nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒08‒01
forty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Hysteresis and the European unemployment problem revisited By Jordi Galí
  2. On the Welfare and Cyclical Implications of Moderate Trend Inflation By Guido Ascari; Louis Phaneuf; Eric Sims
  3. What Measure of Inflation Should a Developing Country Central Bank Target? By Rahul Anand; Eswar Prasad; Boyang Zhang
  4. Decomposition of the European GDP based on Singular Spectrum Analysis By Leon, Costas
  5. "Making the Euro Viable: The Euro Treasury Plan" By Jorg Bibow
  6. Tail comovement in option-implied inflation expectations as an indicator of anchoring By Sara Cecchetti; Filippo Natoli; Laura Sigalotti
  7. Long-term Fiscal and Economic Projections for Canada and the Provinces and Territories, 2014-2038 By Don Drummond; Evan Capeluck
  8. Inflation forecasting models for Uganda: is mobile money relevant? By Aron, Janine; Muellbauer, John; Sebudde, Rachel
  9. Risk-adjusted expectations of inflation By Marco Casiraghi; Marcello Miccoli
  10. Aggregate Inflation Forecast with Bayesian Vector Autoregressive Models By Cesar Carrera; Alan Ledesma
  11. Fiscal Episodes, Technological Progress and Market Power By António Afonso; João Tovar Jalles
  12. Natural and Cyclical Unemployment in Latvia: New Insights from the Beveridge Curve Model By Olegs Krasnopjorovs
  13. Maintaining Central-Bank Financial Stability under New-Style Central Banking By Hall, Robert E; Reis, Ricardo
  14. Relationship Banking, Shadow Banking, and the Economics of Depression By Bianco, Antonio
  15. Nicholas Kaldor on endogenous money and increasing returns By Guglielmo Forges Davanzati
  16. Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging By Rodney Ramcharan; Amir Kermani; Marco Di Maggio
  17. US trend inflation reinterpreted. The role of fiscal policies and time-varying nominal rigidities By Acocella Nicola; Di Bartolomeo Giovanni; Tirelli Patrizio
  18. Inflation Dynamics and Agricultural Supply Shocks in Uganda By Joseph, Mawejje; Musa, Mayanja Lwanga
  19. On the importance of the dual labour market for a country within a monetary union By Anna Kosior; Michał Rubaszek; Kamil Wierus
  20. Criticizing the Lucas Critique: Macroeconometricians' Response to Robert Lucas By Aurélien Goutsmedt; Erich Pinzon-Fuchs; Matthieu Renault; Francesco Sergi
  21. The Impact of Treasury Supply on Financial Sector Lending and Stability By Krishnamurthy, Arvind; Vissing-Jorgensen, Annette
  22. Optimal Fiscal Policy Rule for Achieving Fiscal Sustainability: A Japanese Case Study By Yoshino, Naoyuki; Mizoguchi, Tetsuro; Taghizadeh-Hesary, Farhad
  23. Hyperbolic Discounting and Life-Cycle Portfolio Choice By David Love; Gregory Phelan
  24. Analyzing the impact of financial sector growth on female empowerment: A focus on the United States of America By Tariq, Anam; Masih, Mansur
  25. Economic resilience: A new set of vulnerability indicators for OECD countries By Oliver Röhn; Aida Caldera Sánchez; Mikkel Hermansen; Morten Rasmussen
  26. Weak Markets, Strong Teachers: Recession at Career Start and Teacher Effectiveness By Nagler, Markus; Piopiunik, Marc; West, Martin R.
  27. Causality between financial development and economic growth, and the Islamic finance imperative: A case study of Indonesia By Ismail, Mohamed Ayaz Mohamed; Masih, Mansur
  28. Systemic Risk, Aggregate Demand, and Commodity Prices By Javier G. Gómez-Pineda; Dominique Guillaume; Kadir Tanyeri
  29. Dynamic Predictive Density Combinations for Large Data Sets in Economics and Finance By Roberto Casarin; Stefano Grassi; Francesco Ravazzolo; Herman K. van Dijk
  30. Finance, growth and human development: An Islamic economic development perspective By Uddin, Md. Akhter; Masih, Mansur
  31. Criticizing the Lucas Critique: Macroeconometricians' Response to Robert Lucas By Aurélien Goutsmedt; Erich Pinzon-Fuchs; Matthieu Renault; Francesco Sergi
  32. The Agenda for Structural Reform in Europe By Fatás, Antonio
  33. Do US policy uncertainty, leveraging costs and global risk aversion impact emerging market equities? An application of bounds testing approach to the BRICS By Momin, Ebaad; Masih, Mansur
  34. Intrinsic persistence of wage in‡ation in New Keynesian models of the business cycles By Di Bartolomeo Giovanni; Di Pietro Marco
  35. Small Price Responses to Large Demand Shocks By Gagnon, Etienne; López-Salido, J David
  36. A Detailed Analysis of Productivity Trends in the Forest Products Sector in Quebec, 2000-2013: Adversity Drives Productivity By Jasmin Thomas
  37. Is Money Neutral for Agriculture? By Dorfman, Jeffrey H.
  38. How important is Foreign Direct Investment to Economic Growth? New Evidence from Nigeria By Owolabi-Merus, Olasunkanmi
  39. Islamic banking: 40 years later, still interest-based? Evidence from Malaysia By Gulzar, Rosana; Masih, Mansur
  40. Bank Liabilities Channel By Vincenzo Quadrini
  41. Decentralisation and The Evolution of Common Law By Ojo, Marianne
  42. Optimal in‡ation targeting rule under positive hazard functions for price changes By Di Bartolomeo Giovanni; Di Pietro Marco

  1. By: Jordi Galí
    Abstract: The unemployment rate in the euro area appears to contain a significant nonstationary component, suggesting that some shocks have permanent effects on that variable. I explore possible sources of this nonstationarity through the lens of a New Keynesian model with unemployment, and assess their empirical relevance.
    Keywords: wage stickiness, New Keynesian model, unemployment fluctuations, Phillips curve, insider-outsider model.
