entre la distribución de la carga tributaria y el efecto de la misma sobre la distribución del ingreso. Muestra que la versión del impuesto mínimo alternativo instaurada en el país discrimina entre categorías de ingresos laborales y de capital. También explora los rasgos distributivos de diferentes sistemas de integración entre el impuesto personal y el de sociedades, en condiciones de elevada concentración del ingreso. Las repercusiones probables del llamado impuesto plano, cuya adopción promovió el gobierno nacional en la primera década del siglo XXI, son objeto de discusión. Las tarifas nominales son vistas ante todo como parte del engranaje impositivo estatutario, pero no se desconoce su dimensión de señales institucionales. El artículo ofrece algunas estimaciones de las tarifas efectivas, contrastándolas con las obtenidas por otros estudios.
    Keywords: Impuesto sobre la renta, Distribución de la carga tributaria, Distribución del ingreso, Política tributaria colombiana.
    JEL: H24 H25 K34 D31 E25
    Date: 2015–02–19

This nep-mac issue is ©2015 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.