nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒08‒07
fifty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Jump-Starting the Euro Area Recovery: Would a Rise in Core Fiscal Spending Help the Periphery? By Blanchard, Olivier J; Erceg, Christopher; Lindé, Jesper
  2. Simple Models to Understand and Teach Business Cycle Macroeconomics for Emerging Market and Developing Economies By Roberto Duncan
  3. Won’t Get Fooled Again – Or Will We? Monetary Policy, Model Uncertainty, and ‘Policy Model Complacency’ By Mark Setterfield
  4. On the conditional distribution of euro area inflation forecast By Fabio Busetti; Michele Caivano; Lisa Rodano
  5. Optimal Inflation Weights in the Euro Area By Daniela Bragoli; Massimiliano Rigon; Francesco Zanetti
  6. Patience and Inflation By Hübner, Malte; Vannoorenberghe, Gonzague
  7. Limited commitment and the demand for money in the U.K. By Aleksander Berentsen; Samuel Huber; Alessandro Marchesiani
  8. An Open-Economy Model with Money, Endogenous Search, and Heterogeneous Firms By Lucas Herrenbrueck
  9. Macroeconomic Policy after the Global Financial Crisis By Quiggin, John
  10. Logit Price Dynamics By Costain, James; Nakov, Anton
  11. Revisiting the Latvian and Greek Financial Crises: The Benefits of Front-Loading Fiscal Adjustment By Anders Aslund
  12. Economic resilience: what role for policies? By Aida Caldera Sánchez; Morten Rasmussen; Oliver Röhn
  13. On the Limits of Macroprudential Policy By Marcin Kolasa
  14. The Cyclicality of Sales, Regular and Effective Prices: Comment By Gagnon, Etienne; López-Salido, J David; Sockin, Jason
  15. International Capital Market Frictions and Spillovers from Quantitative Easing By Margaux MacDonald
  16. Monetary policy with asset-backed money By David Andolfatto; Aleksander Berentsen; Christopher Waller
  17. Macroeconomic effects of budget deficits in Uganda: a VAR-VECM approach By Musa, Mayanja Lwanga; Joseph, Mawejje
  18. "Marx's Theory of Money and 21st-century Macrodynamics" By Tai Young-Taft
  19. From Financial Repression to External Distress: The Case of Venezuela By Carmen M. Reinhart; Miguel Angel Santos
  20. Macroeconomic effects of budget deficits in Uganda: a VAR-VECM approach By Musa Mayanja, Lwanga; Joseph, Mawejje
  21. Weekly versus Monthly Unit Value Price Indexes By de Haan, Jan; Diewert, W. Erwin; Fox, Kevin J.
  22. On the response of Italian wages to the unemployment rate By Alfonso Rosolia
  23. Economic resilience: The usefulness of early warning indicators in OECD countries By Mikkel Hermansen; Oliver Röhn
  24. Understanding policy rates at the zero lower bound: insights from a Bayesian shadow rate model By Marcello Pericoli; Marco Taboga
  25. What's it all about? What does good economic management mean in Australia By Quiggin, John; Junankar, Raja
  26. Weak Markets, Strong Teachers: Recession at Career Start and Teacher Effectiveness By Markus Nagler; Marc Piopiunik; Martin R. West
  27. Accessorizing. The effect of union contract renewals on consumption By Effrosyni Adamopoulou; Roberta Zizza
  28. Why Did Bank Lending Rates Diverge from Policy Rates After the Financial Crisis? By Anamaria Illes; Marco Lombardi; Paul Mizen
  29. Replicating Japan’s CPI Using Scanner Data By Satoshi Imai; Tsutomu Watanabe
  30. Predicting changes in the output of OECD countries: An international network perspective By Lyocsa, Stefan
  31. Determining the relationship between financial development and economic growth: An application of ARDL technique to Singapore By Jailani, Mohamad Zaky; Masih, Mansur
  32. Volatility in European Regions By Irene Brunetti; Davide Fiaschi; Lisa Gianmoena; Angela Parenti
  33. Innovation and imitation in a product-cycle model with FDI and cash-in-advance constraints By Chen, Hung-Ju
  34. Dynamics of Macroeconomic Shocks on Food Assistance Programs in the United States By Dharmasena, Senarath; Ishdorj, Ariun; Capps, Oral, Jr.; Bessler, David A.
  35. Remittances and economic growth nexus: Do financial development and investment act as transmission channels? An ARDL bounds approach By Najibullah, Syed; Masih, Mansur
  36. A Macroeconomic Model of Equities and Real, Nominal, and Defaultable Debt By Eric Swanson
  37. The Banking Union: State of Art / Unia Bankowa - gdzie jesteœmy By Andrzej Reich; Stefan Kawalec
  38. Adverse Selection, Risk Sharing and Business Cycles By Marcelo Veracierto
  39. Macroeconomics and the Nexus between Energy and Agricultural Commodities Prices By Weaver, R. D.; Tian, Jiachuan
  40. Investment funds? vulnerabilities: A tail-risk dynamic CIMDO approach By Xisong Jin; Francisco Nadal De Simone
  41. Real Assets and Inflation: Which Real Assets Hedge Inflation By Parajuli, Rajan; Chang, Sun Joseph
  42. A Detailed Analysis of Productivity Trends in the Forest Products Sector in Ontario, 2000-2013: Sunset Industry or Industry in Transition? By Evan Capeluck; Jasmin Thomas
  43. The impact of government size on economic growth: a threshold analysis By Stylianos Asimakopoulos; Yiannis Karavias
  44. Can global economic conditions explain low New Zealand inflation? By Adam Richardson
  45. Out of Equilibrium: Bases, Basics, Policies, and Accounts By Bianco, Antonio
  46. Common Shocks, Uncommon Effects: Food Price Inflation across the EU By Lloyd, Tim; McCorriston, Steve; Morgan, Wyn; Zvogu, Evious
  47. An evaluation of price forecasts of the cattle market under structural changes By Guney, Selin
  48. The supply side of household finance By Foà, Gabriele; Gambacorta, Leonardo; Guiso, Luigi; Mistrulli, Paolo Emilio
  49. Optimal Time-Consistent Macroprudential Policy By Enrique Mendoza; Javier Bianchi
  50. Consumption and House Prices in the Great Recession: Model Meets Evidence By Kurt Mitman; Gianluca Violante; Greg Kaplan
  51. Vertical Specialization, Global Value Chains and the changing Geography of Trade: the Portuguese Rubber and Plastics Industry Case By João Carlos Lopes; Ana Santos
  52. The Collapse of Some Ancient Societies Due to Unsustainable Mining Development (A Draft) By Tisdell, Clem; Svizzero, Serge

  1. By: Blanchard, Olivier J; Erceg, Christopher; Lindé, Jesper
    Abstract: We show that a fiscal expansion by the core economies of the euro area would have a large and positive impact on periphery GDP assuming that policy rates remain low for a prolonged period. Under our preferred model specification, an expansion of core government spending equal to one percent of euro area GDP would boost periphery GDP around 1 percent in a liquidity trap lasting three years, about half as large as the effect on core GDP. Accordingly, under a standard ad hoc loss function involving output and inflation gaps, increasing core spending would generate substantial welfare improvements, especially in the periphery. The benefits are considerably smaller under a utility-based welfare measure, reflecting in part that higher net exports play a material role in raising periphery GDP.
