nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒08‒19
79 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Review of James Forder’s Macroeconomics and the Phillips Curve Myth By Kevin D. Hoover
  2. Hysteresis and the European Unemployment Problem Revisited By Jordi Galí
  3. Have the US macro-financial linkages changed? The balance sheet dimension By Eddie Gerba
  4. Optimal Conventional Stabilization Policy in a Liquidity Trap When Wages and Prices are Sticky By Adiya Belgibayeva; Michal Horvath
  5. Japanese Fiscal Policy under the Zero Lower Bound of Nominal Interest Rates: Time-Varying Parameters Vector Autoregression By Morita, Hiroshi
  6. Growth enhancing effect of discretionary fiscal policy shocks: Keynesian, Weak Keynesian or Non-Keynesian? By Şen, Hüseyin; Kaya, Ayşe
  7. Estimating the effects of uncertainty over the business cycle By Bonciani, Dario
  8. Economic Shocks and their Effects on Unemployment in the Euro Area Periphery under the EMU By Pietro Dallari; Antonio Ribba
  9. Financial Shocks and Labor Market Fluctuations By Francesco Zanetti
  10. Clearing Up the Fiscal Multiplier Morass: Prior and Posterior Analysis By Eric M. Leeper; Nora Traum; Todd B. Walker
  11. The Swedish Macroeconomic Policy Framework By Calmfors, Lars
  12. Structural unemployment vs. NAWRU: implications for the assessment of the cyclical position and the fiscal stance By Julia Lendvai; Matteo Salto; Anna Thum-Thysen
  13. "A Nonbehavioral Theory of Saving" By Michalis Nikiforos
  14. A Model of Secular Stagnation By Gauti B. Eggertsson; Neil R. Mehrotra
  15. Long-lasting consequences of the European crisis By Juan F. Jimeno
  16. Risk Management for Monetary Policy Near the Zero Lower Bound By Evans, Charles L.; Fisher, Jonas D. M.; Gourio, Francois; Krane, Spencer D.
  17. Short- and Long-Run Fiscal Elasticities: International Evidence By Liu, Kai; Poplawski-Ribeiro, Marcos
  18. Unconventional monetary policies and the macroeconomy: the impact of the United Kingdom's QE2 and Funding for Lending Scheme By Churm, Rohan; Joyce, Mike; Kapetanios, George; Theodoridis, Konstantinos
  19. Mortgages and Monetary Policy By Roman Sustek; Finn Kydland; Carlos Garriga
  20. Unsticking the Flypaper Effect in an Uncertain World By Carlos A. Vegh; Guillermo Vuletin
  21. Co-Movement, Spillovers and Excess Returns in Global Bond Markets? By Joseph P. Byrne; Shuo Cao; Dimitris Korobilis
  22. Monetary Policy and the Redistribution Channel By Adrien Auclert
  23. Disinflation and Inequality in a DSGE monetary model: A Welfare Analysis By Maria Ferrara; Patrizio Tirelli
  24. Current account dynamics and the housing boom and bust cycle in Spain By Maas, Daniel; Mayer, Eric; Rüth, Sebastian
  25. Seasonal adjustment with and without revisions: A comparison of X-13ARIMA-SEATS and CAMPLET By Barend Abeln; Jan P.A.M. Jacobs
  26. Dynamic Debt Deleveraging and Optimal Monetary Policy By Gauti Eggertsson; Federica Romei; Pierpaolo Benigno
  27. Mathematical model of the Greek crisis By Krouglov, Alexei
  28. Spillover Implications of Differences in Monetary Conditions in the United States and the Euro Area By Carolina Osorio; Esteban Vesperoni
  29. Indicators of core inflation: Case of Tunisia By Ghrissi Mhamdi; Mounir Smida; Ramzi Farhani
  30. Forecasts from Reduced-form Models under the Zero-Lower-Bound Constraint By Pasaogullari, Mehmet
  31. Russia: Progress in Structural Reform and Framework Conditions 2011-13 By Yana Vaziakova
  32. Slower growth and vulnerability to recession: updating China’s global impact By Rod Tyers
  33. Business cycles in the economy and in economics: An econometric analysis By Geiger, Niels; Kufenko, Vadim
  34. The interest rate pass-through in the euro area during the sovereign debt crisis By Leo Krippner; Sandra Eickmeier; Julia von Borstel
  35. Weekly versus Monthly Unit Value Price Indexes By W. Erwin Diewert; Kevin J. Fox; Jan de Haan
  36. Optimal Income Taxation with Asset Accumulation By Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
  37. Systemic Risk, Aggregate Demand, and Commodity Prices By Javier G. Gómez-Pineda; Dominique Guillaume; Kadir Tanyeri
  38. Assessing the Interest Rate and Bank Lending Channels of ECB Monetary Policies By Jérôme Creel; Mathilde Viennot; Paul Hubert
  39. Inflation and speculation in a dynamic macroeconomic model By Matheus Grasselli; Adrien Nguyen Huu
  40. Reforming Fiscal Governance in the European Union By Michal Andrle; John C Bluedorn; Luc Eyraud; Tidiane Kinda; Petya Koeva Brooks; Gerd Schwartz; Anke Weber
  41. US Monetary and Fiscal Policies - conflict or cooperation? By Xiaoshan Che; Eric M. Leepe; Campbell Leith
  42. Options to Narrow New Zealand’s Saving – Investment Imbalance By Anne-Marie Brook
  43. Evaluating UK point and density forecasts from an estimated DSGE model: the role of off-model information over the financial crisis By Fawcett, Nicholas; Koerber, Lena; Masolo, Riccardo; Waldron, Matthew
  44. Is There a Debt-threshold Effect on Output Growth? By Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran, and Mehdi Raissi
  45. Developing Myanmar’s Finance Sector to Support Rapid, Inclusive, and Sustainable Economic Growth By Nehru, Vikram
  46. South-Eastern European monetary and economic statistics from the nineteenth century to WWII By Costache, Brindusa; Dimitrova, Kalina; Lazaretou, Sophia M.
  47. Are the Responses of the U.S. Economy Asymmetric to Positive and Negative Money Supply Shocks? By Apostolos Serletis; Khandokar Istiak
  48. Forward Guidance and Asset Prices By Yıldız Akkaya; Refet S. Gürkaynak; Burçin Kısacıkoğlu; Jonathan H. Wright
  49. External Shocks, Financial Volatility and Reserve Requirements in an Open Economy By Pierre-Richard Agénor; K. Alper; L. Pereira da Silva
  50. What Drives Aggregate Investment? By Ruediger Bachmann
  51. Can civilian disability pensions overcome the poverty issue? A DSGE analysis for Italian data By Agovino, Massimiliano; Ferrara, Maria
  52. Toward a better gorvernance in the EU ? Introduction By Catherine Mathieu; Henri Sterdyniak
  53. Is there a debt-threshold effect on output growth? By Chudik, Alexander; Mohaddes, Kamiar; Pesaran, M. Hashem; Raissi, Mehdi
  54. The rate elasticity of retail deposits in the United Kingdom: a macroeconomic investigation By Chiu, Ching-Wai (Jeremy); Hill, John
  55. Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data By Diewert, W. Erwin; Nishimura , Kiyohiko G.; Shimizu, Chihiro; Watanabe, Tsutomu
  56. Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference? By Weneyam Hippolyte BALIMA; Jean-Louis Combes; Alexandru Minea
  57. Type II errors in IO multipliers By Tobias Emonts-Holley; Andrew Ross; J Kim Swales
  58. Labour Market Effects of International Trade When Mobility is Costly By Damoun Ashournia
  59. Testing macro models by indirect inference: a survey for users By Le, Vo Phuong Mai; Meenagh, David; Minford, Patrick; Wickens, Michael; Xu, Yongdeng
  60. Oil, Volatility and Institutions:Cross-Country Evidence from Major Oil Producers By Amany El-Anshasy, Kamiar Mohaddes, and Jeffrey B. Nugent
  61. Testing the Optimality of Consumption Decisions of the Representative Household: Evidence from Brazil By Gesteira, Marcos; Carrasco Gutierrez, Carlos Enrique
  62. Fiscal Management in Myanmar By Oo, Zaw; Joelene, Cindy; Minoletti, Paul; Phyu, Phoo Pwint; Saw, Kyi Pyar Chit; Win, Ngu Wah; Porter, Ian; Oye, Mari; Smurra, Andrea
  63. Dynamics of Real Per Capita GDP By Daniel Neuhoff; ; ;
  64. Credit imperfections, labor market frictions and unemployment: a DSGE approach By Imen Ben Mohamed; Marine Salès
  65. Does easy availability of cash effect corruption? Evidence from panel of countries By Singh, Sunny; Bhattacharya, Kaushik
  66. The distortionary effect of monetary policy: credit expansion vs. lump-sum transfers in the lab By Romain Baeriswyl; Camille Cornand
  67. In search of a better governance in the euro area By Catherine Mathieu; Henri Sterdyniak
  68. Determinants of unemployment in CEE-10 economies: the role of labour market institutions and the macroeconomic environment in 2002–2012 By Pesliakaite, Jurgita
  69. Microeconomic Origins of Macroeconomic Tail Risks By Asu Ozdaglar; Alireza Tahbaz-Salehi; Daron Acemoglu
  70. Employment-Based Health Insurance and Aggregate Labor Supply By Zhigang Feng; Kai Zhao
  71. Public Education, Pension and Debt Policy By Yasuoka, Masaya; Oguro, Kazumasa
  72. When is Nonfundamentalness in VARs A Real Problem? An Application to News Shocks. By Beaudry, Paul; Fève, Patrick; Guay, Alain; Portier, Franck
  73. Phases of Global Liquidity, Fundamentals News, and the Design of Macroprudential Policy By Javier Bianchi; Enrique G. Mendoza
  74. Bayesian model comparison for time-varying parameter VARs with stochastic volatility By Joshua C.C. Chan; Eric Eisenstat
  75. Macroeconomic Effects of Banking Sector Losses across Structural Models By Luca Guerrieri; Matteo Iacoviello; Francisco Covas; John C. Driscoll; Mohammad Jahan-Parvar; Michael Kiley; Albert Queraltoy; Jae Sim
  76. Decomposing the Wage Losses of Displaced Workers: The Role of the Reallocation of Workers into Firms and Job Titles By Raposo, Pedro; Portugal, Pedro; Carneiro, Anabela
  77. Un-Networking: The Evolution of Networks in the Federal Funds Market By Beltran, Daniel O.; Bolotnyy, Valentin; Klee, Elizabeth C.