    JEL: E24 E31 E32
    Date: 2015–06
  2. By: Guido Ascari; Louis Phaneuf; Eric Sims
    Abstract: We offer a comprehensive evaluation of the welfare and cyclical implications of moderate trend inflation. In an extended version of a medium-scale New Keynesian model, recent proposals to increase trend inflation from 2 to 4 percent would generate a consumption-equivalent welfare loss of 3.7 percent based on the non-stochastic steady state and of 6.9 percent based on the stochastic mean. Welfare costs of this magnitude are driven by four main factors: i) multiperiod nominal wage contracting, ii) trend growth in investment-specific and neutral technology, iii) roundaboutness in the U.S. production structure, and iv) and the interaction between trend inflation and shocks to the marginal efficiency of investment (MEI), insofar that this type of shock is sufficiently persistent. Moreover, moderate trend inflation has important cyclical implications. It interacts much more strongly with MEI shocks than with either productivity or monetary shocks.
    JEL: E31 E32
    Date: 2015–07
  3. By: Rahul Anand; Eswar Prasad; Boyang Zhang
    Abstract: In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.
    JEL: E31 E52 E61
    Date: 2015–07
  4. By: Leon, Costas
    Abstract: In this paper, the Singular Spectrum Analysis (SSA), a relatively new tool originated in natural sciences, for orthogonal decomposition of time series, is presented and applied in the European real, seasonally unadjusted quarterly GDP for the period 1995 - 2010. SSA is suitable for short and noisy time series, properties that characterize many macroeconomic time series. In this paper, I decompose the GDP in trend, cycle, seasonals and noise components. There are significant similarities but also some differences between the SSA-based filter and the other well-known macroeconomic filters. These differences are shown here by means of correlation matrices and spectral measures. Although SSA is a method that only very recently has been introduced in macroeconomics, its use in the natural sciences for more than three decades, makes it a serious candidate for tackling macroeconomic issues such as filtering, denoising and smoothing.
    Keywords: Macroeconomics, economic fluctuations, business cycle, dynamical systems, spectral methods, singular spectrum analysis.
    JEL: C1 C15 C4 C5 E3 E32 E37
    Date: 2015–07–28
  5. By: Jorg Bibow
    Abstract: The euro crisis remains unresolved and the euro currency union incomplete and extraordinarily vulnerable. The euro regime's essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. We propose a "Euro Treasury" scheme to properly fix the regime and resolve the euro crisis. This scheme would establish a rudimentary fiscal union that is not a transfer union. The core idea is to create a Euro Treasury as a vehicle to pool future eurozone public investment spending and to have it funded by proper eurozone treasury securities. The Euro Treasury could fulfill a number of additional purposes while operating mainly on the basis of a strict rule. The plan would also provide a much-needed fiscal boost to recovery and foster a more benign intra-area rebalancing.
    Keywords: Economic and Monetary Union; Euro Crisis; Euro Treasury; Fiscal Union; Public Investment
    JEL: E32 E62 E63 H62 H63
    Date: 2015–07
  6. By: Sara Cecchetti (Bank of Italy); Filippo Natoli (Bank of Italy); Laura Sigalotti (Bank of Italy)
    Abstract: We analyse the degree of anchoring of inflation expectations in the euro area. Using a new estimation technique, we look at the tail co-movement between the moments of short- and long-term distributions of inflation expectations, where those distributions are estimated from daily quotes of inflation derivatives. We find that, since mid-2014, negative tail events impacting short-term inflation expectations have been increasingly channelled to long-term views, igniting both downward revisions in expectations and upward changes in uncertainty; instead, positive short-term tail events have left long-term moments mostly unaffected. This asymmetric behaviour may signal a disanchoring from below of long-term inflation expectations.
    Keywords: disanchoring, inflation swaps, inflation options, option-implied density, tail comovement
    JEL: C14 C58 E31 E44 G13
    Date: 2015–07
  7. By: Don Drummond; Evan Capeluck
    Abstract: This report presents long-term fiscal and economic projections for Canada, the provinces and the territories for the 2014-2038 period, and discusses their implications for budgetary balance at the provincial/territorial level. In particular, it examines whether economic growth and hence revenue growth (assuming no major changes in tax policy) will be sufficient to fund likely spending pressures. Economic growth is generally projected to be slower over the next 24 years than since 2000. As a result, all, or almost all, provinces and territories, depending upon the economic assumptions, will not be able to meet the test of balancing revenue growth with growth in public spending. Hence, without tax rate increases or action to curtail spending growth, there will be pressure for progressively larger deficits.
    Keywords: Projection, Ageing, Fiscal Sustainability, Demographics, Canada, Budget, Provinces, Revenue Growth, Taxes, Economic Growth
    JEL: E17 E27 E37 E47 E60 E62 E66 H20 H50 H51 H60 H61 H62 H68 H70 H71 H72 J10 O40
    Date: 2015–07
  8. By: Aron, Janine; Muellbauer, John; Sebudde, Rachel
    Abstract: Forecasting inflation is challenging in emerging markets, where trade and monetary regimes have shifted, and the exchange rate, energy and food prices are highly volatile. Mobile money is a recent financial innovation giving financial transaction services via a mobile phone, including to the unbanked. Stable models for the 1-month and 3-month-ahead rates of inflation in Uganda, measured by the consumer price index for food and non-food, and for the domestic fuel price, are estimated over 1994-2013. Key features are the use of multivariate models with equilibrium-correction terms in relative prices; introducing non-linearities to proxy state dependence in the inflation process; and applying a ‘parsimonious longer lags’ (PLL) parameterisation to feature lags up to 12 months. International influences through foreign prices and the exchange rate (including food prices in Kenya after regional integration) have an important influence on the dependent variables, as does the growth of domestic credit. Rainfall deviation from the long-run mean is an important driver for all, most dramatically for food. The domestic money stock is irrelevant for food and fuel inflation, but has a small effect on non-food inflation. Other drivers include the trade and current account balances, fiscal balance, terms of trade and trade openness, and the international interest rate differential. Parameter stability tests suggest the models could be useful for short-term forecasting of inflation. There is no serious evidence of a link between mobile money and inflation.