    Keywords: currency union; DSGE model; fiscal policy; liquidity trap; monetary policy; zero bound constraint
    JEL: E52 E58
    Date: 2015–07
  2. By: Roberto Duncan (Ohio University)
    Abstract: The canonical neoclassical model is insufficient to understand business cycle fluctuations in emerging market and developing economies (EMDEs). I reformulate the models proposed by Aguiar and Gopinath (2007) and Neumeyer and Perri (2005) in simple settings that can be used to do back-of-the-envelope analysis and teach business cycle macroeconomics for EMDEs at the undergraduate level. The simplified models are employed for qualitatively explaining facts such as the countercyclicality of the trade balance and the real interest rate, and the higher volatility of output, consumption, and real wages compared with those observed in advanced countries. Simple extensions can be used to understand other empirical facts such as large capital outflows and output drops, small government spending multipliers, the cyclical behavior of prices, and the negative association between currency depreciations and output.
    Keywords: Emerging market economies, economic education, undergraduate macroeconomics, business cycles
    JEL: A22 E32 F32
    Date: 2015–07
  3. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: The question addressed in this paper is: can monetary policy succeed in stabilizing the economy even when the policy model on which it is predicated is mis-specified? Using variants of the 3-equation New Consensus Macroeconomics model, it is shown that this question can be answered in the affirmative. The purpose of the paper is not to encourage indifference towards model uncertainty, however, but rather to warn against the perils of “policy model complacency”. This arises if the success of policy is misinterpreted as successful understanding of the workings of the economy, which makes the policy maker vulnerable to surprises: events with systematic origins in the “true” model of the economy that are not anticipated by the (mis-specified) policy model. To safeguard against this problem, policy makers should always entertain eclectic views of the workings of the economy – a task that is easily accomplished by paying more attention to “outside the mainstream” macroeconomic thinking that frequently makes predictions that are at odds with those of the dominant policy model.
    Keywords: Monetary policy, central banking, model uncertainty, Lucas critique, Tinbergen principle
    JEL: E12 E13 E52 E58
    Date: 2015–07
  4. By: Fabio Busetti (Bank of Italy); Michele Caivano (Bank of Italy); Lisa Rodano (Bank of Italy)
    Abstract: The paper uses dynamic quantile regressions to estimate and forecast the conditional distribution of euro-area inflation. As in a Phillips curve relationship we assume that inflation quantiles depend on past inflation, the output gap, and other determinants, namely oil prices and the exchange rate. We find significant time variation in the shape of the distribution. Overall, the quantile regression approach describes the distribution of inflation better than a benchmark univariate trend-cycle model with stochastic volatility, which is known to perform very well in forecasting inflation. In an out-of-sample prediction exercise, the quantile regression approach provides forecasts of the conditional distribution of inflation that are superior, overall, to those produced by the benchmark model. Averaging the distribution forecasts of the different models improves robustness and in some cases results in the greatest accuracy of distributional forecasts.
    Keywords: quantile regression, Phillips curve, time-varying distribution
    JEL: C32 E31 E37
    Date: 2015–07
  5. By: Daniela Bragoli (Università Cattolica); Massimiliano Rigon (Bank of Italy); Francesco Zanetti (University of Oxford)
    Abstract: This study investigates the appropriate measure for stabilizing inflation in the Euro Area. We use a model that accounts for both the heterogeneity observed in the degree of price rigidities across regions and sectors, and asymmetry of real disturbances in relative prices. Our work shows that the optimal weights to assign to each region or sector result from complex interactions between the degree of price stickiness, economic size and the distribution of shocks within regions.
    Keywords: Optimal monetary policy, Euro Area regions, asymmetric shocks, asymmetric price stickiness.
    JEL: E52 F41
    Date: 2015–07
  6. By: Hübner, Malte; Vannoorenberghe, Gonzague
    Abstract: Monetary policy makers constantly face an inter-temporal choice problem. By gener- ating surprise inflation they can temporarily increase employment and output. These short-run gains have however to be weighed against the long-run costs associated with higher inflation and a loss of reputation. More patient countries should therefore choose to implement lower inflation. Using cross-country data for up to 88 advanced and emerging economies, we provide empirical evidence that more patient countries had indeed lower average inflation rates over our sample period from 1961 to 2009. To address the possibility that patience may be endogenous to past inflation rates we use information on how the language spoken in a country encodes future time as an instrument for patience. Our results show that patience has a statistically and economically significant impact on inflation.
    Keywords: Inflation, Patience, Stability Culture
    JEL: D72 E31 E58 Z13
    Date: 2015–07–20
  7. By: Aleksander Berentsen; Samuel Huber; Alessandro Marchesiani
    Abstract: In the United Kingdom, money demand deviates from the convex relationship suggested by monetary theory. Limited commitment of borrowers via banks can explain this observation. Our finding is based on a microfounded monetary model, where a money market provides insurance against idiosyncratic liquidity shocks by offering short-term loans and by paying interest on money market deposits. We calibrate the model to U.K. data and show that limited commitment significantly improves the fit between the theoretical money demand function and the data. Limited commitment can also explain the "liquidity trap"; i.e., why the ratio of credit to Ml is currently so low, despite the fact that nominal interest rates are at their lowest recorded levels.
    Keywords: Money demand, money markets, financial intermediation, limited commitment
    JEL: E4 E5 D9
    Date: 2015–07
  8. By: Lucas Herrenbrueck (Simon Fraser University)
    Abstract: This paper is the first to describe a monetary general equilibrium model that features; (i) search frictions in the goods market, which create market power; (ii) endogenously chosen search effort by consumers, which mitigates this market power; (iii) heterogeneous firms and free entry; and (iv) an open economy, i.e. an arbitrary number of countries that trade goods and, potentially, assets. The model is flexible and well suited to studying questions in international macroeconomics, including the effects of monetary policy on production, firm entry, markups, trade, and welfare, at home or abroad. As part of this effort, I characterize a general class of matching processes which provide a novel approach to modeling firm sales: the number of customers per firm follows a bounded Pareto distribution with shape parameter less than or equal to one.
    Keywords: Monetary policy, optimal inflation, search frictions, search effort, price dispersion, open economy
    JEL: D43 E40 F12
    Date: 2015–07–01
  9. By: Quiggin, John
    Abstract: This chapter describes the ideology of market liberalism, the macroeconomic policies and institutions it produced, and the failure of those policies and institutions that produced the GFC and the subsequent deep recession in most developed countries. Although it is impossible to prescribe a fully-developed alternative policy framework at this point, new directions in macroeconomic policy are sketched out, including countercyclical fiscal policy, the need for an increase in public sector revenue and expenditure, and new approaches to monetary policy and financial regulation.