  78. FOMC Responses to Calls for Transparency By Acosta, Miguel
  79. قياس الآثار التبادلية بين التكتلات الاقتصادية والأزمات حالة المكسيك ضمن تكتل منطقة التجارة الحرة لأمريكا الشمالية للفترة 1980-2012 By ABDELLAOUI, Okba; Elkhatib, MOHAMMED

  1. By: Kevin D. Hoover
    Abstract: A review of James Forder’s important history of the Phillips Curve.
    Keywords: Phillips curve, A.W. Phillips, Milton Friedman, inflation, unemployment
    JEL: B22 B30 E24 E31
    Date: 2015
  2. 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.
    JEL: E24 E31 E32
    Date: 2015–07
  3. By: Eddie Gerba
    Keywords: balance sheet; financial market; credit; business cycle; financial friction models; future challenges
    JEL: C68 E3 E44 E51
    Date: 2015–05–15
  4. By: Adiya Belgibayeva; Michal Horvath
    Abstract: We study an economy in a liquidity trap in which wage adjustment is staggered. In this economy, it is optimal not to use expected inflation as a stabilization tool in or out of the liquidity trap. In such a world, the well-known conventional stabilization mix should be applied more forcefully: the forward commitment regarding interest rates should apply for even longer, and government spending should `lean against the wind' more vigorously. This policy strategy generates a real economy boom in the future and helps stabilizing demand in the short run. Tax policy plays a key role in ensuring price stability. This is generally consistent with a short-run income tax hike counteracting deflationary pressures. The initial government spending expansion is thus close to a balanced-budget one.
    Keywords: Zero Lower Bound, Sticky Wages, Inflation Stabilization, Income Tax, Government Spending.
    JEL: E31 E32 E52 E61 E62
    Date: 2015–07
  5. By: Morita, Hiroshi
    Abstract: This study investigates whether the effects of fiscal policy are enhanced during ZLB periods. We present a new strategy for identifying unconventional monetary policy shocks in the framework of a time-varying parameters vector autoregressive model. The main findings are as follows. First, during ZLB periods, the volatility of short-term interest rates is quite small, while that of the monetary base is large. Second, fiscal policy shocks have significant positive time-varying effects on GDP after adoption of unconventional monetary policy. Third, the effects of fiscal policy shocks increase during a ZLB period.
    Keywords: TVP-VAR model, zero lower bound, sign restriction, fiscal policy
    JEL: E62 E52 C11 C32
    Date: 2015–07
  6. By: Şen, Hüseyin; Kaya, Ayşe
    Abstract: Using the extended version of the Blanchard and Perotti SVAR technique, this paper attempts to empirically predict the growth enhancing effect of discretionary fiscal policy shocks in both short- and long-run in Turkey over the period 2006:Q1-2015:Q1. Unlike previous studies which have mainly focused on fiscal policy instruments taxes and government spending at the aggregate level, this paper considers these instruments at the component level, and then attempts to analyze comparatively the effect of changes in each component on growth. The findings of the paper show that growth enhancing effect of discretionary fiscal policy shocks varies according to its components. However, discretionary fiscal policy shocks at the component level indicate mixed results. In the short-run, only the shocks to government spending have a Keynesian effect. In all other cases, discretionary fiscal policy shocks seem to capture a weak Keynesian and/or non-Keynesian effect in the case of Turkey.
    Keywords: Fiscal Policy, Economic Growth, Fiscal Stimulus Packages, Fiscal Multiplier, Keynesian Effect, Non-Keynesian Effect, Weak Keynesian Effect, SVAR Technique, Turkey.
    JEL: E27 E32 E6 E62 H2 H30
    Date: 2015–08–01
  7. By: Bonciani, Dario
    Abstract: In this paper I provide empirical evidence that uncertainty shocks have strong asymmetric effects on economic activity depending on the phase of the business cycle. In particular, the impulse responses estimated with the local projection method on a smooth-transition model show that in recessions uncertainty shocks strongly dampen industrial production, increase unemployment and reduce prices. In an expansion the effects are reversed, and uncertainty shocks appear to have positive macroeconomic effects. One possible explanation is that during expansions uncertainty fosters investments and economic activity through the "growth options" channel, while in recessions it reduces investments via the "wait-and-see" channel.
    Keywords: uncertainty shocks, Smooth-Transition, local projections, nonlinearities
    JEL: E21 E22 E32
    Date: 2015–08–03
  8. By: Pietro Dallari; Antonio Ribba
    Abstract: In this paper we aim to investigate the effects of several types of shocks on unemployment in peripheral European countries under the EMU. We use a structural near- VAR model to account for the supranational conduct of monetary policy on the one hand, and domestic fiscal policy and financial shocks on the other hand. Our main findings are: (i) the unemployment multipliers of government spending shocks are higher than the ones associated with government revenues shocks, and they vary across countries; (ii) instability in the unemployment responses over time is marked, with evidence that a regime shift took place in some countries since 2007; (iii) fiscal and financial shocks are not among the long-term drivers of unemployment, but instead a more important role is played by Euro area-wide shocks, with a pre-eminent role for the common monetary policy shock.
    Keywords: business cycles, unemployment, euro area, near-Structural VARs
    JEL: E32 E62 C32
    Date: 2015–07
  9. By: Francesco Zanetti
    Abstract: This paper investigates the effect of …financial shocks using an estimated gen-eral equilibrium model that links the …firm's flows of …financing with labor marketvariables. The results show that fi…nancial shocks have sizeable effects on …financialvariables, vacancy posting, unemployment and wages. Shocks to the job destruc-tion rate are important in describing fluctuations in unemployment. The analysisalso investigates the underlying driving forces of some key comovements in thedata.
    Keywords: Business cycle, labor market frictions, financial shocks.
    JEL: E32 E44
    Date: 2015–05–27
  10. By: Eric M. Leeper; Nora Traum; Todd B. Walker
    Abstract: We use Bayesian prior and posterior analysis of a monetary DSGE model, extended to include fiscal details and two distinct monetary-fiscal policy regimes, to quantify government spending multipliers in U.S. data. The combination of model specification, observable data, and relatively diffuse priors for some parameters lands posterior estimates in regions of the parameter space that yield fresh perspectives on the transmission mechanisms that underlie government spending multipliers. Posterior mean estimates of short-run output multipliers are comparable across regimes—about 1.4 on impact—but much larger after 10 years under passive money/active fiscal than under active money/passive fiscal—means of 1.9 versus 0.7 in present value.
    JEL: C11 E62 E63
    Date: 2015–07
  11. By: Calmfors, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: The paper describes the monetary and fiscal policy frameworks in Sweden and analyses how they were established as well as current challenges. Sweden provides a good example of how deep economic crisis, in interaction with independent thinking by academics and other experts as well as policy influences from abroad, can lead to fundamental reforms of policy frameworks. It remains to be seen whether it will be possible in Sweden to adapt the monetary and fiscal frameworks to changed circumstances, while still preserving the benefits they have delivered
    Keywords: Independent central banking; Inflation targeting; fiscal rules; Fiscal councils
    JEL: E58 H61
    Date: 2015–08–01
  12. By: Julia Lendvai; Matteo Salto; Anna Thum-Thysen
    Abstract: This paper compares trends in the structural unemployment rate and the NAWRU and considers their implications for the assessment of cyclical economic conditions and the fiscal stance.
    JEL: E32 E62 H11 H60 J64
    Date: 2015–06
  13. By: Michalis Nikiforos
    Abstract: We present a model where the saving rate of the household sector, especially households at the bottom of the income distribution, becomes the endogenous variable that adjusts in order for full employment to be maintained over time. An increase in income inequality and the current account deficit and a consolidation of the government budget lead to a decrease in the saving rate of the household sector. Such a process is unsustainable because it leads to an increase in the household debt-to-income ratio, and maintaining it depends on some sort of asset bubble. This framework allows us to better understand the factors that led to the Great Recession and the dilemma of a repeat of this kind of unsustainable process or secular stagnation. Sustainable growth requires a decrease in income inequality, an improvement in the external position, and a relaxation of the fiscal stance of the government.
    Keywords: Inequality; Financial Balances; Saving; Secular Stagnation; Sustainability
    JEL: E12 E21 E32 E60
    Date: 2015–07
  14. By: Gauti B. Eggertsson (Brown University (E-mail:; Neil R. Mehrotra (Brown University (E-mail:
    Abstract: We propose an overlapping generations New Keynesian model in which a permanent (or very persistent) slump is possible without any self- correcting force to full employment. The trigger for the slump is a deleveraging shock, which creates an oversupply of savings. Other forces that work in the same direction and can both create or exacerbate the problem include a drop in population growth, an increase in income inequality, and a fall in the relative price of investment. Our model sheds light on the long persistence of the Japanese crisis, the Great Depression, and the slow recovery out of the Great Recession. It also highlights several implications for policy.
    Keywords: Secular stagnation, monetary policy, zero lower bound
    JEL: E31 E32 E52
    Date: 2015–07
  15. By: Juan F. Jimeno (Banco de España)
    Abstract: The Great Recession and the subsequent European crisis may have long-lasting effects on aggregate demand, aggregate supply and, hence, on macroeconomic performance over the medium and long run. Besides the fact that financial crises last longer and are succeeded by slower recoveries, and apart from the hysteresis effects that may operate after episodes of long-term unemployment, the combination of high (public and private) debt and low population and productivity growth may create significant constraints for monetary and fiscal policies. In this paper I develop an OLG model, one earlier used by Eggertsson and Mehrotra (2014) to rationalise the «secular stagnation hypothesis», to show how high debt and low population and productivity growth may condition the macroeconomic performance of some European countries over the medium and long run.