    Keywords: error correction models; mobile money; model selection; modelling inflation
    JEL: C22 C51 C52 C53 E31 E37 E52
    Date: 2015–07
  9. By: Marco Casiraghi (Banca d'Italia); Marcello Miccoli (Banca d'Italia)
    Abstract: We propose a new way to compute market-based risk-adjusted measures of inflation expectations. Borrowing from the finance literature, we study the ex-post excess return on inflation swap contracts – the difference between the swap rate at a given maturity and the realized inflation rate over the same horizon – which is an unbiased proxy of risk premia under the rational expectations hypothesis. The empirical results show that the risk premia on inflation swap rates at short-to-medium maturities can be predicted by macroeconomic variables that are present in agents’ information set at the time the contract is signed, and that they vary counter-cyclically. This econometric analysis is then used to construct a measure of risk-adjusted inflation expectations so as to assess the role of risk premia in determining inflation swap rates. On this basis we find that the observed decline in inflation swap rates at short-to-medium maturities in 2014 was driven mainly by changes in inflation expectations.
    Keywords: Monetary Policy, Inflation swap, Inflation expectations, Risk premia
    JEL: E52 G13
    Date: 2015–07
  10. By: Cesar Carrera (Banco Central de Reserva del Perú); Alan Ledesma (UC Santa Cruz)
    Abstract: We forecast 18 groups of individual components of the Consumer Price Index (CPI) using a large Bayesian vector autoregressive model (BVAR) and then aggregate those forecasts in order to obtain a headline inflation forecast (bottom-up approach). De Mol et al. (2006) and Banbura et al. (2010) show that BVAR's forecasts can be significantly improved by the appropriate selection of the shrinkage hyperparameter. We follow Banbura et al. (2010)’s strategy of “mixed priors," estimate the shrinkage parameter, and forecast inflation. Our findings suggest that this strategy for modeling outperform the benchmark random walk as well as other strategies for forecasting inflation.
    Keywords: Inflation forecasting, aggregate forecast, Bayesian VAR
    JEL: C22 C52 C53 E37
    Date: 2015–07
  11. By: António Afonso; João Tovar Jalles
    Abstract: We assess the impact of fiscal adjustments (and technology) on the evolution of markups in a panel of 14 OECD countries. We allow for smooth changes in the technological parameters by generating measures of TFP compatible with markups and assess the interaction between the two variables. Our results with narrative action-based data show counter-cyclicality since negative fiscal shocks increase markups. Moreover, in times of economic contraction the degree of counter-cyclicality of negative (positive) government spending (tax) shocks is larger than during economic expansions. In addition, markups have a pro-cyclical behaviour after a productivity shock. However, when identifying fiscal consolidations using changes of the cyclically adjusted primary balance, one obtains expansionary effects and a pro-cyclical behaviour in terms of markups and aggregate demand shocks.
    Keywords: imperfect competition, TFP, fiscal consolidation, local projection, business cycle, impulse response functions, GMM
    JEL: D4 E3 E6 H6
    Date: 2015–07
  12. By: Olegs Krasnopjorovs (Bank of Latvia)
    Abstract: Whether current unemployment in Latvia is mostly structural or cyclical recently provoked an intense debate among policy makers and academic researchers. This paper follows the method proposed by Barlevy (2011) to estimate natural and cyclical components of unemployment from the Beveridge curve model. It finds that at the end of 2014 unemployment in Latvia was quite similar to its natural rate. Zero cyclical component of unemployment suggests that aggregate-demand-stimulating policies would not bring unemployment down without creating inflationary pressures and competitiveness loss and, therefore, are not a preferred option. Instead, raising matching efficiency between the unemployed and vacancies would decrease natural unemployment from its current high of about 11%. Moreover, it was found that the lowest matching efficiency between the unemployed and vacancies is present among workers (compared to managers and professionals) and typical for Latgale region. This might reflect significant structural problems rather than low business cycle synchronisation with the other occupational groups and regions.
    Keywords: unemployment, vacancies, Beveridge curve, cyclical unemployment, natural unemployment, structural unemployment
    JEL: J63 J64 E24 E60
    Date: 2015–07–03
  13. By: Hall, Robert E; Reis, Ricardo
    Abstract: Since 2008, the central banks of advanced countries have borrowed trillions of dollars from their commercial banks in the form of interest-paying reserves and invested the proceeds in portfolios of risky assets. We investigate how this new style of central banking aects central banks' solvency. A central bank is insolvent if its requirement to pay dividends to its government exceeds its income by enough to cause an unending upward drift in its debts to commercial banks. We consider three sources of risk to central banks: interest-rate risk (the Federal Reserve), default risk (the European Central Bank), and exchange-rate risk (central banks of small open economies). We nd that a central bank that pays dividends equal to a standard concept of net income will always be solvent|its reserve obligations will not explode. In some circumstances, the dividend will be negative, meaning that the government is making a payment to the bank. If the charter does not provide for payments in that direction, then reserves will tend to grow more in crises than they shrink in normal times. To prevent this buildup, the charter needs to provide for makeup reductions in payments from the bank to the government. We compute measures of the nancial strength of central banks, and discuss how dierent institutions interact with quantitative easing policies to put these banks in less or more danger of instability. We conclude that the risks to nancial stability are real in theory, but remote in practice today.
    Keywords: central bank capital; central bank solvency; monetary policy; quantitative easing
    JEL: E42 E58
    Date: 2015–07
  14. By: Bianco, Antonio
    Abstract: A stock-flow consistent and simple methodological account of the influence of financial markets over the real economy is here presented. Based on an original interpretation of the basic heterogeneity in relationship and shadow banking operations, often referred to as OTH vs. OTD banking models, this methodological article develops an accounting model that emphasizes the interdependencies in entrepreneurs’ variations in animal spirits, financial institutions’ liquidity risk management, and households’ effective demand. The model captures the idea that fluctuations in the composition of property incomes lead to fluctuations in borrowing for non-financial purposes that, in their turn, drive fluctuations in spending. The model is so devised as to allow a tidy comparison in the role played by relationship or shadow banking over the dynamism of a depressed economy.
    Keywords: depression, animal spirits, liquidity preference, effective demand, post-Keynesian, endogenous money, securitization, relationship vs. shadow banking, originate-to-hold vs. originate-to-distribute
    JEL: B52 E12 E20 E44 M40
    Date: 2015–05
  15. By: Guglielmo Forges Davanzati (University of Salento)
    Abstract: Nicholas Kaldor’s contribution to economic theory covers a wide range of topics, elaborated in different historical contexts, such as theories of economic growth and the balance of payments, studies on interregional divergences and monetary theory. In most cases, historians of economic thought have devoted their attention to single aspects of his contributions. This paper aims at integrating Kaldor’s monetary theory and his view of the relevance of increasing returns. His theory of endogenous money is very similar to the view proposed in the contemporary monetary theory of production, and, in this respect, Kaldor’s contribution can certainly be considered an “antecedent” of this line of thought.