    Keywords: Global financial crisis, market liberalism, Australia, monetary policy., Political Economy, Public Economics, G28, E6,
    Date: 2013–09
  10. By: Costain, James; Nakov, Anton
    Abstract: We model retail price stickiness as the result of errors due to costly decision-making. Under our assumed cost function for the precision of choice, the timing of price adjustments and the prices firms set are both logit random variables. Errors in the prices firms set help explain micro “puzzles” relating to the sizes of price changes, the behavior of adjustment hazards, and the variability of prices and costs. Errors in adjustment timing increase the real effects of monetary shocks, by reducing the “selection effect”. Allowing for both types of errors also helps explain how trend inflation affects price adjustment.
    Keywords: information-constrained prices; logit equilibrium; near rationality; nominal rigidity; state-dependent pricing
    JEL: C73 D81 E31
    Date: 2015–07
  11. By: Anders Aslund
    Abstract: This paper discusses why Greece has done so poorly in comparison with all other European Union countries since the onslaught of the global financial crisis in 2008. To show what was wrong with its fiscal adjustment, this paper compares Greece with the other European Union country that was hit be the most severe fiscal crisis, namely Latvia. The conclusion is that front-loaded fiscal adjustment works much better. Greek economic policy has been a popular topic among opinion writers, notably Nobel Prize winner and New York Times columnist Paul Krugman, who claimed that Greece suffered from austerity. Because of his prominence in the international public debate, I shall scrutinize his arguments on the Greek crisis. The paper also examines what policy the International Monetary Fund has pursued with regard to Greece, and how its views have been influenced by the debate and Greek economic developments. Finally, the paper assesses what lessons can be drawn from the contrasting experiences of Latvia and Greece. The conclusion is that a fiscal adjustment should be sufficient to resolve the crisis to restore confidence and that it should be as front-loaded as is practically and politically possible.
    Keywords: Macroeconomic policy, fiscal policy, fiscal adjustment, austerity, Greece, Latvia, International Monetary Fund
    JEL: E60 E62
    Date: 2014–05
  12. By: Aida Caldera Sánchez; Morten Rasmussen; Oliver Röhn
    Abstract: The global financial crisis highlighted the importance of strengthening the resilience of our economies to adverse shocks. In this paper, we take stock of studies carried out primarily within, but also outside the OECD, to better understand the role of macroeconomic and structural policies in spurring or mitigating the vulnerabilities that can lead to costly shocks, as well as the role of policies in mitigating the shock impact and speeding the recovery. Then we offer tentative insights on how policies can be geared to address vulnerabilities early on, mitigate the impact of shocks and speed recoveries, as well as highlight possible trade-offs that exist across policy areas.<P>Résilience économique: Quel rôle pour les politiques ?<BR>La crise financière mondiale a mis en évidence l'importance de renforcer la résilience de nos économies face aux chocs défavorables. Cet article passe en revue les études réalisées principalement au sein, mais aussi en dehors de l'OCDE, afin de mieux comprendre les liens entre les politiques macroéconomiques et structurelles et les vulnérabilités pouvant entraîner de sévères récessions, ainsi que le rôle des politiques pour atténuer l'impact des chocs et accélérer la reprise. Ensuite, l’article propose quelques pistes de réflexion sur comment les politiques peuvent être adaptées pour répondre mieux aux vulnérabilités, atténuer l'impact des chocs et accélérer la reprise économique, toute en mettant en évidence les arbitrages possibles qui existent entre les domaines politiques.
    Keywords: crisis, resilience, vulnerability, résilience, crise, déséquilibres, vulnérabilité
    JEL: E32 E44 E51 F47
    Date: 2015–07–28
  13. By: Marcin Kolasa (Narodowy Bank Polski and Warsaw School of Economics)
    Abstract: This paper considers a canonical New Keynesian macrofinancial model to analyze how macroprudential policy tools can help the monetary authority in reaching a selection of dual stabilization objectives. We show that using the loan-to-value ratio as an additional policy instrument does not allow to resolve the standard inflation-output volatility tradeoff. Simultaneous stabilization of inflation and either credit or house prices with monetary and macroprudential policy is possible only if the role of credit in the economy is very small. Overall, our results suggest that macroprudential policy has important limits as a complement to monetary policy.
    Date: 2015
  14. By: Gagnon, Etienne; López-Salido, J David; Sockin, Jason
    Abstract: Coibion, Gorodnichenko, and Hong (2015) argue that the CPI underestimates the deceleration in consumer prices during economic downturns because the index fails to account for the reallocation of consumer spending from high- to low-price stores. We show that these authors' measures of inflation with and without store switching suffer from several methodological deficiencies, including an excessive truncation of price adjustments and the lack of a treatment for missing observations. When we address these deficiencies, the authors' key regression results no longer suggest that greater store switching during downturns is a statistically or economically significant phenomenon.
    Keywords: effective prices; inflation measurement; Outlet substitution bias
    JEL: D12 E31 E32
    Date: 2015–07
  15. By: Margaux MacDonald (Queen's University)
    Abstract: This paper analyzes the impact of large-scale, unconventional asset purchases by advanced country central banks on emerging market economies (EMEs) during 2008–2014. I show that there was substantial heterogeneity in the way EME currency, equity, and long-term sovereign bond markets were impacted by these purchases. Drawing on the gravity-in-international- finance literature, I show evidence that the degree of economic integration between EMEs and advanced countries is able to explain some of the observed heterogeneity in how these asset prices were affected. This result is robust to considerations of the domestic monetary policy, exchange-rate regime, and capital control policies in EMEs. Furthermore, I show that the size and direction of asset price movements in EMEs depended both on the type of assets purchased and on whether it was the US Federal Reserve or other advanced country central banks engaging in the purchases.
    Keywords: Emerging markets, Unconventional monetary policy, Gravity
    JEL: E4 E5 F3
    Date: 2015–07
  16. By: David Andolfatto; Aleksander Berentsen; Christopher Waller
    Abstract: We study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capi- tal and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum infiation necessary to implement the first-best allocation is above the Friedman rule and varies with capital wealth.
    Keywords: Limited commitment, asset-backed money, optimal monetary policy
    JEL: D82 D83 E61 G32
    Date: 2015–06
  17. By: Musa, Mayanja Lwanga; Joseph, Mawejje
    Abstract: This paper investigates the relationship between budget deficits and selected macroeconomic variables for the period 1999 to 2011 using Vector Error Correction Model (VECM), pairwise granger causality test and variance decomposition techniques. Results indicate that the variables under study are cointegrated and thus have a long run relationship. Results based on the VECM reveal unidirectional causal relationships running from budget deficits (BD) to current account balance (CAB), inflation to BD and BD to lending interest rates. But the results show no causal relationship between gross domestic product (GDP) and budget deficits in Uganda. The Pairwise Granger Causality test results reveal unidirectional causal relationships running from budget deficit to current account, BD to GDP, inflation to BD, and a bi-directional causal relationship between the current account balance and GDP. Variance decomposition results show that, variances in the current account balance and GDP are mostly explained by the budget deficit followed by lending interests while variance in lending interest rates is mostly explained by inflation followed by GDP, variance in the Inflation is mostly explained by variance in lending interest rates followed by the current account balance. The results from the study clearly show that budget deficits in Uganda are responsible for widening current account deficit and raising interest rates. Fiscal and monetary policy actions are therefore needed to contain and reduce the deficit in order to minimize its effect on the current account and lending interest rates. Such actions should aim at increasing Uganda’s tax revenue collection by adopting efficient and effective methods of tax collection. Such policies should see a reduction in the informal sector which has proved difficult to tax and a reduction in ineffective tax exemptions. Government should improve and heighten its efforts in combating tax evasion and corruption which undermine its tax collection efforts
    Keywords: Budget Deficits, macroeconomic performance, VAR, Uganda JEL Classification: C5, E6, H5, Agricultural Finance, Financial Economics,
    Date: 2014–06
  18. By: Tai Young-Taft
    Abstract: Marx's theory of money is critiqued relative to the advent of fiat and electronic currencies and the development of financial markets. Specific topics of concern include (1) today's identity of the money commodity, (2) possible heterogeneity of the money commodity, (3) the categories of land and rent as they pertain to the financial economy, (4) valuation of derivative securities, and (5) strategies for modeling, predicting, and controlling production and exchange of the money commodity and their interface with the real economy.