    Keywords: natural rate of interest, zero lower bound, population and productivity growth, inter-generational transfers, secular stagnation.
    JEL: E20 E43 E52 E66
    Date: 2015–08
  16. By: Evans, Charles L. (Federal Reserve Bank of Chicago); Fisher, Jonas D. M. (Federal Reserve Bank of Chicago); Gourio, Francois (Federal Reserve Bank of Chicago); Krane, Spencer D. (Federal Reserve Bank of Chicago)
    Abstract: As projections have inflation heading back toward target and the labor market continuing to improve, the Federal Reserve has begun to contemplate an increase in the federal funds rate. There is however substantial uncertainty around these projections. How should this uncertainty affect monetary policy? In many standard models uncertainty has no effect. In this paper, we demonstrate that the zero lower bound on nominal interest rates implies that the central bank should adopt a looser policy when there is uncertainty. In the current context this result implies that a delayed liftoff is optimal. We demonstrate this result theoretically in two canonical macroeconomic models. Using numerical simulations of our models, calibrated to the current environment, we find optimal policy calls for 2 to 3 quarters delay in liftoff relative to a policy that does not take into account uncertainty about policy being constrained by the ZLB. We then use a narrative study of Federal Reserve communications and estimated policy reaction functions to show that risk management is a longstanding practice in the conduct of monetary policy.
    Keywords: risk; monetary policy; risk management; zero lower bound
    JEL: E53 E58
    Date: 2015–05–21
  17. By: Liu, Kai; Poplawski-Ribeiro, Marcos
    Abstract: Using dynamic heterogeneous panel data models, this paper estimates short- and long-run fiscal elasticities with respect to various cyclical factors for more than 90 countries. We find the terms of trade are significant in explaining primary fiscal revenues. Moreover, revenue elasticities with respect to real GDP on average are larger than one in the short-run and bigger in developing countries than in advanced economies both, in the short- and long-run. The analysis highlights the importance of considering short- and long-run elasticities with respect to other effects than the output gap, particularly terms of trade, when computing structural balances.
    Keywords: fiscal elasticities, structural fiscal balances, dynamic heterogeneous panel data model, business cycle
    JEL: C33 E32 E62 H62
    Date: 2015–08–04
  18. By: Churm, Rohan (Bank of England); Joyce, Mike (Bank of England); Kapetanios, George (Queen Mary, University of London); Theodoridis, Konstantinos (Bank of England)
    Abstract: In this paper we assess the macroeconomic effects of two of the flagship unconventional monetary policies used by the Bank of England during the later stages of the global economic crisis: additional quantitative easing (QE) and the introduction of the Funding for Lending Scheme (FLS). We argue that these policies can be seen as complements, as QE effectively bypasses the banks by attempting to reduce risk-free yields directly in order to have a wider effect on asset prices, while FLS operates directly through banks by reducing their funding costs and increasing incentives to lend. We attempt to quantify the effects of these policies by estimating their impact on long-term interest rates and bank funding costs, respectively, and then tracing out their wider effects on the macroeconomy using simulations from a large Bayesian vector autoregression (VAR), which are cross-checked with a simpler auto-regressive distributed lag (ARDL) approach. We find that the second round of the Bank’s QE purchases during 2011–12 and the initial phase of the FLS each boosted GDP in the United Kingdom by around 0.5%–0.8%. Their effect on inflation was also broadly positive reaching around 0.6 percentage points, at its peak.
    Keywords: Bayesian methods; large-scale asset purchases; quantitative easing; Funding for Lending Scheme; vector autoregressions; auto-regressive distributed lag.
    JEL: C11 C32 E52 E58
    Date: 2015–08–14
  19. By: Roman Sustek (Queen and Mary University of London); Finn Kydland (University of California, Santa Barbara); Carlos Garriga (Federal Reserve Bank of St. Louis)
    Abstract: Mortgages are a prime example of long-term nominal loans. As a result, under incomplete asset markets, monetary policy affects household decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. These channels are distinct from the transmission through the real interest rate. A general equilibrium model incorporating these features is developed. Persistent monetary policy shocks, resembling the level factor in the nominal yield curve, have larger real effects than transitory shocks. The transmission is stronger under adjustable- than fixed-rate mortgages. Higher inflation benefits homeowners under FRMs but hurts them under ARMs.
    Date: 2015
  20. By: Carlos A. Vegh; Guillermo Vuletin
    Abstract: We provide a novel explanation for the flypaper effect based on insurance arguments. In our model, the flypaper effect arises due to the differential response of precautionary savings to private income or fiscal transfers shocks in an uncertain world with incomplete markets. The model generates two testable implications: (i) the flypaper effect is a decreasing function of the correlation between fiscal transfers and private income, and (ii) such relationship is stronger the higher is the volatility of fiscal transfers and/or private income. An empirical analysis of Argentinean provinces for the period 1963-2006 finds strong support for the model's implications.
    JEL: E21 E62 H62 H77
    Date: 2015–07
  21. By: Joseph P. Byrne; Shuo Cao; Dimitris Korobilis
    Abstract: This paper investigates global term structure dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. More than half of the variation in bond yields of seven advanced economies is due to global co-movement, which is mainly attributed to shocks to non-fundamentals. Global fundamentals, especially global inflation, affect yields through a ‘policy channel’ and a ‘risk compensation channel’, but the effects through two channels are offset. This evidence explains the unsatisfactory performance of fundamentals-driven term structure models. Our approach delineates asymmetric spillovers in global bond markets connected to diverging monetary policies. The proposed model is robust as identified factors has significant explanatory power of excess returns. The finding that global inflation uncertainty is useful in explaining realized excess returns does not rule out regime changing as a source of non-fundamental fluctuations.
    Keywords: Global Bond Markets, Term Structure of Interest Rates, Shocks to Fundamentals and Non-Fundamentals, Co-Movement, Contagion, Excess Return.
    JEL: C11 C32 E43 F3 G12 G15
    Date: 2015–06
  22. By: Adrien Auclert (MIT)
    Abstract: This paper evaluates the role of redistribution in the transmission mechanism of monetary policy to consumption. Using consumer theory, I show that redistribution has aggregate effects whenever marginal propensities to consume (MPCs) covary, across households, with balance-sheet exposures to aggregate shocks. Unexpected inflation gives rise to a Fisher channel and real interest rate shocks to an interest rate exposure channel; both channels are likely to contribute to the expansionary effects of accommodative monetary policy. Indeed, using a sufficient statistic approach, I find that redistribution could be the dominant reason why aggregate consumer spending reacts to transitory changes in the real interest rate, provided households' elasticities of intertemporal substitution are reasonably small (0.3 or less in the United States). I then build and calibrate a general equilibrium model with heterogeneity in MPCs, and I evaluate how the redistribution channel alters the economy's response to shocks. When household assets and liabilities have short effective maturities, the interest rate exposure channel raises the elasticity of aggregate demand to real interest rates, which dampens fluctuations in the natural rate of interest in response to exogenous shocks and amplifies the real effects of monetary policy shocks. The model predicts that if U.S. mortgages all had adjustable rates---as they do in the U.K.---the effect of interest-rate changes on consumer spending would more than double. In addition, this effect would be asymmetric, with rate increases reducing spending by more than cuts would increase it.
    Date: 2015
  23. By: Maria Ferrara; Patrizio Tirelli
    Abstract: We investigate the redistributive e¤ects of a disinflation experiment in an otherwise standard medium-scale DSGE model augmented for Limited Asset Market Participation, implying that a fraction of households do not hold any wealth. We highlight two key mechanisms driving consumption and income distribution: i) the cash in advance constraint on firms working capital needs; ii) the response of profit margins to disinflation, which is crucially dependent on the two most used pricing assumptions in the New-Keynesian literature, i.e. Calvo vs Rotemberg. Results show that disinflation softens the cash in advance constraint and raises the real wage in steady state. This, in turn, lowers inequality. While under the Calvo formalism this e¤ect is reinforced by the fall of price markups, under Rotemberg it is more than compensated by the increase of price markups and, therefore, the opposite result obtains.
    Keywords: Disinflation, Inequality, Welfare, LAMP, Monetary Policy, Calvo Price Adjustment, Rotemberg Price Adjustment
    JEL: E31 E5
    Date: 2015–07
  24. By: Maas, Daniel; Mayer, Eric; Rüth, Sebastian
    Abstract: We investigate the drivers of the negative correlation between housing markets and the current account in Spain. By employing robust sign restrictions, which we derive from a DSGE model for a currency union, we analyze the effects of domestic pull and foreign push factors in the mixed frequency VAR framework. Savings glut, risk premium, and house price expectations shocks are capable of generating the negative co-movement of housing markets and the current account in the data. In contrast, and counter-factual to the Spanish housing boom, financial easing shocks predict a decline in residential investment. Among the four identified shocks, savings glut shocks have most explanatory power for real house prices, residential investment, and the current account. We also reveal an important role of risk premium and house price expectations shocks for housing markets, whereas financial easing shocks do not explain sizeable fluctuations in the key variables.