    Keywords: endogenous money, aggregate demand, labour productivity.
    JEL: B3 E4
    Date: 2015–03
  16. By: Rodney Ramcharan (Federal Reserve Board); Amir Kermani (UC Berkeley); Marco Di Maggio (Columbia)
    Abstract: Do households benefit from expansionary monetary policy? We investigate how indebted households' consumption and saving decisions are affected by anticipated changes in monthly interest payments. We focus on borrowers with adjustable rate mortgages originated between 2005 and 2007 featuring an automatic reset of the interest rate after five years. The monthly payment due from the average borrower falls by 52 percent ($900) upon reset, resulting in an increase in disposable income totaling tens of thousands of dollars over the remaining life of the mortgage. We uncover three patterns. First, the average household increases monthly car purchases by 40 percent ($150) upon reset. Second, this expansionary effect is attenuated by the borrowers' voluntary deleveraging, as a significant fraction of the increased income is deployed to accelerate debt repayment. Third, the marginal propensity to consume is significantly higher for low income borrowers and for those that had experienced a larger decline in housing wealth. To complement these household-level findings, we employ county-level data to provide evidence that consumption responded more to a reduction in short-term interest rates in counties with a larger fraction of adjustable rate mortgage debt. Our results shed light on the income channel of monetary policy as well as the role of debt rigidity in reducing the effectiveness of monetary policy.
    Date: 2015
  17. By: Acocella Nicola; Di Bartolomeo Giovanni; Tirelli Patrizio
    Date: 2014–09
  18. By: Joseph, Mawejje; Musa, Mayanja Lwanga
    Abstract: We estimate the contribution of agricultural supply shocks to inflation in Uganda. Using monthly data for the time period January 2000 to December 2012, we develop an empirical model for inflation processes in Uganda. The model is estimated as a single equation that includes lagged vector error correction terms from the money, external, and domestic agricultural markets. We include in our model a measure for shocks to the agricultural sector, the agricultural output gap, estimated as the monthly deviations of realized from potential agricultural output. The analysis is augmented by a VAR model that allows us to account for inflation persistence. Results indicate that disequilibria in the money, external and agricultural sectors feed into the Ugandan inflation process in the long run. Importantly, the agricultural sector is one of the important sources of inflation in the short run. Our findings have important implications for policy in Uganda. Specifically, policies geared towards improving agricultural productivity on the one hand and limiting supply rigidities on the other will be crucial in controlling inflation in Uganda
    Keywords: Inflation, agricultural shocks, money market, external sector, energy sector, Agribusiness, Agricultural Finance, Consumer/Household Economics, Demand and Price Analysis, Financial Economics, Institutional and Behavioral Economics, Labor and Human Capital, Production Economics,
    Date: 2015–03
  19. By: Anna Kosior; Michał Rubaszek; Kamil Wierus
    Abstract: The paper investigates whether differences in the popularity of fixed term contacts on the labour market can be a source of divergent dynamics of unemployment among European Monetary Union economies. For that purpose we construct a database of labor market institutions for a group of eleven euro area countries and years 1995-2013 to conduct a series of dynamic panel regressions. We find a robust and significant impact of duality on unemployment dynamics: high duality rate amplifies its responsiveness to output shocks and lowers its persistence. The heterogeneous unemployment developments, in turn, are a challenge for the conduct of common monetary policy. We conclude that improved stability at both the euro area and country level may be obtained by a coordinated shift to ‘single-contract’ that closes the disproportion between temporary and regular contracts.
    Keywords: Dual labour market, Monetary Union, Panel Data
    JEL: C23 F02 J68
    Date: 2015
  20. By: Aurélien Goutsmedt (Centre d'Economie de la Sorbonne); Erich Pinzon-Fuchs (Centre d'Economie de la Sorbonne); Matthieu Renault (Centre d'Economie de la Sorbonne); Francesco Sergi (Centre d'Economie de la Sorbonne)
    Abstract: The standard history of macroeconomics considers Lucas (1976)– “the Lucas Critique” –as a path-breaking innovation for the discipline. According to this view Lucas's article dismissed the traditional macroeconometric practice calling for new ways of conceiving the quantitative evaluation of economic policies. The Lucas Critique is considered, nowadays, as a fundamental principle of macroeconomic modeling (Woodford, 2003). The interpretation and the application of the Critique, however, represent still unsolved issues in economics (Chari et al., 2008). Even if the influence of Lucas's contribution cannot be neglected, something seems to be missing in the narrative: the reactions of the economists that were directly targeted by the Critique. Modeling practices of economic policy evaluation were not overthrown immediately after Lucas (1976), creating a divide between theoretical and applied macroeconomics (Brayton et al., 1977). The purpose of this paper is to study the reactions of the macroeconometricians criticized by Lucas. We focus especially on those macroeconometricians who worked on policy evaluation and who held an expertise position in governmental institutions. We categorize the different reactions to the Critique, in order to enrich the understanding of the evolution of modeling and expertise practices through the analysis of the debates–which have not yet been completely solved. In the first section, we propose a careful account of Lucas's argument and of some of the previous works anticipating the substantial outline of the Critique (like Frisch's notion of autonomy). Second, we bring our own interpretation of Lucas (1976). We think that we find two points of view in Lucas paper: a prescriptive one that tell you how to build a good macroeconometric model (it is the standard interpretation of the article); a positive one that relies on the fact that the Lucas critique could be seen as an attempt to explain a real-world phenomenon, the stagflation. Third, we classify the reactions of the Keynesian macroeconometricains following this line of interpretation. On the prescriptive side, the Keynesians protested against the New Classical solution to the Lucas critique (the use of the rational expectation hypothesis among other things). Klein, for instance, proposed an alternative microfoundational programme to study more empirically the formation of expectations. On the positive side, the Keynesians put into question the relevance of the Lucas Critique to explain the rise of both unemployment and inflation in the 1970s. They tried to test the impact of policy regime changes and of shifts in agents behaviour. According to us, in general, the explanation of the stagflation was elsewhere
    Keywords: History of macroeconomics; Keynesian economics; Lucas critique; Macroeconometrics; Rational expectations
    JEL: B22 B41 E60
    Date: 2015–07
  21. By: Krishnamurthy, Arvind; Vissing-Jorgensen, Annette
    Abstract: We present a theory in which the key driver of short-term debt issued by the financial sector is the portfolio demand for safe and liquid assets by the non-financial sector. This demand drives a premium on safe and liquid assets that the financial sector exploits by owning risky and illiquid assets and writing safe and liquid claims against those. The central prediction of the theory is that safe and liquid government debt should crowd out financial sector lending financed by short-term debt. We verify this prediction in U.S. data from 1875-2014. We take a series of approaches to rule out “standard" crowding out via real interest rates and to address potential endogeneity concerns.