    Keywords: Macroeconomics; Marx's Theory of Money; Monetary Theory; Transformation Problem
    JEL: B51 E11 G13
    Date: 2015–07
  19. By: Carmen M. Reinhart; Miguel Angel Santos
    Abstract: Recent work has supported that there is a connection between the level of domestic debt level and sovereign default on external debt. We examine the potential linkages in a case study of Venezuela from 1984 to 2013. This unique example encompasses multiple financial crises, cycles of liberalization and policy reversals, and alternative exchange rate arrangements. This experience reveals a nexus among domestic debt, financial repression, and external vulnerability. Unlike foreign currency-denominated debt, debt in domestic currency may be reduced through financial repression, a tax on bondholders and savers producing negative real interest rates. Using a variety of methodologies, we estimate the magnitude of the tax from financial repression. On average, this financial repression tax (as a share of GDP) is similar to those of OECD economies, in spite of the much higher domestic debt-to-GDP ratios in the latter. However, the financial repression “tax rate” is significantly higher in years of exchange controls and legislated interest rate ceilings. In line with earlier literature on capital controls, our comprehensive measures of capital flight document a link between domestic disequilibrium and a weakening of the net foreign asset position via private capital flight. We suggest these findings are not unique to the Venezuelan case.
    JEL: E4 E5 E58 E6 F31 F36 N26
    Date: 2015–07
  20. By: Musa Mayanja, Lwanga; Joseph, Mawejje
    Abstract: This paper investigates the relationship between budget deficits and selected macroeco¬nomic variables for the period 1999 to 2011 using Vector Error Correction Model (VECM), pairwise granger causality test and variance decomposition techniques. Results indicate that the variables under study are cointegrated and thus have a long run relationship. Results based on the VECM reveal unidirectional causal relationships running from budget deficits (BD) to current account balance (CAB), inflation to BD and BD to lending interest rates. But the results show no causal relationship between gross domestic product (GDP) and budget deficits in Uganda. The Pairwise Granger Causality test results reveal unidirectional causal relationships running from budget deficit to current account, BD to GDP, inflation to BD, and a bi-directional causal relationship between the current account balance and GDP. Variance decomposition results show that, variances in the current account balance and GDP are mostly explained by the budget deficit followed by lending interests while variance in lend¬ing interest rates is mostly explained by inflation followed by GDP, variance in the Inflation is mostly explained by variance in lending interest rates followed by the current account bal¬ance. The results from the study clearly show that budget deficits in Uganda are responsible for widening current account deficit and raising interest rates. Fiscal and monetary policy actions are therefore needed to contain and reduce the deficit in order to minimize its ef¬fect on the current account and lending interest rates. Such actions should aim at increasing Uganda’s tax revenue collection by adopting efficient and effective methods of tax collec¬tion. Such policies should see a reduction in the informal sector which has proved difficult to tax and a reduction in ineffective tax exemptions. Government should improve and heighten its efforts in combating tax evasion and corruption which undermine its tax collection ef¬forts.
    Keywords: Budget Deficits, macroeconomic performance, VAR, Uganda, Consumer/Household Economics, Demand and Price Analysis, Financial Economics, Public Economics, Risk and Uncertainty, C5, E6, H5,
    Date: 2014–06
  21. By: de Haan, Jan; Diewert, W. Erwin; Fox, Kevin J.
    Abstract: A new source of potential bias in the Consumer Price Index (CPI) is described. We find that unit value (average) prices, commonly used for construction of the CPI should be constructed over the same period as the index to be constructed, rather than over an incomplete sub-period. The latter approach can lead to an upward bias in the CPI.
    Keywords: Elementary price indexes, aggregation, inflation.
    JEL: C43 C82 E31
    Date: 2015–07–20
  22. By: Alfonso Rosolia (Banca d'Italia)
    Abstract: In this paper I assess the responsiveness of Italian wage rates to labor market conditions and show that the specific wage measure considered has important consequences for the results. The cyclical response of wages measured by National Accounts is dampened by a number of measurement issues; on the contrary, both wage rate changes negotiated at the central level and salary items set at the firm level are found to respond more strongly to unemployment. I conclude that the observed weak response of wage measures based on National Accounts does not reflect the lack of wage flexibility but rather the staggered and uncoordinated nature of wage negotiations.
    Keywords: unemployment, wages, centralised wage bargaining
    JEL: E24 J01 J31 J5
    Date: 2015–07
  23. By: Mikkel Hermansen; Oliver Röhn
    Abstract: The global financial crisis and the high associated costs have revived the academic and policy interest in “early warning indicators” of crises. This paper provides empirical evidence on the usefulness of a new set of vulnerability indicators, proposed in a companion paper (Röhn et al., 2015), in predicting severe recessions and crises in OECD countries. To evaluate the usefulness of the indicators the signalling approach is employed, which takes into account policy makers’ preferences between missing crises and false alarms. Our empirical evidence shows that the majority of indicators would have helped to predict severe recessions in the 34 OECD economies and Latvia between 1970 and 2014. Indicators of global risks consistently outperform domestic indicators in terms of their usefulness, highlighting the importance of taking international developments into account when assessing a country’s vulnerabilities. In the domestic areas, indicators that measure asset market imbalances (real house and equity prices, house price-to-income and house price-to-rent ratios), also perform consistently well both in and out-of sample. Domestic credit related variables appear particularly useful in signalling upcoming banking crises and in predicting the global financial crisis out-of-sample. The results are broadly robust to different definitions of costly events, different forecasting horizons and different time and country samples.<P>Résilience économique : L'utilité des indicateurs d'alerte rapide dans des pays de l'OCDE<BR>La crise financière mondiale et les coûts associés élevés ont ravivé l'intérêt pour les « indicateurs d'alerte rapide » des crises. Cette étude fournit des données statistiques sur l'utilité d'un nouvel ensemble d'indicateurs de vulnérabilité, proposé dans une étude connexe (Röhn et al., 2015), pour prédire les récessions graves et les crises dans les pays de l'OCDE. Pour évaluer l'utilité des indicateurs la méthode de signalisation est employée. Celle-ci prend en compte les préférences des décideurs politiques entre les crises manquantes et les fausses alarmes. Les résultats de l’analyse statistique montrent que la majorité des indicateurs aurait aidé à prédire les récessions sévères dans les 34 économies de l'OCDE et la Lettonie entre 1970 et 2014. Les indicateurs de risque global surclassent systématiquement les indicateurs domestiques en termes d’information utile, soulignant l'importance de prendre les développements internationaux en compte lors de l'évaluation des vulnérabilités d'un pays. Dans les champs domestiques, des indicateurs qui mesurent les déséquilibres du marché des actifs (les prix réels des logements et le cours des actions, le ratio du prix des logements au revenu disponible et le ratio du prix des logements au coût des loyers), performe bien dans et hors de l'échantillon. Les variables reliées au crédit domestique semblent particulièrement utile dans la signalisation des crises bancaires et à prédire la crise financière mondiale hors-échantillon. Les résultats sont globalement robustes pour différentes définitions d'événements onéreux, différents horizons de prévision et différents échantillons de temps et de pays.