    Keywords: current account,housing markets,monetary union
    JEL: E32 F32
    Date: 2015
  25. By: Barend Abeln; Jan P.A.M. Jacobs
    Abstract: Seasonality in macroeconomic time series can obscure movements of other components in a series that are operationally more important for economic and econometric analyses. Indeed, in practice one often prefers to work with seasonally adjusted data to assess the current state of the economy and its future course. Recently, two most widely used seasonal adjustment methods, Census X-12-ARIMA and TRAMO-SEATS, merged into X-13ARIMA-SEATS to become a new industry standard. In this paper, we compare and contrast X-13ARIMA-SEATS with a seasonal adjustment program called CAMPLET, an acronym of its tuning parameters. CAMPLET consists of a simple adaptive procedure which separates the seasonal component and the non-seasonal component from an observed time series. Once this process has been carried out there will be no need to revise these components at a later stage when more observations become available, in contrast with other seasonal adjustment methods. The paper briefly reviews of X-13ARIMA-SEATS and describes the main features of CAMPLET. We evaluate the outcomes of both methods in a controlled simulation framework using a variety of processes. Finally, we apply the X-13ARIMA-SEATS and CAMPLET methods to three time series: U.S. non-farm payroll employment, operational income of Ahold, and real GDP in the Netherlands.
    Keywords: seasonal adjustment, real-time, seasonal pattern, simulations, employment, operational income, real GDP
    JEL: C22 E24 E32 E37
    Date: 2015–07
  26. By: Gauti Eggertsson (Brown University); Federica Romei (European University Institute); Pierpaolo Benigno (LUISS)
    Abstract: This paper studies optimal monetary policy under dynamic debt deleveraging once the zero bound is binding. Unlike the existing literature, the natural rate of interest is endogenous and depends on macroeconomic policy. Optimal monetary policy successfully raises the natural rate of interest by creating an environment that speeds updeleveraging, thus endogenously shortening the duration of the crisis and a binding zero bound. Inflation should be front loaded. Fiscal-policy multipliers can be even higher than in existing models, but depend on the way in which public spending is financed.
    Date: 2015
  27. By: Krouglov, Alexei
    Abstract: Presented is a simplified mathematical model of the Greek economy with a reduced description of different stages of the current Greek crisis. Explored are conditions where a stream of investments can pull economy from the crisis. It has been theoretically proven that an investment in the benign conditions where demand is sustained produces higher nominal economic growth than an investment in the austere conditions where demand is cut.
    Keywords: Greek crisis; investment; modeling
    JEL: E22 E32 G01
    Date: 2015–08–14
  28. By: Carolina Osorio; Esteban Vesperoni
    Abstract: This report analyzes the possible spillover effects that could result if the U.S. normalizes its monetary policy while euro area countries are increasing monetary stimulus (a situation referred to as asynchronous monetary conditions). This analysis identifies country-specific shocks to economic activity and monetary conditions since the early 1990s, finding that real and monetary conditions in the United States and the euro area have oftentimes been asynchronous and have often resulted in significant spillover effects, particularly since early 2014.
    Keywords: Spillovers;Negative spillovers;Positive spillovers;United States;Euro Area;Monetary policy;spillovers;monetary policy
    Date: 2015–07–23
  29. By: Ghrissi Mhamdi (Université de Sousse); Mounir Smida (Université de Sousse); Ramzi Farhani (Université de Sousse)
    Abstract: The aim of this paper is to provide a credible measure of inflation. This credibility is of great importance for successful inflation targeting regime. This paper proposes a technique to solve a conceptual disparity between inflation phenomenon and its measurement. For this, we proposed an alternative measure called core inflation, defined as the inflation component that has no real impact on long-term production. Evaluation of core inflation was obtained using a VAR system under the assumption that variations in the extent of inflation are affected by two types of shock. The first type has no impact on real output in the long term, while the second can have this effect. This approach is a reconstruction of the approach of Quah and Vahey (1995) in the case of the Tunisian economy. The study concluded that the administered prices constitute a major obstacle to measure, interpret and forecast inflation. Central Bank of Tunisia has no control over a third of the CPI basket. This feature of the Tunisian economy is simply a sign of weakness of the economic system and the need for monetary authorities to continue its efforts to liberalize prices. Introduction The concept of core inflation has played an important role in the decisions of responsible monetary policy in recent years. However, despite the centrality of this concept, there is still no consensus on the best measure of core inflation. The most widely adopted approach is the exclusion of certain categories of price inflation rate as a whole. It reflects the origin of the concept of core inflation during the turbulent 1970s. However, more recently, many economists are trying to set a robust measure of core inflation. Core inflation has become in recent years the most important subject of study for central banks of various countries. In fact, many of them are given as central or even ultimate objective of reducing inflation and achieving price stability. However, government policies other than monetary policy can play an important role in maintaining this goal. But the central bank sees its role as crucial when it admits that inflation can persist for a long time if it is tolerated by the monetary policy. It is important, then, that it should follow closely the evolution of the inflation rate.
    Date: 2014–04–18
  30. By: Pasaogullari, Mehmet (Federal Reserve Bank of Cleveland)
    Abstract: In this paper, I consider forecasting from a reduced-form VAR under the zero lower bound (ZLB) for the short-term nominal interest rate. I develop a method that a) computes the exact moments for the first n + 1 periods when n previous periods are tracked and b) approximates moments for the periods beyond n + 1 period using techniques for truncated normal distributions and approximations a la Kim (1994). I show that the algorithm produces satisfactory results for VAR systems with moderate to high persistence even when only one previous period is tracked. For very persistent VAR systems, however, tracking more periods is needed in order to obtain reliable approximations. I also show that the method is suitable for affine term-structure modeling, where the underlying state vector includes the short-term interest rate as in Taylor rules with inertia.
    Keywords: monetary policy; forecasting from VARs; zero lower bound; normal mixtures
    JEL: C53 E42 E43 E47
    Date: 2015–08–05
  31. By: Yana Vaziakova
    Abstract: Since 1995 when OECD began conducting Economic Surveys of the Russian Federation many policy recommendations relating to structural reform and framework conditions have been made. This paper is an update of an earlier paper that described actions taken up to October 2011 (Vaziakova et al., 2011). It expands the Annex A.1 of the 2013 OECD Economic Survey of the Russian Federation and provides a summary table of the policies implemented. This Working Paper relates to the 2014 Economic Survey of the Russian Federation<P>Russie : Progrès des réformes structurelles et des conditions-cadres 2011-13<BR>Depuis 1995, date à laquelle l'OCDE a commencé à mener des Études économiques de la Fédération de Russie, un grand nombre de recommandations politiques relatives aux réformes structurelles et aux conditions-cadres ont été mises en oeuvre en Russie. Ce document est une mise à jour d'un document de travail antérieur qui décrit les mesures prises jusqu'en Octobre 2011 (Vaziakova et al., 2011). Il élargit l'annexe 1.A1 de l’Étude économique de la Fédération de Russie 2013 et fournit un tableau récapitulatif des politiques adoptées. Ce document de travail se rapporte à l’Étude économique de l’OCDE 2014 sur la Fédération de Russie que-russie.htm.
    Keywords: labour markets, energy sector, structural reforms, fiscal policy, social policy
    JEL: E5 E62 F13 H1 H2 H82 H83 I18 I2 J2 J3 K20 K21 L1 L3 L4 L5 L9 P3 Q1
    Date: 2015–08–07
  32. By: Rod Tyers
    Abstract: Central to the global impacts of China’s emergence has been its structural imbalance (its excess product supply and excess saving), but this has diminished considerably in the transition years since 2010. These imbalances are now reversed as its consumption expands faster than its GDP and so the global implications are qualitatively different. Moreover, higher income, slower growth, and therefore increasing similarity with the advanced economies, implies that consumer and business confidence are now more central to performance, rendering recession possible, and more likely as the growth slowdown raises the intensity of the domestic spotlight on political performance. The international effects of the transition and a possible recession are here quantified using a global macro model with national portfolio rebalancing. The transition to consumption-led growth is shown to foster employment abroad, particularly in the US, while a major Chinese recession is shown to be damaging to the advanced economies and particularly to the US, the more so if China’s policy response is expansionary and includes floating the RMB.
    Keywords: China, imbalances, saving, monetary policy, spill-overs, recession
    JEL: F42 F43 F47
    Date: 2015–08
  33. By: Geiger, Niels; Kufenko, Vadim
    Abstract: It is sometimes pointed out that economic research is prone to move in cycles and react to particular events such as crises and recessions. The present paper analyses this issue through a quantitative analysis by answering two closely related research questions: (1) whether or not there are patterns in the economic literature on business cycles, and (2) whether or not these are correlated with movements in actual economic activity. To tackle these questions, a bibliometric analysis of key terms related to business cycle and crises theory is performed. In a second step, these results are confronted with data on actual economic developments in order to investigate the question of whether or not the theoretical literature follows trends and developments in economic data. Respective time series are detrended by the Kalman filter in order to estimate cycles. To determine the connection between economic activity and developments in the academic literature, a descriptive analysis is scrutinized by Granger causality tests. The paper also includes IRF analysis for quantitative assessment of the effects from economic to bibliometric variables. The results point towards a confirmation of the hypothesis of an effect of business cycles and crises in economic variables on discussions in the literature.
    Keywords: bibliometric analysis,business cycle theory,empirical analysis
    JEL: B10 B22 E32 E39
    Date: 2015
  34. By: Leo Krippner; Sandra Eickmeier; Julia von Borstel (Reserve Bank of New Zealand)
    Abstract: We investigate the pass-through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis, in comparison to the pre-crisis period. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specifi…c interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks' funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Specifically, expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during the crisis, but has been unable to lower banks' markups. This was not, or not as much, the case prior to the crisis. Unconventional monetary policy helped decreasing lending rates, mainly due to large shocks rather than a strong propagation.
    Date: 2015–05
  35. By: W. Erwin Diewert (University of British Columbia and UNSW); Kevin J. Fox (School of Economics, UNSW Business School, UNSW); Jan de Haan (Statistics Netherlands and Delft University of Technology)
    Abstract: A previously overlooked 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
  36. By: Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
    Abstract: Several frictions restrict the government's ability to tax assets. First, it is very costly to monitor trades on international asset markets. Second, agents can resort to nonobservable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset taxation have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we find that optimal labor income taxes become less progressive when governments face limitations in asset taxation. We evaluate the quantitative effect of imperfect asset taxation for two applications of our model.