    Keywords: banking; financial stability; monetary economics; treasury supply
    JEL: E4 G12 G2
    Date: 2015–07
  22. By: Yoshino, Naoyuki (Asian Development Bank Institute); Mizoguchi, Tetsuro (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: Japan’s debt-to-gross domestic product (GDP) ratio is the highest among Organisation for Economic Co-operation and Development (OECD) countries. This paper will firstly answer the question of whether Japanese government debt is sustainable. Next, while the Domar condition and Bohn’s condition are often used in the literature to check whether a government’s debt situation is in a dangerous zone, this paper will show that the Domar condition is obtained only from the government budget constraint (namely the supply of government bonds) and does not take into account the demand for government bonds. A simple comparison of the interest rate and the growth rate of an economy using the Domar condition is not adequate to check the stability of a government’s budget deficit. Both the interest rate and the growth rate of the economy are determined endogenously in the model. Thirdly, this paper shows that Bohn’s condition satisfies the stability of the government budget in the long run by imposing constraints on the primary balance. However, Bohn’s condition does not achieve economic stability—even if the condition is satisfied, the recovery of the economy may not be achieved. This paper will propose a new condition that satisfies both the stability of the government budget and the recovery of the economy. The paper will shed light on these issues both theoretically and empirically. The empirical findings declare that in order to achieve fiscal sustainability based on the optimal fiscal policy rule provided in this paper, both sides of the Japanese government budget (expenditure and revenue) need to be adjusted simultaneously. Moreover, the results show that the decrease in government expenditure has to be to more than the increase in tax revenue.
    Keywords: fiscal policy; fiscal sustainability; Domar condition; Bohn’s condition; fiscal policy rule
    JEL: E42 E63
    Date: 2015–07–10
  23. By: David Love (Williams College); Gregory Phelan (Williams College)
    Abstract: This paper studies how hyperbolic discounting affects stock market participation, asset allocation, and saving decisions over the life cycle in an economy with Epstein-Zin preferences. Hyperbolic discounting affects saving and portfolio decisions through at least two channels: (1) it lowers desired saving, which decreases financial wealth relative to future earnings; and (2) it lowers the incentive to pay a fixed cost to enter the stock market. We find that hyperbolic discounters accumulate less wealth relative to their geometric counterparts and that they participate in the stock market at a later age. Because they have lower levels of financial wealth relative to future earnings, hyperbolic discounters who do participate in the stock market tend to hold a higher share of equities, particularly in the retirement years. We find that increasing the elasticity of intertemporal substitution, holding risk aversion constant, greatly magnifies the impact of hyperbolic discounting on all of the model's decision rules and simulated levels of participation, allocation, and wealth. Finally, we introduce endogenous financial knowledge accumulation and find that hyperbolic discounting leads to lower financial literacy and inefficient stock market investment.
    Keywords: Hyperbolic discounting, Epstein-Zin, portfolio choice, financial literacy
    JEL: G11 G22 D91 E21
    Date: 2015–07
  24. By: Tariq, Anam; Masih, Mansur
    Abstract: It is believed that institutional economics takes into account factors that are often neglected in neoclassical economics. Of these is the role of cultural expectations, societal norms and gender-related expectations. To test whether gender does play a significant role in impacting an individual’s well-being is our broad objective. On a more specific level, we want to test the effect of the presence and penetration of the financial industry, measured by deposit accounts and also represented by GDP growth in this paper, on female empowerment, measured by female labour workforce participation. We also use unemployment figures to check if it is affected in a similar fashion to our main dependent variable and if not, why there is a difference of impact between overall employment and that which is specific to the female gender only. We assume that active workforce participation represents an individual’s level of financial independence and consequently, one’s level of empowerment within the society. We use the Auto Regressive Distributive Lag(ARDL) technique to investigate an issue which is often studied based on a cross-country analysis rather than on a time-series scale. We also chose to make the United States of America our focus, as we would like to test if the impact on a developed country is similar to that of developing countries. Amongst our major findings are the lack of impact formal financial institutions seem to have on female participation in an economy, while we notice a significant level of correlation between unemployment, female participation and GDP.
    Keywords: Financial sector, female empowerment, ARDL
    JEL: C22 C58 E44
    Date: 2015–06–20
  25. By: Oliver Röhn; Aida Caldera Sánchez; Mikkel Hermansen; Morten Rasmussen
    Abstract: The high costs of crises underscore the need to strengthen the resilience of economies, notably by assessing early on potential vulnerabilities that can lead to such costly events. This paper first discusses the source and nature of potential vulnerabilities in OECD countries that can lead to costly economic crises. Based on the most recent evidence from the early warning literature and lessons learned from the global financial crisis, it then proposes a new dataset of more than 70 vulnerability indicators that could be monitored to assess country risks in OECD economies. The indicators are grouped into five domestic areas: i) financial sector imbalances, ii) non-financial sector imbalances, iii) asset market imbalances, iv) public sector imbalances and v) external sector imbalances. An additional international “spillovers, contagion and global risks” category aims at capturing vulnerabilities that could transmit from one country to another through financial, trade or confidence channels. Evidence in a companion paper (Hermansen and Röhn, 2015) shows that the majority of the proposed indicators for which sufficiently long time series exists is helpful in predicting severe recessions and crises in the 34 OECD economies and Latvia between 1970 and 2014.<P>Résilience économique: Un nouvel ensemble d'indicateurs de vulnérabilité pour les pays OCDE<BR>Les coûts élevés des crises soulignent la nécessité de renforcer la résilience des économies, notamment en évaluant à temps les vulnérabilités potentielles qui peuvent causer de tels événements onéreux. Cette étude traite tout d'abord de l’origine et de la nature des vulnérabilités potentielles dans les pays de l'OCDE qui peuvent conduire à des crises économiques coûteuses. Sur la base des résultats documentés dans la littérature récente et des leçons tirées de la crise financière mondiale, l’étude propose ensuite un nouvel ensemble de données de plus de 70 indicateurs de vulnérabilité qui pourraient permettre d’évaluer les risques pays des économies de l'OCDE. Les indicateurs sont regroupés en cinq domaines domestique: i) les déséquilibres du secteur financier, ii) les déséquilibres du secteur non-financier, iii) les déséquilibres du marché des actifs, iv) les déséquilibres du secteur public et v) les déséquilibres du secteur externe. Une catégorie supplémentaire « retombées, contagion et risques globales » vise à capter les vulnérabilités qui pourraient se transmettre d'un pays à un autre par le canal de la finance, du commerce ou de la confiance. Les résultats présentés dans un document connexe (Hermansen et Röhn, 2015) montrent que la majorité des indicateurs proposés ici pour lesquels il existe des séries temporelles suffisamment longues sont utiles pour prévoir les récessions graves et les crises dans les 34 pays de l'OCDE et la Lettonie entre 1970 et 2014.