    Keywords: recession, crisis, resilience, vulnerability, résilience, crise, déséquilibres, vulnérabilité
    JEL: E32 E44 E51 F47
    Date: 2015–07–28
  24. By: Marcello Pericoli (Bank of Italy); Marco Taboga (Bank of Italy)
    Abstract: Term structure models are routinely used by central banks to assess the impact of their communication on market participants' views of future interest rate developments. However, recent studies have pointed out that traditional term structure models can provide misleading indications when policy rates are at the zero lower bound (ZLB). One of the main drawbacks is that they are unable to reproduce the stylized fact that policy rates tend to remain at the ZLB for prolonged periods of time once they reach it. A consensus has recently emerged that shadow rate models, first introduced by Black (1995), are apt to solve this problem. The main idea is that the shadow rate (i.e., the short-term interest rate that would prevail in the absence of the ZLB) can move in negative territory for long time spans even when the actual rate remains close to the ZLB. Due to their high nonlinearity, shadow rate models are particularly difficult to estimate and have been so far only estimated with approximate methods. We propose an exact Bayesian method for their estimation. We use it to study developments in euro and US dollar yield curves since the end of the '90s. Our estimates confirm - and provide a quantitative assessment of - the fact that there has been a significant divergence of monetary policies in the euro area and in the US over the past years: between 2009 and 2013, the shadow rate was much lower in the US than in the euro area, while the opposite has been true since 2014; furthermore, at the end of our sample (January 2015), the most likely date of the the first increase in policy rates was estimated to be around mid-2015 in the US and around 2020 in the euro area.
    Keywords: zero lower bound, shadow rate term structure model
    JEL: C32 E43 G12
    Date: 2015–07
  25. By: Quiggin, John; Junankar, Raja
    Abstract: This paper considers the question of what is meant by good economic management. In addressing this question it considers both the long term perspective and the international perspective. Australia's post GFC experience is contrasted favourably with a broad range of other countries, especially countries that cut government spending as their economies slowed. As Figure 1 shows Australia's economic performance as measured by GDP has been superior to the rest of the developed world, especially when compared to countries that pursued cuts in government spending as their economies slowed. The paper also considers the long term economic management of the major parties through the prism of the broad economic theories to which they have subscribed over time. It argues that, with occasional deviations, Labor’s macroeconomic policy stance has been Keynesian ever since the Working Nation package introduced in the aftermath of the 1990-91 recession.
    Keywords: Australia's macroeconomic policy, Australian government, Classical vs Keynesian, economic management, Political Economy, Public Economics, E6, H5, H11,
    Date: 2013–11
  26. By: Markus Nagler; Marc Piopiunik; Martin R. West
    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.
    JEL: E32 H75 I20 J24
    Date: 2015–07
  27. By: Effrosyni Adamopoulou (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: In this paper we use information on monthly wage increases set by collective agreements in Italy and exploit their variation across sectors and over time in order to examine how household consumption responds to different types of positive income shocks (regular tranches versus lump-sum payments). Focusing on single-earner households, we find that the Permanent-Income Hypothesis holds empirically, since total and food consumption do not exhibit excess sensitivity to anticipated income shocks. Consumption does not respond at the date of the announcement of income increases either, as these are known to compensate workers for the overall loss in their wages’ purchasing power. We also find, in line with the Permanent-Income Hypothesis, that consumption responds, but only a little, to transitory and less anticipated shocks, as the expenditures on clothing & shoes increase upon the receipt of the lump-sum payments. This finding can be interpreted as a "signaling-by-consuming" behaviour given that these goods represent conspicuous consumption. There is also some weak evidence of the existence of liquidity constraints regarding expenditures on strictly durables.
    Keywords: union contracts, consumption, permanent income hypothesis
    JEL: D12 E21 J51
    Date: 2015–07
  28. By: Anamaria Illes; Marco Lombardi; Paul Mizen
    Abstract: After the global finance crisis short-term policy rates were cut to near-zero levels, yet, bank lending rates did not fall as much as the decline in policy rates would have suggested. If the crisis represents a structural break in the relationship between policy rates and lending rates, how should central banks view the post-crisis transmission of policy to lending rates? This poses a major puzzle for monetary policymakers. Using a new weighted average cost of liabilities to measure banks’ effective funding costs we show a model of interest rate pass-through with dynamic panel data methods solves this puzzle, and has many other advantages over policy rates. It suggests central banks should focus on the cost of bank liabilities more broadly to understand the dynamics of lending rates.
    Keywords: Keywords: lending rates, policy rates, panel cointegration, financial crisis
    Date: 2015
  29. By: Satoshi Imai (Statistics Bureau of Japan); Tsutomu Watanabe (Graduate School of Economics,University of Tokyo)
    Abstract: We examine how precisely one can reproduce the CPI constructed based on price surveys using scanner data. Specifically, we closely follow the procedure adopted by the Statistics Bureau of Japan when we sample outlets, products, and prices from our scanner data and aggregate them to construct a scanner data-based price index. We show that the following holds the key to precise replication of the CPI. First, the scanner databased index crucially depends on how often one replaces the products sampled. The scanner data index shows a substantial deviation from the actual CPI when one chooses a value for the parameter associated with product replacement such that replacement occurs frequently, but the deviation becomes much smaller if one picks a parameter value such that product replacement occurs only infrequently. Second, even when products are replaced only infrequently, the scanner data index differs significantly from the actual CPI in terms of volatility. The standard deviation of the scanner data-based monthly inflation rate is 1.54 percent, which is more than three times as large as that for actual CPI inflation. We decompose the difference in volatility between the two indexes into various factors, showing that it mainly stems from the difference in price rigidity for individual products. We propose a filtering technique to make individual prices in the scanner data stickier, thereby making scanner data-based inflation less volatile.
    Keywords: consumer price index; scanner data; sampling; price rigidity; menu costs; sale and regular prices
    Date: 2015–06
  30. By: Lyocsa, Stefan
    Abstract: We use a simple linear regression framework to present evidence, that complex relationships between stock markets and economies may be used to predict changes in the output of 27 OECD countries. We construct new unidirectional return co-exceedance networks to account for complex relationships between stock market returns, and between real economic growths. Although there is heterogeneity between individual country level results, overall our data and analysis provides evidence that topological properties of our networks are useful for in-sample prediction of next quarter changes in the output.