    Keywords: Optimal Income Taxation, Capital Taxation, Progressivity
    JEL: D82 D86 E21 H21
    Date: 2014
  37. By: Javier G. Gómez-Pineda; 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.
    Keywords: Systemic risk, Financial linkages, Capital flows, Global imbalances Commodity prices
    JEL: F32 F37 F41 F31 F47 E58
    Date: 2015–07–23
  38. By: Jérôme Creel (OFCE - OFCE - Sciences Po); Mathilde Viennot (ENS Cachan - École normale supérieure - Cachan); Paul Hubert (OFCE - OFCE - Sciences Po)
    Abstract: This paper assesses the transmission of ECB monetary policies, conventional and unconventional, to both interest rates and lending volumes for the money market, sovereign bonds at 6-month, 5-year and 10-year horizons, loans inferior and superior to 1M€ to non-financial corporations, cash and housing loans to households, and deposits, during the financial crisis and in the four largest economies of the Euro Area. We first identify two series of ECB policy shocks at the euro area aggregated level and then include them in country-specific structural VAR. The main result is that only the pass-through from the ECB rate to interest rates has been really effective, consistently with the existing literature, while the transmission mechanism of the ECB rate to volumes and of quantitative easing (QE) operations to interest rates and volumes has been null or uneven over this sample. One argument to explain the differentiated pass-through of ECB monetary policies is that the successful pass-through from the ECB rate to interest rates, which materialized as a huge decrease in interest rates during the sample period, had a negative effect on the supply side of loans, and offset itself its potential positive effects on lending volumes.
    Date: 2013–12
  39. By: Matheus Grasselli (Department of Mathematics and Statistics, McMaster University, Hamilton, Canada, Fields Institute for Research In Mathematical Sciences - Fields Institute for Research In Mathematical Sciences); Adrien Nguyen Huu (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - École des Ponts ParisTech (ENPC) - Université Paris Est (UPE))
    Abstract: We study a monetary version of the Keen model by merging two alternative extensions, namely the addition of a dynamic price level and the introduction of speculation. We recall and study old and new equilibria, together with their local stability analysis. This includes a state of recession associated with a deflationary regime and characterized by falling employment but constant wage shares, with or without an accompanying debt crisis. We also emphasize some new qualitative behavior of the extended model, in particular its ability to produce and describe repeated financial crises as a natural pace of the economy, and its suitability to describe the relationship between economic growth and financial activities.
    Date: 2014–12–15
  40. By: Michal Andrle; John C Bluedorn; Luc Eyraud; Tidiane Kinda; Petya Koeva Brooks; Gerd Schwartz; Anke Weber
    Abstract: Successive reforms have brought many positive elements to the European Union’s fiscal framework. But they have also increased its complexity. The current system involves an intricate set of fiscal constraints, which hampers effective monitoring and public communication. Compliance has also been weak. This note discusses medium-term reform options to simplify the framework and improve compliance. Based on model simulations and practical considerations, it argues for moving to a two-pillar approach, with a single fiscal anchor (public debt-to-GDP) and a single operational target (an expenditure growth rule, possibly with an explicit debt correction mechanism) linked to the anchor.
    Keywords: European Economic and Monetary Union;Euro Area;Fiscal reforms;Fiscal policy;Fiscal rules;Fiscal Governance, European Economic, Monetary Union, debt, expenditure, public debt, budget, deficit, General, Intergovernmental Relations,
    Date: 2015–05–21
  41. By: Xiaoshan Che; Eric M. Leepe; Campbell Leith
    Abstract: Most of the literature estimating DSGE models for monetary policy analysis ignores Öscal policy and assumes that monetary policy follows a simple rule. In this paper we allow both Öscal and monetary policy to be described by rules and/or optimal policy which are subject to switches over time. We Önd that US monetary and Öscal policy have often been in conáict, and that it is relatively rare that we observe the benign policy combination of an conservative monetary policy paired with a debt stabilizing Öscal policy. In a series of counterfactuals, a conservative central bank following a time-consistent Öscal policy leader would come close to mimicking the cooperative Ramsey policy. However, if policy makers cannot credibly commit to such a regime, monetary accommodation of the prevailing Öscal regime may actually be welfare improving.
    Keywords: Bayesian Estimation, interest rate rules, Öscal policy rules, optimal mone- tary policy, optimal Öscal policy, great moderation, commitment, discretion
    Date: 2015–06
  42. By: Anne-Marie Brook (The Treasury)
    Abstract: The Treasury has, at times, suggested giving greater consideration to reforms to narrow the Saving-Investment gap. However, there has been less discussion of specific policy options for doing this. This paper helps to fill the gap by asking what policy reforms could help to narrow the Saving-Investment gap in New Zealand. Lower per capita growth in the capital stock overall does not seem a desirable goal, given the relatively capital shallow nature of the New Zealand economy. This suggests a need for a significantly higher rate of national saving. Previous recommendations to boost national saving have often focused on higher government saving. This paper agrees that higher public saving is desirable but argues that efforts to boost private sector saving rates are at least as important. Potential policy options to boost private sector saving include tax policy changes, a range of different retirement income policy settings and policies that affect the housing market. Internationally, New Zealand stands out as being one of the only OECD countries where individuals do not have access to any significantly tax-preferred saving vehicles other than property. Tax reform thus has potential to both raise the level of saving and improve its composition. One option may be to reduce the tax rate on capital income, such as by extending the existing PIE regime, although such a reform would need to be packaged together with other tax changes to mitigate the equity and revenue impacts. Another option would be to move toward a private save-as-you-go (SAYGO) pension system, which would pair compulsory savings with means-testing of New Zealand Superannuation (NZS). At the same time, there is a growing body of evidence pointing to the effectiveness of default policies that nudge individuals to save more (as KiwiSaver does). Finally, a number of policies are considered that would dampen house price inflation, which may help to boost private saving.
    Keywords: Saving; Investment; Tax; Pension policy
    JEL: D9 E21 H55 O16
    Date: 2014–11
  43. By: Fawcett, Nicholas (Bank of England); Koerber, Lena (Bank of England); Masolo, Riccardo (Bank of England); Waldron, Matthew (Bank of England)
    Abstract: This paper investigates the real-time forecast performance of the Bank of England’s main DSGE model, COMPASS, before, during and after the financial crisis with reference to statistical and judgemental benchmarks. A general finding is that COMPASS’s relative forecast performance improves as the forecast horizon is extended (as does that of the Statistical Suite of forecasting models). The performance of forecasts from all three sources deteriorates substantially following the financial crisis. The deterioration is particularly marked for the DSGE model’s GDP forecasts. One possible explanation for that, and a key difference between DSGE models and judgemental forecasts, is that judgemental forecasts are implicitly conditioned on a broader information set, including faster-moving indicators that may be particularly informative when the state of the economy is evolving rapidly, as in periods of financial distress. Consistent with that interpretation, GDP forecasts from a version of the DSGE model augmented to include a survey measure of short-term GDP growth expectations are competitive with the judgemental forecasts at all horizons in the post-crisis period. More generally, a key theme of the paper is that both the type of off-model information and the method used to apply it are key determinants of DSGE model forecast accuracy.
    Keywords: DSGE models; forecasting; financial crisis.
    JEL: C53 E12 E17
    Date: 2015–07–31
  44. By: Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran, and Mehdi Raissi
    Abstract: This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 period, we and no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers.
    Keywords: Panel tests of threshold effects, long-run relationships, estimation and inference, large dynamic heterogeneous panels, cross-section dependence, debt, and inflation.
    JEL: C23 E62 F34 H6
    Date: 2015–07–03
  45. By: Nehru, Vikram (Carnegie Endowment for International Peace)
    Abstract: The finance sector is the lifeblood of any economy and its smooth functioning is central to rapid and inclusive economic growth. A well-functioning financial system must intermediate efficiently between savers and borrowers; manage risks prudently; provide a wide variety of financial services to firms, farms, and households; mobilize savings effectively; identify and lend for sound investments; remain robust in the face of shocks; and ensure that access to finance is available to all. This paper presents broad outlines of a reform strategy to develop a stable and efficient finance sector that supports rapid and inclusive growth in Myanmar.
    Keywords: access to finance; finance sector; inclusive growth; Myanmar; savings mobilization
    JEL: E44 G21 G23 G28
    Date: 2015–04–01
  46. By: Costache, Brindusa; Dimitrova, Kalina; Lazaretou, Sophia M.
    Abstract: This paper introduces the Data Collection Task Force of the South-East European Monetary History Network (SEEMHN DCTF) and its first result. Good policy making should be grounded on good data. To this end, the SEEMHN DCTF works since 2006 towards establishing a SEE macro history database of 19th and 20th century key financial and monetary statistics. All task force members acknowledge that this goal could only be achieved by joining forces and through the exchange of knowledge and experience. Therefore, the SEEMHN DCTF involved cooperation between representatives from all SEE national central banks and scholars who specialise in different fields, geographical regions and time periods. Its first result concerns a new statistics publication entitled South-Eastern European Monetary and Economic Statistics from the Nineteenth Century to World War II. It contains a newly compiled, built and harmonised dataset of long-run key monetary and macroeconomic time series. The aim of this paper is threefold. First, we briefly present this new statistical database. Second, we discuss techniques and technology followed in the data compilation and building process, as well as archives and published sources used. Third, we briefly present the new data project on which the SEEMHN will keep working in the near future.
    Keywords: SEE,economic and monetary history,long-run monetary and financial data series
    JEL: E5 N13 N14 N23 N24
    Date: 2015
  47. By: Apostolos Serletis (University of Calgary); Khandokar Istiak
    Abstract: We investigate whether the United States economy responds asymmetrically to positive and negative money supply shocks of different magnitude, using a test recently introduced by Kilian and Vigfusson (2011) based on impulse response functions. We use quarterly data, over the period from 1967:1 to 2014:1, and the new CFS Divisia monetary aggregates, making a comparison among the narrower monetary aggregates, M1 M2M, MZM, M2, and ALL, and the broad monetary aggregates, M4+, M4-, and M3. We show that there is no statistically signifiÂ…cant evidence of asymmetry in the response of the U.S. economy to positive and negative money supply shocks of different magnitude.