    Keywords: recession, crisis, resilience, imbalances, vulnerability, déséquilibres, vulnérabilité, résilience, crise, récession
    JEL: E44 E51 F37 F47
    Date: 2015–07–28
  26. By: Nagler, Markus; Piopiunik, Marc; West, Martin R.
    Abstract: How do alternative job opportunities affect teacher quality? We provide the first causal evidence on this question by exploiting business cycle conditions at career start as a source of exogenous variation in the outside options of potential teachers. Unlike prior research, we directly assess teacher quality with value-added measures of impacts on student test scores, using administrative data on 33,000 teachers in Florida public schools. Consistent with a Roy model of occupational choice, teachers entering the profession during recessions are significantly more effective in raising student test scores. Results are supported by placebo tests and not driven by differential attrition.
    Keywords: teacher value-added; talent allocation; business cycle; Roy model
    JEL: E32 H75 I20 J24
    Date: 2015–07
  27. By: Ismail, Mohamed Ayaz Mohamed; Masih, Mansur
    Abstract: Indonesia has been rapidly showing signs of advanced economic development. The country’s central bank is of the view that with the unbanked accounting for more than half of the population, the potential for growth in the world’s biggest Muslim population is immense. This article makes an attempt to test the possible directions of causality between financial development and economic growth, with Indonesia as a case study. It also discusses the results in the context of the development of Islamic finance in Indonesia. The study is conducted by applying the Autoregressive Distributed Lag model (ARDL) analysis (also known as the Bounds testing procedure) proposed by Pesaran et al. (2001). This article is believed to be one of the first to extend the finance-growth nexus discussion to include the development of Islamic finance. The study finds a unique cointegrating relationship among GDP per capita, gross fixed capital formation, annual population growth rate, and domestic credit to private sector. These findings have clear policy implications in that a policy of development and growth of the financial sector will help enhance economic growth, and will provide the necessary base from which Indonesia can significantly enhance its Islamic finance industry.
    Keywords: Financial Development, Economic Growth, Islamic Finance, ARDL Approach, Indonesia
    JEL: C22 C58 E44
    Date: 2015–07–18
  28. By: Javier G. Gómez-Pineda (Banco de la República de Colombia); Dominique Guillaume; Kadir Tanyeri
    Abstract: The paper presents a global model for analysis and projections. The model features a handful of elements that make it suitable for analyzing three broad sets of topics; first, systemic risk and its transmission to country risk premiums; second, the transmission from country risk premiums to demand-related variables such as the output gap, the trade balance, and unemployment; and third, the transmission from commodity prices to country inflation. The model incorporates one systemic risk channel and two foreign channels, specifically, a foreign aggregate demand channel and a foreign exchange rate channel. The model is estimated with Bayesian methods. In addition, the effect of risk on aggregate demand is calibrated with the aid of a VAR. Among the results are that the episodes of surges in systemic risk identified in the paper were transmitted to country risk premiums and aggregate demand--related variables; that the effect of systemic risk shocks on world economic activity is large, and that the busts in the world output gap correspond with the major financial events identified by the estimated time series for the unobserved systemic risk. In addition, systemic risk shocks are important drivers of output gaps while country risk premium shocks can have important effects on the trade balance. Surprisingly, commodity prices, in particular the price of oil, are shown to be demand driven; hence, demand related factors may play a nontrivial role in explaining noncore inflation. The model performed well at one- and four-quarter horizons compared to a survey of analysts' forecasts. In addition, systemic risk shocks were important at explaining the forecast variance of the world output gap, country output gaps, the price of oil, and country risk premiums. The breath of reach of systemic risk shocks back the efforts for financial surveillance with a systemic focus. Classification JEL: F32, F37, F41, F31, F47, E58
    Keywords: Systemic risk, Financial linkages, Capital flows, Global imbalances Commodity prices
    Date: 2015–07
  29. By: Roberto Casarin (University Ca’ Foscari of Venice, Italy); Stefano Grassi (University of Kent, United Kingdom); Francesco Ravazzolo (Norges Bank and Centre for Applied Macro and Petroleum Economics, Norway); Herman K. van Dijk (Erasmus University Rotterdam, VU University Amsterdam, the Netherlands)
    Abstract: A Bayesian nonparametric predictive model is introduced to construct time-varying weighted combinations of a large set of predictive densities. A clustering mechanism allocates these densities into a smaller number of mutually exclusive subsets. Using properties of Aitchinson's geometry of the simplex, combination weights are defined with a probabilistic interpretation. The class-preserving property of the logistic-normal distribution is used to define a compositional dynamic factor model for the weight dynamics with latent factors defined on a reduced dimension simplex. Groups of predictive models with combination weights are updated with parallel clustering and sequential Monte Carlo filters. The procedure is applied to predict Standard & Poor's 500 index using more than 7000 predictive densities based on US individual stocks and finds substantial forecast and econ omic gains. Similar forecast gains are obtained in point and density forecasting of US real GDP, Inflation, Treasury Bill yield and employment using a large data set.