    Keywords: harmonic centrality centralization networks co-exceedance economic growth
    JEL: E44 G15 O40
    Date: 2015–07–27
  31. By: Jailani, Mohamad Zaky; Masih, Mansur
    Abstract: The relationship between financial development and economic growth has been subject to considerable debate in the literature of development and growth. While empirical studies often provide a direct relationship between financial development proxies and growth, much controversy remains about how these results should be interpreted. The study, therefore, attempts to unravel the causality direction of financial development and economic growth. We used an Autoregressive Distributed Lag (ARDL) method to assess the finance-growth relation taking Gross National Expenditure, Gross Fixed Capital Formation, exports, Foreign Direct Investments and Loans made to the Private Sector as financial development indicators for Singapore over the period from 1970 to 2013. Interestingly, we found that our financial development variables had no impact on economic growth.
    Keywords: Financial development, Economic growth, ARDL, Singapore
    JEL: C22 C58 E44
    Date: 2015–06–16
  32. By: Irene Brunetti; Davide Fiaschi; Lisa Gianmoena; Angela Parenti
    Abstract: is paper examines the growth rate volatility of per capita GDP of European regions in 1992-2008. We measure the regional volatility using a new methodology based onMarkov matrices and we investigate its main determinants. Volatility displays a geographical pattern and a significant spatial dependence. Output composition appears one of the main driver of volatility; among the other determinants we find a negative impact of the size of regional economies and of the flexibility of labour market, and a positive impact of the sectoral concentration, of the financialization of economy, and of the participation to EMU.
    Keywords: Markov Matrix, Asymmetric Fluctuations, Output Com-position, Size Effect, Spatial Dependence.
    JEL: C20 E32 O40
    Date: 2015–07–01
  33. By: Chen, Hung-Ju
    Abstract: This paper analyzes the effects of monetary policy on innovation and imitation in a North-South product-cycle model with foreign direct investment (FDI) and separate cash-in-advance (CIA) constraints on innovative R&D, adaptive R&D and imitative R&D. We find that if the CIA constraint is applied to innovative R&D, then an increase in the Northern nominal interest will raise the rate of Northern innovation and the extent of FDI while reducing the rate of Southern imitation and the North-South wage gap. Regarding the effects of the Southern monetary policy, the object that is liquidity-constrained plays a significant role. If adaptive (imitative) R&D is subject to the CIA constraint, then an increase in the Southern nominal interest rate will raise (reduce) the rate of Northern innovation and the extent of FDI while reducing (raising) the rate of Southern imitation. We also examine the responses of social welfare for Northern and Southern consumers to monetary policy.
    Keywords: CIA constraint; FDI; Imitation; Monetary policy; R&D.
    JEL: F12 F23 O31
    Date: 2015–04
  34. By: Dharmasena, Senarath; Ishdorj, Ariun; Capps, Oral, Jr.; Bessler, David A.
    Abstract: Monthly national and state-level U.S. data for the period 1997-2012 associated with macroeconomic shocks and participation in food assistance programs were used to model dynamics using polynomial distributed lags and vector autoregression approaches. Contemporaneous causal flows of macroeconomic shocks and participation in food assistance programs were modeled using directed acyclic graphs. With a more accurate set of predictions associated with participation rates in food assistance programs based on macroeconomic drivers or shocks, policy makers will be in better position to assess program costs and to minimize errors in the budgetary process.
    Keywords: Macroeconomic shocks, Food Assistance, Polynomial Distributed Lags, Vector Error Correction Model, Directed Acyclic Graphs, Agricultural and Food Policy, Food Security and Poverty, C31, C32, C53, C54, E61, I38,
    Date: 2014–01
  35. By: Najibullah, Syed; Masih, Mansur
    Abstract: The study seeks to investigate the causal links between economic growth and remittances through two specific transmission channels, namely financial development and investment. Using Bangladesh as a case study, the study employs autoregressive distributed lag (ARDL) approach to cointegration proposed by Pesaran et al. (2001). Based on a time series data over the period 1977–2013, the findings reveal no long term lead-lag relationship between economic growth and remittances. However, the short term relation exists between remittances and investment. Investment also stimulates economic growth. A unidirectional transmitting channel through investment can be identified in the short run. The financial development was found to be weak in the growth remittances nexus and this shows the presence of a missing link between investment and financial development. This might happen due to financial exclusion and inflow of remittances through informal unaccounted channel. Policy makers should focus on financial sector deepening to promote financial inclusion. Moreover, creating awareness to promote flow of remittances through formal channel should get priority. For the future researchers, the inclusion of microfinance sector as a transmission channel might provide significant findings as the remittances in fact represent the people at the bottom of the pyramid, where microfinance sector has a strong presence unlike the formal financial sector.
    Keywords: remittances, economic growth, ARDL
    JEL: C22 C58 E44
    Date: 2015–07–05
  36. By: Eric Swanson (University of California, Irvine)
    Abstract: Linkages between the real economy and financial markets can be very important, as evidenced by the 2007-09 financial crisis and European sovereign debt crisis. This paper develops a simple, structural macroeconomic model that is consistent with a wide variety of asset pricing facts, such as the size and variability of risk premia on equities, real and nominal government bonds, and corporate bonds, commonly referred to as the equity premium puzzle, bond premium puzzle, and credit spread puzzle, respectively. The paper makes two main contributions: First, it unifies a variety of asset pricing puzzles in a simple, structural asset pricing framework. Second, it shows how standard dynamic macroeconomic models can be brought into agreement with a range of asset prices, making it possible to use these models to study the linkages between risk premia in financial markets and the real economy.