    Date: 2015–08–10
  48. By: Yıldız Akkaya (Bilkent University (E-mail:; Refet S. Gürkaynak (Bilkent University and CEPR (E-mail:; Burçin Kısacıkoğlu (Johns Hopkins University (E-mail:; Jonathan H. Wright (Johns Hopkins University (E-mail:
    Abstract: This paper examines the effects of forward guidance at the zero lower bound on the term structure of interest rates in a shadow-rate macro-finance term structure model. The effects on the yield curve are found to depend on the type of forward guidance and on the current level of the shadow rate. The more negative the shadow rate, and so the further away liftoff is, the less effective is forward guidance. Forward guidance affects both the expected path of future short rates, but also term premia. Our model allows us to estimate these effects separately. We also conduct an event-study in which we break out FOMC announcements into surprises concerning the future path of the funds rate, and uncertainty around that path, and then estimate the impacts of each on equity and currency markets.
    Keywords: Forward guidance, zero lower bound, term structure, event study
    JEL: C32 E43 E52
    Date: 2015–07
  49. By: Pierre-Richard Agénor; K. Alper; L. Pereira da Silva
    Abstract: The performance of a countercyclical reserve requirement rule is studied in a dynamic stochastic model of a small open economy with financial frictions, imperfect capital mobility, a managed float regime, and sterilized foreign exchange market intervention. Bank funding sources, domestic and foreign, are imperfect substitutes. The model is calibrated and used to study the effects of a temporary drop in the world risk-free interest rate. Consistent with stylized facts, the shock triggers an expansion in domestic credit and activity, asset price pressures, and a real appreciation. A credit-based reserve requirement rule helps to mitigate both macroeconomic and financial volatility, with the latter defined both in terms of a narrow measure based on the credit-to-output ratio, the ratio of capital flows to output, and interest rate spreads, and a broader measure that includes real asset prices as well. An optimal rule, based on minimizing a composite loss function, is also derived. Sensitivity tests, related to the intensity of sterilization, the degree of exchange rate smoothing, and the rule used by the central bank to set the cost of bank borrowing, are also performed, both in terms of the transmission process and the optimal rule
    Date: 2015–08
  50. By: Ruediger Bachmann (University of Notre Dame)
    Abstract: Using firm-level survey data for the West German manufacturing sector, this paper revisits the technology-driven business cycle hypothesis for the case of aggregate investment. We construct a survey-based measure of technology shocks to gauge their contribution to short-run investment fluctuations. We estimate an upper bound for the contribution of technology shocks to the variance of the aggregate investment growth rate of 19 percent. The larger part of fluctuations in aggregate investment can be attributed to finance and demand shocks, which we also extract from the survey data.
    Date: 2015
  51. By: Agovino, Massimiliano; Ferrara, Maria
    Abstract: In Italy, poverty and disability are two strictly related issues (Parodi, 2004, 2006, 2007; Parodi and Sciulli, 2008; Davila Quintana and Malo, 2012). Moreover, public transfers are not sufficient to exlude households with at least one disabled member from the poverty risk. We simulate a simple Real Business Cycle model to investigate the macroeconomic effects of a permanent increase in civilian disability pensions. In particular, we stress whether such a policy action is effective to stimulate private consumption. The exercise is implemented through both temporary and permanent reduction of public spending. Results show that in the long run a minimum increase in civilian disability pensions allows households with one disabled member to consume more and, importantly, to exit from poverty condition. In the short run we observe a policy trade-off. If public spending reduction is temporary and fast, private consumptions immediately increase but output deeply falls. On the contrary, if public spending permanently and slowly reduces, the recessionary effect softens but private consumptions only gradually increase.
    Keywords: Disability, Poverty, Fiscal policy
    JEL: E62 I14 J14
    Date: 2015–07
  52. By: Catherine Mathieu (OFCE - OFCE - Sciences Po); Henri Sterdyniak (OFCE - OFCE - Sciences Po)
    Abstract: The 10th EUROFRAME1 Conference on economic policy issues in the European Union was held in Warsaw on 24 May 2013. The Conference topic was: "Towards a better governance in the EU?". Twelve of the papers given at the Conference are released in this issue of the Revue de l'OFCE/Debates and Policies. The euro is a unique experience in modern economic history. Can a single currency be shared between countries with different cyclical situations, structural problems and economic strategies? Is a single currency consistent with independent domestic fiscal policies? In 1992, EU countries answered 'yes' to these questions by signing the Maastricht Treaty. Starting from then, euro area governance was characterized by independent domestic fiscal policies however constrained to fulfil several criteria (public deficit below 3% of GDP, public debt below 60% of GDP), a single monetary policy entrusted to an independent central bank, the absence of public debt guarantee and fiscal solidarity between member states (...).
    Date: 2014–04
  53. By: Chudik, Alexander (Federal Reserve Bank of Dallas); Mohaddes, Kamiar (University of Cambridge); Pesaran, M. Hashem (University of Southern California); Raissi, Mehdi (International Monetary Fund)
    Abstract: This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with crosssectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers.
    JEL: C23 E62 F34 H6
    Date: 2015–07–01
  54. By: Chiu, Ching-Wai (Jeremy) (Bank of England); Hill, John (Bank of England)
    Abstract: This paper quantitatively studies the behaviour of major banks’ household deposit funding in the United Kingdom. We estimate a panel of Bayesian vector autoregressive models on a unique data set compiled by the Bank of England, and identify deposit demand and supply shocks, both to individual banks and in aggregate, using micro-founded sign restrictions. Based on the impulse responses, we estimate how much banks would be required to increase their deposit rates by to cover a deposit gap caused by funding shocks. Banks generally find it costly to bid-up for deposits to cover a funding gap in the short run. The elasticity of household deposits with respect to the interest rate paid are typically of the order of 0.3, indicating that retail deposits are rate-inelastic. But this varies across banks and the types of shock conditioned on. We also show evidence that banks are more vulnerable to deposit supply shocks than deposit demand shocks. Historical decompositions uncover plausible shock dynamics in the historical data.
    Keywords: Retail deposits behaviour; Bayesian panel-VAR; sign restrictions.
    JEL: C11 E40 G21
    Date: 2015–08–07
  55. By: Diewert, W. Erwin; Nishimura , Kiyohiko G.; Shimizu, Chihiro; Watanabe, Tsutomu
    Abstract: The paper proposes a new method to estimate quality adjusted commercial property price indexes using real estate investment trust (REIT) data. The method is based on the present value approach, but the way in which current operating income and the capitalization rate are estimated differs from the traditional method. The traditional method uses a hedonic regression with appraisal information on properties as the dependent variable in order to estimate the capitalization factor. We compare this method with a method that replaces appraisal information with stock market valuations (adjusted for debt). We also run alternative hedonic regressions, restricting the sample of properties to those which are associated with new rental contracts, which may contain more information on future cash flows from properties. Using a dataset with prices and cash flows for about 400 commercial properties included in Japanese REITs for the period 2001 to 2013, we find that our price index signals turning points much earlier than an appraisal-based price index. Our results suggest that the share prices of REITs provide useful information in constructing commercial property price indexes.
    Keywords: Commercial property price indexes, REIT, quality adjusted price index, hedonic regressions, Tobin’s q, risk premium.
    JEL: C23 C43 E31 G19 R21
    Date: 2015–08–04
  56. By: Weneyam Hippolyte BALIMA (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Jean-Louis Combes (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Alexandru Minea (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: Based on a sample of 38 emerging countries, we find that inflation targeting (IT) adoption improves sovereign debt risk. However, we show that IT adoption effectiveness is sensitive to several structural characteristics, such as the phase of the business cycle, the fiscal stance, and the level of development. In addition, the measure of the risk, namely ratings (rating agencies) or bond yield spreads (markets), as well as the form of IT (full-fledged or partial) is equally crucial for the effects of IT adoption on sovereign debt risk. Thus, our paper provides valuable insights for IT implementation as a device for improving emerging market economies’ access to international financial markets for financing long-term investment projects and supporting potential economic growth.
    Date: 2015–03–25
  57. By: Tobias Emonts-Holley (Department of Economics, University of Strathclyde); Andrew Ross (Department of Economics, University of Strathclyde); J Kim Swales (Department of Economics, University of Strathclyde)
    Abstract: This paper compares methods for calculating Input-Output (IO) Type II multipliers. These are formulations of the standard Leontief IO model which endogenise elements of household consumption. An analytical comparison of the two basic IO Type II multiplier methods with the Social Accounting Matrix (SAM) multiplier approach identifies the treatment of non-wage income generated in production as a central problem. The multiplier values for each of the IO and SAM methods are calculated using Scottish data for 2009. These results can be used to choose which Type II IO multiplier to adopt where SAM multiplier values are unavailable.
    Keywords: Input-Output, Social Accounting Matrix, multipliers, Scotland
    JEL: E17 R13 R15
    Date: 2015–04
  58. By: Damoun Ashournia
    Abstract: I build and estimate a dynamic structural model of sectoral choices with heterogeneous workers accumulating human capital that is imperfectly transferable across sectors. Utility costs of switching sectors provides an additional barrier to mobility. Estimating the utility costs by Simulated Minimum Distance on administrative data covering the population of Danish workers and firms, costs are found to be in the range of 10% to 18% of average annual wages. By conducting counterfactual policy experiments, it is shown that the both the imperfect transferability of human capital and the utility costs are important for explaining the slow adjustment of the labour market following shocks to the economy.