    Keywords: Density Combination; Large Set of Predictive Densities; Compositional Factor Models; Nonlinear State Space; Bayesian Inference; GPU Computing
    JEL: C11 C15 C53 E37
    Date: 2015–07–20
  30. By: Uddin, Md. Akhter; Masih, Mansur
    Abstract: In a growing body of literature, importance of financial sector development and growth on human development has been emphasized but so far little empirical evidence to support this. Islam is a progrowth religion but the concept of development in Islam is multidimensional, understanding the relationship between finance, growth and human development would help us better explain and develop a sustainable pro-Islamic economic growth model, which would help eradicate mass poverty, income inequality and develop human capital in the Muslim world. This study aims to investigate how finance and growth affect human development in Malaysia from Islamic economic development perspective by using standard time series technique, ARDL. The study finds that there is a long term relationship between finance, growth and human development. Human development is found significantly correlated with the growth in the long run. It can be argued that financial development supports growth and growth ultimately promotes human development in the long run, also, macroeconomic stability is found significant for sustainable economic growth in Malaysia. However, oil price is found not correlated with growth in the long run for the Malaysian economy.
    Keywords: economic growth, financial development, human development, ARDL
    JEL: C22 C58 E44
    Date: 2015–06–25
  31. By: Aurélien Goutsmedt (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Erich Pinzon-Fuchs (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Matthieu Renault (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Francesco Sergi (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: The standard history of macroeconomics considers Lucas (1976)– “the Lucas Critique” –as a path-breaking innovation for the discipline. According to this view Lucas's article dismissed the traditional macroeconometric practice calling for new ways of conceiving the quantitative evaluation of economic policies. The Lucas Critique is considered, nowadays, as a fundamental principle of macroeconomic modeling (Woodford, 2003). The interpretation and the application of the Critique, however, represent still unsolved issues in economics (Chari et al., 2008). Even if the influence of Lucas's contribution cannot be neglected, something seems to be missing in the narrative: the reactions of the economists that were directly targeted by the Critique. Modeling practices of economic policy evaluation were not overthrown immediately after Lucas (1976), creating a divide between theoretical and applied macroeconomics (Brayton et al., 1977). The purpose of this paper is to study the reactions of the macroeconometricians criticized by Lucas. We focus especially on those macroeconometricians who worked on policy evaluation and who held an expertise position in governmental institutions. We categorize the different reactions to the Critique, in order to enrich the understanding of the evolution of modeling and expertise practices through the analysis of the debates–which have not yet been completely solved. In the first section, we propose a careful account of Lucas's argument and of some of the previous works anticipating the substantial outline of the Critique (like Frisch's notion of autonomy). Second, we bring our own interpretation of Lucas (1976). We think that we find two points of view in Lucas paper: a prescriptive one that tell you how to build a good macroeconometric model (it is the standard interpretation of the article); a positive one that relies on the fact that the Lucas critique could be seen as an attempt to explain a real-world phenomenon, the stagflation. Third, we classify the reactions of the Keynesian macroeconometricains following this line of interpretation. On the prescriptive side, the Keynesians protested against the New Classical solution to the Lucas critique (the use of the rational expectation hypothesis among other things). Klein, for instance, proposed an alternative microfoundational programme to study more empirically the formation of expectations. On the positive side, the Keynesians put into question the relevance of the Lucas Critique to explain the rise of both unemployment and inflation in the 1970s. They tried to test the impact of policy regime changes and of shifts in agents behaviour. According to us, in general, the explanation of the stagflation was elsewhere.
    Date: 2015–07
  32. By: Fatás, Antonio
    Abstract: This paper reviews, from a macroeconomic point of view, the agenda for structural reforms in Europe. Structural reforms have been part of the economic policy discussions of European governments since the 70s when economic growth and employment started lagging relative to the US. The global financial crisis has created a sense of urgency because of the low performance of many European economies during the past decade. Our empirical analysis first shows that there exists a strong correlation between policies, institutions and economic performance. We also show that reforms are happening and they are happening faster in the countries that need them the most. However, the speed of reforms is not always fast enough, reforms happen in an isolated manner and their effects are not as large as planned. In addition, we see reforms slowing down possibly because the low-growth environment has not provided the best economic or political environment to support a sustainable process of broad reforms. We conclude with some thoughts on what would take to accelerate the reform process and the potential role of Europe and its institutions.
    Keywords: euro; Europe; structural reforms
    JEL: E6 O1
    Date: 2015–07
  33. By: Momin, Ebaad; Masih, Mansur
    Abstract: ‘When the United States sneezes, the world catches a cold. And when America recovers, the planet has a spring in its step’ – For decades together, this metaphor has seemed an accurate description of the global economy. Through this paper we have tried to examine the short and long term dependence structure between the stock markets of emerging markets and influential global factors (US economic policy uncertainty, the global risk aversion and the cheap borrowing costs in the US) using the BRICS countries (Brazil, Russia, India, China and South Africa) as a case study. The study applies the ‘Auto-Regressive Distributed Lag’ (ARDL) technique (Pesaran, Shin, &Smith, Journal of Applied Econometrics, 2001) which has taken care of a major limitation of the conventional cointegrating tests, in that they suffer from the pre test biases. Based on the above rigorous methodology, our evidence tends to suggest that although there have been studies which indicate the impact of the disturbances stemming from the developed world, in the long- run there is a limited impact of these on the BRICS equity markets. These findings are plausible and have strong policy implications for portfolio investing and diversifications by investing in the emerging markets as the BRICS equities could function as a hedge against negative shocks from the developed economies.
    Keywords: US Policy Uncertainty, Risk Aversion, Leverage, Emerging Market Equities, BRICS
    JEL: C22 C58 E44
    Date: 2015–06–18
  34. By: Di Bartolomeo Giovanni; Di Pietro Marco
    Date: 2015–05
  35. By: Gagnon, Etienne; López-Salido, J David
    Abstract: We study the pricing response of U.S. supermarkets to large demand shocks triggered by labor conflicts, mass population relocation, and shopping sprees around major snowstorms and hurricanes. We find that these large swings in demand have, at best, modest effects on the level of retail prices, consistent with flat short- to medium-term supply curves. This finding holds even when shocks are highly persistent and even though stores adjust prices frequently. We also uncover evidence that retailers with radically different demand shocks nonetheless seek to match their local competitors' pricing movements and recourse to sales and promotions.