    Date: 2015
  37. By: Andrzej Reich; Stefan Kawalec
    Abstract: The first aim of this paper is to describe the main developments in the Ukrainian economy since its independence in 1991, focusing on the evolution of output, and the path of economic reforms — that is, to simply show what happened. The bottom line on that is well known: Ukraine’s economy performed very poorly, and its reforms moved quite slowly, lagging behind most of Central Europe and the Baltic, and even behind some FSU (Former Soviet Union) countries. This first task is a relatively easy one, though some measurement issues do need discussion. In comparison, the second aim — explaining why it happened, identifying the explanatory, causal factors — is much more difficult and contentious. Indeed, causation here means two dynamics: the relationship between performance and reform pace, and the underlying determinants of the slow reforms. The paper’s main effort will be to argue and present evidence that the poor economic performance is primarily due to the late and slow start on economic reforms. However, it only begins to point to the explanations for slow reforms and suggest a modeling approach to analyze this econometrically in future work. It is widely believed that the creation of the banking union initiated the integration of the EU banking market. The process is traced back to June 2012 (EU Summit decided to create the banking union), 4 November 2013 (effective date of the Banking Union Regulation), or 4 November 2014 (operational launch of the Single Supervisory Mechanism, SSM). However, the integration of the EU banking market began much earlier and the creation of the banking union should be considered the final rather than the initial step in the process. In fact, the integration began as early as 1990s with the introduction of the single passport which allows a bank licensed in one member state to operate across the European Union through branches in other member states.The solution was devised mainly for banks licensed in one member state and operating in another member state on a small scale, rendering the establishment of a subsidiary bank uneconomical. This practical facilitation was creatively exploited by the largest European banks, which effectively transformed the EU banking market. Doœæ powszechnie uwa¿a siê, ¿e utworzenie unii bankowej zapocz¹tkowa³o integracjê unijnego rynku bankowego. Jako pocz¹tek tego procesu wskazuje siê czerwiec 2012 roku (Szczyt UE, podczas którego zapad?a decyzja na temat tworzenia unii bankowej), 4 listopada 2013 roku (wejœcie w ¿ycie rozporz¹dzenia w sprawie utworzenia unii bankowej), czy wreszcie 4 listopada 2014 roku (pocz¹tek dzia³alnoœci operacyjnej jednolitego mechanizmu nadzorczego (Single Supervisory Mechanism — SSM)). Jednak integracja unijnego rynku bankowego zaczê³a siê znacznie wczeœniej, a utworzenie unii bankowej nale¿y postrzegaæ jako koñcow¹ fazê tego procesu, a nie pocz¹tkow¹. Proces integracji rozpocz¹³ siê na pocz¹tku lat dziewiêædziesi¹tych ubieg³ego wieku, wraz z wprowadzeniem tak zwanej zasady jednolitego paszportu (single passport), zgodnie z któr¹ bank licencjonowany w jednym kraju cz³onkowskim, na podstawie tej¿e licencji, uzyska³ prawo prowadzenia dzia³alnoœci na terenie ca³ej Unii Europejskiej, poprzez oddzia³y, które móg³ otwieraæ w innych krajach cz³onkowskich. Takie rozwi¹zanie wprowadzone g³ównie z myœl¹ o banku licencjonowanym w jednym kraju cz³onkowskim, prowadz¹cym dzia³alnoœæ w innym kraju cz?onkowskim, ale w tak ma³ej skali, ¿e uruchamianie w tym celu banku zale¿nego nie by³oby uzasadnione ekonomicznie. To sensowne u³atwienie zosta³o twórczo rozwiniête przez najwiêksze banki europejskie, skutecznie przeobra¿aj¹c rynek bankowy w Unii Europejskiej.
    Keywords: European Union, banking supervision, EBC, EBA, banking union, SSM
    JEL: N14 E5 E58 G21 G2 G28
    Date: 2015–06
  38. By: Marcelo Veracierto (Federal Reserve Bank of Chicago)
    Abstract: I consider a real business cycle model in which agents have private information about an idiosyncratic shock to their value of leisure. I consider the mechanism design problem for this economy and describe a computational method to solve it. This is an important contribution of the paper since the method could be used to solve a wide class of models with heterogeneous agents and aggregate uncertainty. Calibrating the model to U.S. data I find a striking result: That the information frictions that plague the economy have no effects on business cycle fluctuations.
    Date: 2015
  39. By: Weaver, R. D.; Tian, Jiachuan
    Abstract: The variation of energy prices has been a traditional source of shocks to the real economy. In many cases, this variation has manifested in jumps in energy prices that were characterized by some persistence. From another perspective, energy price volatility has historically been noted and its effects on real economy debated. Historically, the importance of the shocks to the real economy has led them to be labeled as energy crises, as they were argued to have resulted in substantial changes in real prices that induced changes in behavior on the demand and supply sides of the many markets. However, empirical studies of transmission of energy prices into the real economy have produced no consensus and have been challenged by a number of significant specification issues that have resulted in substantial variation in inference drawn from results. Among these issues is the question of completeness of model specification. This paper examines the question of whether such models need to incorporate macroeconomic indicators. Clearly, macroeconomic factors such as interest rates and exchange rates play a role in the determination of energy and commodity prices, however, considerable specification uncertainty characterizes the question of which macro metrics to incorporate. This paper examines this issue from the perspective of weak exogeneity and finds evidence that the parameter estimates associated with time series models that exclude consideration of macro indicators are not compromised by their exclusion. We examine this issue using Italian, U.S. grain, and Brent crude oil prices.
    Keywords: Agribusiness,
    Date: 2015–05
  40. By: Xisong Jin; Francisco Nadal De Simone
    Abstract: This study measures investment funds? systemic credit risk in three forms: (1) credit risk common to all funds within each of the seven categories National Central Banks report to the ECB; (2) credit risk in each category of investment fund conditional on distress on another category of investment fund and; (3) the build-up of investment funds? vulnerabilities which may lead to a disorderly unraveling. The paper uses a novel framework which combines marginal probabilities of distress estimated from a structural credit risk model with the consistent information multivariate density optimization (CIMDO) methodology and the generalized dynamic factor model (GDFM). The framework models investment funds? distress dependence explicitly and captures the time-varying non-linearities and feedback effects typical of financial markets. In addition, the estimates of the common components of the investment funds? distress measures may contain some early warning features, and identifying the macro and financial variables most closely associated with them may serve to guide macro-prudential policy. The relative importance of these variables differs from those associated with the common components of marginal measures of distress. Thus this framework can contribute to the formulation of macro-prudential policy.
    Keywords: financial stability; investment funds; procyclicality, macro-prudential policy; structural credit risk models; probability of distress; non-linearities; generalized dynamic factor model; dynamic copulas
    JEL: C1 E5 F3 G1
    Date: 2015–07
  41. By: Parajuli, Rajan; Chang, Sun Joseph
    Abstract: Inflation is considered as a leading macroeconomic indicator, which might create substantial distortions in financial statements, future earnings, and overall performance of securities in the financial market. An inflation-hedging ability of an asset offers protection against inflation, which eliminates or at least reduces the uncertainty about the future real returns. Real assets like real estate, timberland, and farmland have been regarded as good inflation hedges, whereas financial assets like common stocks and bonds are considered as perverse hedges against inflation. Using the generalized Capital Asset Pricing Model (CAPM) to account for inflation, this study evaluates the inflation-hedging ability of several real assets. Consistent with the findings of previous studies, this study concludes that private-equity assets offer hedges against inflation to some extent, but stocks are found to be inferior hedges against inflation.
    Keywords: Real Assets, Inflation, CAPM, Private-equity assets, Public-equity assets, Agricultural Finance, Financial Economics, G11,
    Date: 2015
  42. By: Evan Capeluck; Jasmin Thomas
    Abstract: Ontario’s forest products sector was hit by a near perfect storm in the first decade of the twenty-first century, when a multitude of structural and cyclical factors came together to devastate the sector. Despite this, the Ontario forest products sector has had an above-average productivity performance, driven in particular by the wood product manufacturing subsector. This report provides a detailed analysis of output, input and productivity trends in the Ontario 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 Ontario’s 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, Ontario
    JEL: O13 O30 O51 J00 E23 Q20 D24 J08
    Date: 2015–07
  43. By: Stylianos Asimakopoulos; Yiannis Karavias
    Abstract: This paper examines the nature of the relationship between government size and economic growth and identifies the optimal level of government size through a novel and very general non-linear panel Generalized Method of Moments approach. Using a large panel dataset we uncover a statistically significant non-linear relationship via identifying the optimal threshold of government spending that maximizes growth. Furthermore, we show that the relationship between the two variables above and below that optimal level is statistically significant, even if we split our sample to developed and developing countries. Finally, we fi?nd an asymmetric impact of government size on economic growth in developed and developing countries around the estimated threshold.