    Keywords: Globalisation, Adjustment costs, Worker heterogeneity
    JEL: E24 F13 F16
    Date: 2015–07–14
  59. By: Le, Vo Phuong Mai (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Wickens, Michael (Cardiff Business School); Xu, Yongdeng
    Abstract: With Monte Carlo experiments on models in widespread use we examine the performance of indirect inference (II) tests of DSGE models in small samples. We compare these tests with ones based on direct inference (using the Likelihood Ratio, LR). We find that both tests have power so that a substantially false model will tend to be rejected by both; but that the power of the II test is substantially greater, both because the LR is applied after reestimation of the model error processes and because the II test uses the false model’s own restricted distribution for the auxiliary model’s coefficients. This greater power allows users to focus this test more narrowly on features of interest, trading off power against tractability.
    Keywords: Bootstrap; DSGE; New Keynesian; New Classical; indirect inference; Wald statistic; likelihood ratio
    JEL: C12 C32 C52 E1
    Date: 2015–07
  60. By: Amany El-Anshasy, Kamiar Mohaddes, and Jeffrey B. Nugent
    Abstract: This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961. 2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox, not the abundance of oil revenues as such.
    Keywords: Economic growth, natural resource curse, institutions, oil price volatility, oil income, macroeconomic policy
    JEL: C23 E02 F43 O13 Q32
    Date: 2015–07–06
  61. By: Gesteira, Marcos; Carrasco Gutierrez, Carlos Enrique
    Abstract: This paper investigates whether there is a fraction of consumers that do not behave as fully forward-looking optimal consumers in the Brazilian economy. The generalized method of moments technique was applied to nonlinear Euler equations of the consumption-based capital assets model contemplating utility functions with time separability and non-separability. The results show that when the household utility function was modeled as constant relative risk aversion, external habits and Kreps-Porteus, estimates of the fraction of rule-of-thumb households was, respectively, 89%, 78% and 22%. According to this, a portion of disposable income goes to households who consume their current incomes in violation of the permanent income hypothesis.
    Keywords: Rule of thumb; aggregate consumption; permanent income hypothesis, Euler equations.
    JEL: C32 E21
    Date: 2015
  62. By: Oo, Zaw (Myanmar Development Resource Institute-Centre for Economic and Social Development); Joelene, Cindy (Development Resource Institute-Centre for Economic and Social Development); Minoletti, Paul (Development Resource Institute-Centre for Economic and Social Development); Phyu, Phoo Pwint (Development Resource Institute-Centre for Economic and Social Development); Saw, Kyi Pyar Chit (Development Resource Institute-Centre for Economic and Social Development); Win, Ngu Wah (Development Resource Institute-Centre for Economic and Social Development); Porter, Ian (International Growth Centre); Oye, Mari (International Growth Centre); Smurra, Andrea (International Growth Centre)
    Abstract: Past governments in Myanmar presided over a system generally characterized by weak fiscal management, but this has recently changed with the present government restoring a measure of fiscal discipline, reorienting fiscal priorities, and establishing a clear set of fiscal objectives in the Framework for Economic and Social Reforms (FESR), which was finalized in June 2013. The Government of Myanmar now has to prioritize how best to implement these fiscal objectives while strengthening long-run fiscal discipline. This paper provides a broad range of recommendations on how this can be achieved, using analysis of Myanmar's present and past fiscal situation alongside insights provided by the experience of other countries.
    Keywords: budget and expenditure framework; fiscal policy; Myanmar; public financial management; resource mobilization
    JEL: E62 H61 H72 O23
    Date: 2015–06–01
  63. By: Daniel Neuhoff; ; ;
    Abstract: This study investigates the dynamics of quarterly real GDP per capita growth rates across four countries, the US, UK, Canada and France. I obtain estimates for ARIMA(p,q) processes for first differences of log quarterly real GDP per capita using Reversible Jump Markov Chain Monte Carlo, allowing me to account for model uncertainty when comparing the implied impulse responses across countries. The results are checked for robustness with respect to the detrending device. The estimated impulse response functions are different in shape. The persistence estimates for the US, France, Canada and Italy are clustered together, while the UK and Japan are clear outliers. Significant posterior uncertainty remains regarding the persistence estimates and the appropriate ARMA models. The results for the UK is sensitive to the time period. An analysis of the components of GDP for the US suggests that the dynamics are mainly driven by consumption.
    Keywords: ARMA; Real GDP per capita; Growth Rates; Persistence; Reversible Jump Markov Chain Monte Carlo
    JEL: C51 C52 E32
    Date: 2015–08
  64. By: Imen Ben Mohamed (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Marine Salès (ENS Cachan - École normale supérieure - Cachan)
    Abstract: We construct a new-Keynesian DSGE model, integrating sticky prices in goods market and frictions in labor and credit markets. A search and matching process in the labor market and a costly state verification framework in the credit market are introduced. Capital spending, vacancy posting costs and wage bill need to be paid in advance of production and thus require external financing in a frictional credit market. According to our theoretical model, we find that the procyclicality of the risk premium impacts the vacancy posting decision, the wage and unemployment levels in the economy. Credit market frictions may be the source of lower posting vacancies and higher unemployment level. Indeed, asymmetric information pushes up wholesale firms' marginal costs, as well as hiring costs by a financial mark-up charged by financial intermediaries. This financial mark-up is then transmitted by these firms on prices. Thus, it affects their hiring behavior, as well as wage and employment levels in the economy. An empirical evidence is then presented by estimating dynamic responses of labor and credit markets variables to identified monetary and credit shocks, using a structural Bayesian VAR method. Notably, after a shock on the risk premium, we observe a hump-shaped increase of unemployment and an increase of real wages. According to our theoretical model, it represents the higher marginal costs incurred by wholesale firms due to the increase of the financial mark-up.
    Date: 2015–04–07
  65. By: Singh, Sunny; Bhattacharya, Kaushik
    Abstract: Using annual panel data of 54 countries for the period 2005-13, we examine whether cash in circulation, both aggregate and large denominated banknotes, affects the level of corruption in a country. Standard panel data models like pooled OLS, random effect and system GMM suggest that the ratios of (i) aggregate currency in circulation to M1 and, (ii) large denominated banknotes to M1 are both statistically significant determinants of corruption. Tests for reverse causality within a panel Granger framework reveal unidirectional causality of the first variable with corruption, but a bi-directional one with the second variable. These findings suggest that the central banks should try to limit the supply of banknotes of large denomination.
    Keywords: Control of corruption Index, Cash in circulation, Random effect model, System GMM
    JEL: D73 E51 E58
    Date: 2015–07–31
  66. By: Romain Baeriswyl (Swiss National Bank - Swiss National Bank); Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS)
    Abstract: In an experimental monetary general equilibrium economy, we assess two processes of monetary injection: credit expansion vs. lump-sum monetary transfers. In theory, both processes are neutral and exert no real effect on allocation. In the experiment, however, credit expansion leads to substantial distortions of real allocation and relative prices, and exerts a redistributive effect across subjects. By contrast, an increase in money through lump-sum transfers does not distort real allocation.
    Date: 2015
  67. By: Catherine Mathieu (OFCE - OFCE - Sciences Po); Henri Sterdyniak (OFCE - OFCE - Sciences Po)
    Abstract: The 2007 crisis highlighted the drawbacks of the euro area framework which were already there from the launch of the single currency. There cannot be a single currency between countries with different economic situations and independent economic policies. Euro area governance (no public debts guarantee by the ECB, arbitrary rules focusing on public finances only), was not satisfactory. EU institutions tried to impose a strategy (domestic policies constraints, public deficits cuts, liberal structural reforms) which failed. Before the crisis, imbalances had risen between Northern Member States (MS) and Southern MS, and became unsustainable with the crisis. The Fiscal pact strengthened rules lacking economic rationale. Blind austerity policies led the euro area to fall in depression and undermined euro area cohesion. The procedures implemented strengthen economic policy surveillance between MS, without organising real domestic economic policy coordination. They allow for limited solidarity, at a very high price. Fiscal federalism projects cannot offset the loss of independence for domestic economic policies. MS Public debts should become safe assets again, thanks to the ECB's guarantee. This requires implementing real economic coordination, which should target growth, full-employment and orderly reduction in imbalances between MS. Europe should reaffirm its specificity: a social model, a will to prepare for ecological transition. These are prerequisites for Europe to make progress.
    Date: 2014–05
  68. By: Pesliakaite, Jurgita
    Abstract: The view that an institutional structure causes rigidities of the labour market is broadly accepted by policy makers. This assessment is conventionally based on unemployment theories that establish a linkage between labour market institutions and unemployment in the long run. Empirical research engages in investigation if the theoretical link between unemployment and labour market institutions could be proved to prevail. This paper provides an econometric analysis of determinants of unemployment in the long run in a set of Central and Eastern European countries for the period of 2002–2012. The evidence that institutional structure cause rigidities of the labour market and have direct effects on unemployment rate in these economies is found in this study. A set of non-structural indicators, accounted by macroeconomic shocks, also prove to have effects on the labour market outcomes. From a policy making perspective such implications suggest that structural labour market reforms and increases in the overall labour market flexibility in these economies is required to bring unemployment rates down.
    Keywords: unemployment, labour market institutions, Central and Eastern European economies
    JEL: E02 J60
    Date: 2015–08–14
  69. By: Asu Ozdaglar (Massachusetts Institute of Technology); Alireza Tahbaz-Salehi (Columbia Business School); Daron Acemoglu (Massachusetts Institute of Technology)
    Abstract: We document that even though the normal distribution is a good approximation to the nature of aggregate fluctuations, it severely underpredicts the frequency of large economic downturns. We then provide a model that can explain these facts simultaneously. Our model shows that the propagation of microeconomic shocks through input-output linkages can fundamentally reshape the distribution of aggregate output, increasing the likelihood of large downturns (macroeconomic tail risks) from infinitesimal to substantial. For example, an economy subject to thin-tailed micro shocks but with "unbalanced" input-output linkages (where some sectors or firms play a much more important role than others as inputs suppliers to the rest of the economy) may exhibit deep recessions as frequently as economies that are subject to heavy-tailed shocks. This is despite the fact that a central limit theorem-type result would imply that aggregate output is normally distributed. We characterize what types of input-output linkages and distributions of microeconomic shocks lead to sizable macroeconomic tail risks, and also show how the same economic forces cause the output of many sectors to simultaneously fall by large amounts.