    Keywords: Demand shocks; inflation; labor conflicts; mass population displacement; sales; severe weather events
    JEL: E30 L11
    Date: 2015–07
  36. By: Jasmin Thomas
    Abstract: The Quebec forest products sector has had an above-average productivity performance in the 2000-2013 period, driven in particular by the forestry and logging subsector. While the wood product manufacturing subsector has also benefited from strong productivity gains, the productivity performance of the paper manufacturing subsector has been far from impressive. This report provides a detailed analysis of output, input and productivity trends in the Canadian forest products sector. It also looks at the key drivers of productivity in the sector, investigating potential barriers to productivity growth and discussing policies that could enable faster growth. Given the increasing role of countries with low-labour costs in several forest product markets, maintaining robust productivity growth is an imperative for the Quebec forest products sector if it wants to remain competitive internationally. In this vein, the report recommends a renewed focus on human and physical capital investment, as well as on R&D spending and the introduction of new innovative products.
    Keywords: Productivity, Growth, Forestry, Canada, Research and Development, Capital Intensity, Human Capital, Physical Capital, Wood Product Manufacturing, Paper Manufacturing, Forest Products Sector, Quebec
    JEL: O13 O30 O51 J00 E23 Q20 D24 J08
    Date: 2015–07
  37. By: Dorfman, Jeffrey H.
    Keywords: money, money neutrality, agricultural prices., Demand and Price Analysis, Research Methods/ Statistical Methods, E52, C12, C53,
    Date: 2015–07–26
  38. By: Owolabi-Merus, Olasunkanmi
    Abstract: This study investigates the impact that Foreign Direct Investment (FDI) has on economic growth in Nigeria through the use of annual secondary data from 1981 to 2013 collected from the World Bank’s Africa Development Indicators. The econometric methodologies used in this research are Ordinary Least Squares (OLS), ADF unit root and the Granger Causality tests. The OLS results shows that FDI positively contributes to economic growth in Nigeria, but not statistically significant at the 5% level of significance. However, Gross Fixed Capital Formation (GFCF) is found to have a positive and statistically significant contribution to Nigeria’s economic growth. The unit root test shows that the variables are stationary and the Granger Causality test connotes a unidirectionary causation running from FDI to GDP but not vice-versa. But no mutual correlation is found between GFCF and GDP. This study recommends that policymakers in Nigeria should focus on instigating strategies geared towards increasing capital formation (GFCF) in order to present an attractive platform that will stimulate and encourage FDI inflow which will in whole, facilitate the increase and sustenance of economic growth in the country.
    Keywords: Economic Growth, FDI inflows, GDP, Gross Fixed Capital Formation, Nigeria.
    JEL: E0 E2 E22
    Date: 2015–01
  39. By: Gulzar, Rosana; Masih, Mansur
    Abstract: As Islamic banking comes of age 40 years after its beginning, scholars and academics are calling for a better version 2. Regulators in Malaysia and Pakistan are pushing the industry to adopt more Islamic contracts which live up to the spirits of Shariah. Malaysia, specifically, has launched the Islamic Financial Services Act 2013 (IFSA) as a step in this direction. To facilitate the transition, this study has two objectives; to test whether conventional rates is still cointegrated with Islamic banks’ profit rates in Malaysia and a ranking of the exogeneity of the factors that affect the profit rates. It uses a range of multivariate time series techniques namely the cointegration test, vector error correction model (VECM), cumulative sum (CUSUM) and cumulative sum of squares (CUSUMSQ) tests, variance decomposition (VDC), impulse response and persistence profiles. This study contributes to the literature through its use of the latest data (up to December 2014) and its rank of less-tested variables such as the ratio of Islamic deposits to total Islamic assets. The VDC ranking can also serve as a basis for comparison for the effects of IFSA. This research finds that Islamic profit rates are still cointegrated withconventional rates such as the overnight policy rate (OPR) and fixed deposit rates. Additionally, it is also led by Islamic banks’ dependency on deposits for funding and their market shares. These findings may give urgency to policy makers and practitioners to evolutionise current Islamic banking practices towards what is likely to be a more stable financial system.
    Keywords: Profit rates, investment account rates, interest rates, OPR, IFSA, Time Series
    JEL: C22 C58 E43
    Date: 2015–07–15
  40. By: Vincenzo Quadrini (USC)
    Abstract: The financial intermediation sector is important not only for channeling resources from agents in excess of funds to agents in need of funds (lending channel). By issuing liabilities it also creates financial assets held by other sectors of the economy for insurance purpose. When the intermediation sector creates less liabilities or their value falls, agents are less willing to engage in activities that are individually risky but desirable in aggregate (bank liabilities channel). The paper studies how financial crises driven by self-fulfilling expectations are transmitted, through this channel, to the real sector of the economy.
    Date: 2015
  41. By: Ojo, Marianne
    Abstract: This paper is aimed at highlighting how common law has evolved over the centuries, namely through the flexibility accorded to judicial precedents, as well as through the evolutionary nature evidenced in the processes and rules applied in statutory interpretation. In addition to illustrating how informational asymmetries can be mitigated through de centralisation, facilitated with courts employing the use of non-legal agents such as expert witnesses - as evidenced in the Daubert case, Pepper v Hart also illustrates how common law has evolved through the scope and permissibility of aids to statutory interpretation. Whilst financial markets and changes in the environment impact legislators, and whilst it is widely accepted that legislation constitutes the supreme form of law, the necessity for judges to introduce a certain level of flexibility will also contribute towards ensuring that legitimate expectations of involved parties are achieved - particularly where the construction of the words within a statute gives rise to considerable ambiguity. By way of reference to landmark rulings in the United States, cases such as Daubert and The Estate of Edgar A. Berg v. Commissioner, this paper also aims to illustrate the vital role increasingly assumed by non-legal actors, and why this approach should constitute a trend to be adopted in European common and civil law jurisdictions. This being the case given the failures and flaws of references to Parliamentary material and whether these should be permitted as an aid to the construction of legislation which is ambiguous or obscure, as illustrated in the case of Pepper v Hart.
    Keywords: legitimate expectations; certainty; flexibility; judicial precedents; statutory interpretation; allocative efficiency; Pepper v Hart; Daubert; common law; regulatory capture; regulation; The Estate of Edgar A. Berg v. Commissioner
    JEL: D8 E2 G3 L5 M4
    Date: 2015–07–28
  42. By: Di Bartolomeo Giovanni; Di Pietro Marco
    Date: 2015–05

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