    Keywords: government size, economic growth, dynamic threshold estimation JEL Classification: E62, C23, O11, O50
  44. By: Adam Richardson (Reserve Bank of New Zealand)
    Abstract: This note highlights the contribution the international economy has made to current low inflation in New Zealand. In addition, it investigates if international economic factors can help explain the residual uncertainty around the overall drivers of current inflation.
    Date: 2015–07
  45. By: Bianco, Antonio
    Abstract: New regulation of EU cohesion policy prescribes ex ante impact eval- uations. These imply a vision of the working of a process of economic change. A theory of change based on the concept of equilibrium (which is a situation in which by definition change is not liable to occur) being paradoxical, the present article aims at presenting bases and basics of Amendola’s out-of-equilibrium approach in a perspective that is instru- mental in the above-referred concrete policy issue. Accordingly, after reviewing the essentials of John Hicks’ concern with the construction of an out-of-equilibrium approach, the key concepts at play in Amendola and Gaffard’s out-of-equilibrium model are summarized and, after considering the resulting perspective on policy making, and touching on EU o�cial framework for institutional accounts, the sequence of ac- counts implicit in the out-of-equilibrium model is eventually derived.
    Keywords: Ex Ante Impact Evaluation, Change, Uncertainty, Sunk Costs, Liquidity Risk, Coordination, Sequence of Accounts.
    JEL: B52 C80 E61 O20
    Date: 2015–01
  46. By: Lloyd, Tim; McCorriston, Steve; Morgan, Wyn; Zvogu, Evious
    Keywords: Demand and Price Analysis, Food Consumption/Nutrition/Food Safety,
    Date: 2015–04
  47. By: Guney, Selin
    Abstract: The specific purpose of this paper is to investigate the potential of a time series analysis technique, namely the Time Varying Parameter Vector Autoregressive Model (TVPVAR) technique, in the development of daily forecasting models for cattle prices in the presence of structural changes. More specific objectives are to integrate smoothing techniques and stochastic volatility into TVPAR modeling framework based exclusively on time series for cash-cattle prices, and to compare the accuracy and evaluate the forecasting performance of this model with the standard VAR model based on forecast accuracy measures.
    Keywords: Forecasting, Cattle Prices, Structural Changes, TVPVAR, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Farm Management, Livestock Production/Industries, E37, Q11, Q13, Q18,
    Date: 2014
  48. By: Foà, Gabriele; Gambacorta, Leonardo; Guiso, Luigi; Mistrulli, Paolo Emilio
    Abstract: We propose a new, data-based test for the presence of biased financial advice when households choose between fixed and adjustable rate mortgages. If households are wary, the relative cost of the two types should be a sufficient statistic for a household contract choice: the attributes of the bank that makes the loan should play no role. If households rely on banks’ advice to guide their choice, banks may be tempted to bias their counsel to their own advantage. In this case bank-specific supply characteristics will play a role in the household’s choice above any role they play through relative prices. Testing this hypothesis on a sample of 1.6 million mortgages originated in Italy between 2004 and 2010, we find that the choice between adjustable and fixed rates is significantly affected by change in banks’ supply factors, especially in periods during which banks do not change the relative price of the two mortgage types. This supports the view that banks are able to affect customers ’mortgage choices not only by pricing but also through an advice channel.
    Keywords: Financial advice; Household finance; Mortgage choice
    JEL: D14 E43 G11 G12 G21
    Date: 2015–07
  49. By: Enrique Mendoza (University of Pennsylvania); Javier Bianchi (Federal Reserve Bank of Minneapolis)
    Abstract: Collateral constraints widely used in models of financial crises feature a pecuniary externality, because agents do not internalize how collateral prices respond to collective borrowing decisions, particularly when binding collateral constraints trigger a crisis. We study a production economy in which physical assets serve as collateral for debt and working capital loans, and show that agents in a competitive equilibrium borrow ``too much" during credit expansions compared with a financial regulator who internalizes this externality. Under commitment, however, this regulator faces a time inconsistency problem: It promises low future consumption to prop up current asset prices when collateral constraints bind, but this is not optimal ex post. Instead, we examine the optimal, time-consistent policy of a regulator who cannot commit to future policies. Quantitative analysis shows that this policy reduces the incidence and magnitude of crises, removes fat tails from the distribution of returns and reduces risk premia. A key element of this policy is a state-contingent macro-prudential debt tax (i.e. a tax imposed in normal times when a financial crisis has positive probability next period) of about 1 percent on average. Constant debt taxes also reduce the frequency of crises but are less effective at reducing their severity and reduce welfare when credit constraints bind.
    Date: 2015
  50. By: Kurt Mitman (Stockholm University); Gianluca Violante (NYU); Greg Kaplan (Princeton University)
    Abstract: In this paper we revisit the consumption-house price nexus both empirically (with new data) and structurally (with an equilibrium model).
    Date: 2015
  51. By: João Carlos Lopes; Ana Santos
    Abstract: The growing fragmentation of production in the last decades has changed the geography, and dynamics, of trade. It is very important, especially for small and open economies, a good position in regional and global value chains (GVC). The necessary increase in imports, namely of intermediate inputs, that this positioning implies must be accompanied by an adequate increase of exports, generating a substantial amount of domestic value added. In this paper, an empirical analysis is made of the changes in the geography of imports and exports of Portuguese rubber and plastics industry, as well as the growing vertical specialization of this sector, both with direct and total measures, in the period 1995-2011. To put the main trends in perspective, a comparison will be made with some northern and southern EU countries, the main trade partners of Portugal in this industry, and in fact in all the others. The rubber and plastics industry is a good case study in the context of GVC analysis, given the strong proportion of intermediate inputs in its output and trade.
    Keywords: Vertical specialization; Global value chains; Rubber and plastics; Portugal
    JEL: E01 F14 F23 L65
    Date: 2015–07
  52. By: Tisdell, Clem; Svizzero, Serge
    Abstract: The literature explaining social collapse mainly focuses on factors such as wars, climate change or disease, as exemplified by numerous examples of collapses which have occurred during the Late Bronze Age in the Near East and in the South-eastern Mediterranean region. This paper aims at demonstrating that collapse can also have economic reasons. Indeed, collapse may be the outcome of an economic growth process which is inherently unsustainable. More precisely, we claim that several ancient societies collapsed because the form of economic development which they relied on eventually proved to be unable to sustain their standard of living. It is believed that the Únĕtice societies – central European Early Bronze Age - were among those that collapsed for that reason. A simple model is presented to demonstrate that, in this agricultural economy, the introduction of bronze mining and metallurgy led to unsustainable development and its subsequent collapse.
    Keywords: unsustainable development, Bronze Age, elite, economic surplus, mining productivity., Community/Rural/Urban Development, Research and Development/Tech Change/Emerging Technologies, N53, Q33, O13, E30,
    Date: 2015–04–27

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