    Date: 2015
  70. By: Zhigang Feng (University of Illinois at Urbana-Champaign); Kai Zhao (University of Connecticut)
    Abstract: We study the impact of the employment-based health insurance system on aggregate labor supply in a general equilibrium life cycle model with incomplete markets and idiosyncratic risks in both income and medical expenses. We find that employment-based health insurance provides Americans with an extra incentive to work and is an important reason why they work much more hours than Europeans. In contrast to Europeans, who get universal health insurance from the government, most working-age Americans get health insurance through their employers. Since medical expenses are large and volatile, and there is no good alternative available in the private market, health insurance from employers can be highly valuable to risk-averse individuals (much more than its actuarially fair cost), thus providing them with extra incentive to work. We calibrate the benchmark model to match the US system using the Medical Expenditure Panel Survey dataset. The results of our quantitative experiments suggest that different health insurance systems account for more than half of the difference in aggregate hours that Americans and Europeans work. Furthermore, our model can also match several other relevant empirical observations, that is, the different employment rates and the different shares of full-time/part-time workers in the U.S. and Europe. When our model is extended to include the different tax rates in the U.S. and Europe, a main existing explanation for the difference in aggregate labor supply, the extended model can account for a major portion of the difference in aggregate hours that Americans and Europeans work.
    Keywords: Labor Supply, Employment-Based Health Insurance, General Equilibrium
    JEL: E20 E60
    Date: 2015–08
  71. By: Yasuoka, Masaya; Oguro, Kazumasa
    Abstract: Our paper sets the model with public education investment, pension bene t and public debt stock and examines how tax burden and expenditure share between education policy and pension policy a ect the public debt stock ratio to Gross Domestic Product (GDP). Moreover, our paper considers the target policy to be constant public debt ratio to GDP over time. Based on Domar condition, our paper examines scal sustainability and how tax and expenditure policy a ect on the public debt stock ratio to GDP in the long run. The change of expenditure share between public education investment and pension bene t can decrease the public debt ratio to GDP. Moreover, our paper derives two positive income tax rate to hold constant public debt ratio to GDP. Thanks to low tax rate, physical capital accumulation increases and then both income growth and income level increase.
    Keywords: Public Debt, Human Capital, Pension, Education Investment
    JEL: H60 H20 E60 I21
    Date: 2015–07
  72. By: Beaudry, Paul; Fève, Patrick; Guay, Alain; Portier, Franck
    Abstract: When a structural model has a nonfundamental VAR representation, standard SVAR techniques cannot be used to properly identify the effects of structural shocks. This problem is known to potentially arise when one of the structural shocks represents news about the future. However, as we shall show, in many cases the nonfundamental representation of a time series may be very close to its fundamental representation implying that standard SVAR techniques may provide a very good approximation of the effects of structural shocks even when the nonfundamentalness is formally present. This leads to the question: When is nonfundamentalness a real problem? In this paper we derive and illustrate a diagnostic based on a R2 which provides a simple means of detecting whether nonfundamentalness is likely to be a quantitatively important problem in an applied settings. We use the identification of technological news shocks in US data as our running example.
    Keywords: business cycles; news; nonfundamentalness; svar
    JEL: E3
    Date: 2015–08
  73. By: Javier Bianchi; Enrique G. Mendoza
    Abstract: The unconventional shocks and non-linear dynamics behind the high volatility of financial markets present a challenge for the implementation of macroprudential policy. This paper introduces two of these unconventional shocks, news shocks about future fundamentals and regime changes in global liquidity, into a quantitative non-linear model of financial crises. The model is then used to examine how these shocks affect the design and effectiveness of optimal macroprudential policy. The results show that both shocks contribute to strengthen the amplification mechanism driving financial crisis dynamics. Macroprudential policy is effective for reducing the likelihood and magnitude of financial crises, but the optimal policy requires significant variation across regimes of global liquidity and realizations of news shocks. Moreover, the effectiveness of the policy improves as the precision of news rises from low levels, but at high levels of precision it becomes less effective (financial crises are less likely, but the optimal policy does not weaken them significantly).
    Keywords: financial crises, macroprudential policy, systemic risk, global liquidity, news shocks
    Date: 2015–07
  74. By: Joshua C.C. Chan; Eric Eisenstat
    Abstract: We develop importance sampling methods for computing two popular Bayesian model comparison criteria, namely, the marginal likelihood and deviance information criterion (DIC) for TVP-VARs with stochastic volatility. The proposed estimators are based on the integrated likelihood, which are substantially more reliable than alternatives. Specifically, integrated likelihood evaluation is achieved by integrating out the time-varying parameters analytically, while the log-volatilities are integrated out numerically via importance sampling. Using US and Australian data, we find overwhelming support for the TVPVAR with stochastic volatility compared to a conventional constant coefficients VAR with homoscedastic innovations. Most of the gains, however, appear to have come from allowing for stochastic volatility rather than time variation in the VAR coefficients or contemporaneous relationships. Indeed, according to both criteria, a constant coefficients VAR with stochastic volatility receives similar support as the more general model with time-varying parameters.
    Keywords: Bayesian, state space, marginal likelihood, deviance information criterion, great moderation
    JEL: C11 C52 E32 E52
    Date: 2015–08
  75. By: Luca Guerrieri; Matteo Iacoviello; Francisco Covas; John C. Driscoll; Mohammad Jahan-Parvar; Michael Kiley; Albert Queraltoy; Jae Sim
    Abstract: The macro spillover effects of capital shortfalls in the financial intermediation sector are compared across five dynamic equilibrium models for policy analysis. Although all the models considered share antecedents and a methodological core, each model emphasizes different transmission channels. This approach delivers "model-based confidence intervals" for the real and financial effects of shocks originating in the financial sector. The range of outcomes predicted by the five models is only slightly narrower than confidence intervals produced by simple vector autoregressions.
    Keywords: banks, DSGE models, capital requirements, bank losses
    Date: 2015–07
  76. By: Raposo, Pedro (Universidade Catolica Portuguesa, Lisbon); Portugal, Pedro (Banco de Portugal); Carneiro, Anabela (University of Porto)
    Abstract: Using an unusually rich matched employer-employee-job title data set for Portugal, this paper evaluates the sources of wage losses of workers displaced due to firm closure based on the comparison of workers' wages differentials before and after displacement. Potential wage losses of displaced workers can be related to firm, job title, and match heterogeneity in the pre- and post-displacement jobs. In this vein, we estimate a three-way high-dimensional fixed effects regression model that enables us to decompose the sources of the wage losses into the contribution of firm, job title, and match fixed effects. The worker-firm match plays a very sizable role. We found that the allocation of workers into poorer matches accounts for 38 percent of the total average wage loss. Sorting among firms accounts for 36 percent. Job downgrading also plays a significant role in explaining the wage loss of displaced workers, accounting for the remaining 26 percent.
    Keywords: match effects, job title, high-dimensional fixed effects, displaced, wage losses
    JEL: J31 J63 J65 E24
    Date: 2015–07
  77. By: Beltran, Daniel O. (Board of Governors of the Federal Reserve System (U.S.)); Bolotnyy, Valentin (Harvard University); Klee, Elizabeth C. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Using a network approach to characterize the evolution of the federal funds market during the Great Recession and financial crisis of 2007-2008, we document that many small federal funds lenders began reducing their lending to larger institutions in the core of the network starting in mid-2007. But an abrupt change occurred in the fall of 2008, when small lenders left the federal funds market en masse and those that remained lent smaller amounts, less frequently. We then test whether changes in lending patterns within key components of the network were associated with increases in counterparty and liquidity risk of banks that make up the core of the network. Using both aggregate and bank-level network metrics, we find that increases in counterparty and liquidity risk are associated with reduced lending activity within the network. We also contribute some new ways of visualizing financial networks.
    Keywords: Banks; credit unions; and other financial institutions; counterparty credit risk; data visualization; network models
    JEL: E50 G20
    Date: 2015–07–16
  78. By: Acosta, Miguel (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: I apply latent semantic analysis to Federal Open Market Committee (FOMC) transcripts and minutes from 1976 to 2008 in order to analyze the Fed's responses to calls for transparency. Using a newly constructed measure of the transparency of deliberations, I study two events that define markedly different periods of transparency over this 32-year period. First, the 1978 Humphrey-Hawkins Act increased the degree to which the FOMC used meeting minutes to convey the content of its meetings. Historical evidence suggests that this increased transparency reflected a response to the Act's requirement that the Fed provide greater detail in reporting with respect to its goals and objectives. Second, the 1993 decision to publish nearly verbatim transcripts also increased transparency. However, the cost was an increasing degree of conformity at each meeting, as evidenced by lower variance in content disagreement at the member level.
    Keywords: Federal Open Market Committee; transparency; latent semantic analysis; deliberation; natural language processing; conformity; central bank
    JEL: D78 D82 E58 H83
    Date: 2015–07–10
  79. By: ABDELLAOUI, Okba; Elkhatib, MOHAMMED
    Abstract: This study sheds light on the analysis of the correlation between economic integration and the crises, based on the analysis the test of structural change in the model, which has been drafted to Mexico, in an attempt to determine if the integration as Applied in the Free Trade Area of North American, Which is symbolized by bloc NAFTA, latest a change in parameters of the model before and after the bloc, this is proof of the existence of difference in the impact of the crisis before and after the agreement, and the rest of the independent variables in the interpretation the dependent variable, representative in the GDP.
    Keywords: the crises, the blocs, Mexico, NAFTA, Chow Test
    JEL: E31 F31 G1 H2
    Date: 2014–10–06

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