nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒08‒25
53 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Nominal Targeting in an Economy with Government Debt By Yuting Bai; Tatiana Kirsanova; Campbell Leith
  2. A Markov switching factor-augmented VAR model for analyzing US business cycles and monetary policy By Florian Huber; Manfred M. Fischer
  3. Economic Shocks and their Effects on Unemployment in the Euro Area Periphery under the EMU By Pietro Dallari; Antonio Ribba
  4. Taylor-Rule Exit Policies for the Zero Lower Bound By Chattopadhyay, Siddhartha; Daniel, Betty C.
  5. The origin of inflation in a domestic bank-based payment system By Pesenti, Amos
  6. The stabilising properties of a European Banking Union in case of financial shocks in the Euro Area By Fritz Breuss; Werner Roeger; Jan in ’t Veld
  7. A Bayesian model comparison for trend-cycle decompositions of output By Joshua C.C. Chan; Angelia L. Grant
  8. Monetary and Fiscal Policy in a Liquidity Trap with Inflation Persistence By Jean-Baptiste Michau
  9. Consumer Spending and Property Taxes By Surico, Paolo; Trezzi, Riccardo
  10. Household Debt and Crises of Confidence By Hintermaier, Thomas; Koeniger, Winfried
  11. Impacts of Universal Health Coverage: A Micro-founded Macroeconomic Perspective By Huang, Xianguo; Yoshino, Naoyuki
  12. The U.S. experience, Free markets in money: a contradiction in terms! By De Koning, Kees
  13. Asymmetric Unemployment-Output Tradeoff in the Eurozone By Tang, Bo; Bethencourt, Carlos
  15. Incorporating Financial Cycles in Output Gap Measures: Estimates for the Euro Area By Pau Rabanal; Marzie Sanjani
  16. Ordoliberalism and the macroeconomic policy in the face of the euro crisis By Michal Moszynski
  17. The End of the Flat Tax Experiment in Slovakia By Michal Horvath; Matus Senaj; Zuzana Siebertova; Norbert Svarda
  18. Bangladesh Quarterly Economic Update - December 2014 By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  19. Common and Country Specific Economic Uncertainty By Haroon Mumtaz; Konstantinos Theodoridis
  20. Alternative Interpretations of a Stateless Currency crisis By Sergio Cesaratto
  21. An Algorithm for Solving Simple Sticky Information New Keynesian DSGE Model By Chattopadhyay, Siddhartha; Agrawal, Manasi
  22. Unemployment and Public Budget Impacts of the Auto Bailout By Robert Baumann; Andrea Thompson
  23. Sectoral Imbalance in Two-Sector Economy with Mobility Constraint and Firm Migration By Li, Xi Hao; Gallegati, Mauro
  24. What do Professional Forecasters actually predict? By Didier Nibbering; Richard Paap; Michel van der Wel
  25. Optimal asymmetric taxation in a two-sector model with population ageing By Fedotenkov, Igor
  26. An Assessment of ECB Action By Jean-Paul Fitoussi
  27. Outside the corridor : fiscal multipliers and business cycles into an agent based models with liquidity constraints By Mauro Napoletano; Jean-Luc Gaffard; Andrea Roventini
  28. Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions By Nicolas Petrosky-Nadeau; Etienne Wasmer
  29. Interest rates, debt and intertemporal allocation: evidence from notched mortgage contracts in the United Kingdom By Best, Michael Carlos; Cloyne, James; Ilzetzki, Ethan; Kleven, Henrik Jacobsen
  30. THE WELFARE COST OF INFLATION RISK UNDER IMPERFECT INSURANCE By Olivier Allais; Yann Algan; Edouard Challe; Xavier Ragot
  31. Precautionary saving and aggregate demand By Xavier Ragot; Julien Matheron; Juan Rubio-Ramirez; Edouard Challe
  32. Growth expectations, undue optimism, and short-run fluctuations By Michael Kleemann; Gernot Mueller; Zeno Enders
  33. Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects By Verbrugge, Randal; Dorfman, Alan; Johnson, William; Marsh !!!, Fred; Poole, Robert; Shoemaker, Owen
  34. Realized Bank Risk during the Great Recession By Altunbas, Yener; Manganelli, Simone; Marques-Ibanez, David
  35. Credit imperfections, labor market frictions and unemployment: a DSGE approach By Imen Ben Mohamed; Marine Salès
  36. Evaluating the Information Value for Measures of Systemic Conditions By Oet, Mikhail V.; Dooley, John; Gramlich, Dieter; Sarlin, Peter; Ong, Stephen J.
  37. Declining labor turnover and turbulence By Fujita, Shigeru
  38. Disequilibrium economics: some comments about its nature, origins and fate. A review essay of "Transforming Modern Macroeconomics, The Relationship of Micro and Macroeconomics in Historical Perspective" (2013) By Goulven Rubin
  39. The Dynamics of the Brazilian Current Account with Rule of Thumb Consumers By Holanda Oliveira, Lucio Hellery; Carrasco Gutierrez, Carlos Enrique
  40. Eight strategies for development in comparison By Priewe, Jan
  41. Heckscher on the Slow Monetization of Sweden and His Incidental Refutation of Jevons and Menger By Fregert, Klas
  42. Immigration Policy and Macroeconomic Performance in France By Ekrame Boubtane; Dramane Coulibaly; Hippolyte D'Albis
  43. New Evidence on Mobility and Wages of the Young and the Old By Hansen, Jörgen; Lkhagvasuren, Damba
  44. The Housing Cost Disease By Borri, Nicola; Reichlin, Pietro
  45. Macroeconomic Volatility and Trade in OLG Economies By Antoine Le Riche
  46. Spiegare la crisi: stagnazione secolare o caduta tendenziale del saggio del profitto? By Vladimiro Giacché
  47. Nonlinear pricing with competition: the market for settling payments By Copeland, Adam; Garratt, Rod
  48. Dynamics of Global Business Cycles Interdependence By Lorenzo Ductor; Danilo Leiva-Leon
  49. Banques centrales dernier rempart contre la déflation By Céline Antonin; Christophe Blot; Sabine Le Bayon; Hervé Péléraux; Christine Rifflart; Danielle Schweisguth; Xavier Timbeau; Marion Cochard; Bruno Ducoudre; Amel Falah; Eric Heyer; Amel Falah; Catherine Mathieu
  50. How Costly is the Deliberate Disinflation in India? Estimating the Sacrifice Ratio By Dholakia, Ravindra H.; Kadiyala Sri Virinchi
  51. Monetary Economics Simulation: Stock-Flow Consistent Invariance, Monadic Style By Pierre Boudes; Antoine Kaszczyc; Luc Pellissier
  52. Fiscal Policy in Latin America: Lessons and Legacies of the Global Financial Crisis By Oya Celasun; Francesco Grigoli; Keiko Honjo; Javier Kapsoli; Alexander Klemm; Bogdan Lissovolik; Jan Luksic; Marialuz Moreno Badia; Joana Pereira; Marcos Poplawski-Ribeiro; Baoping Shang; Yulia Ustyugova
  53. Does Pro-cyclical Aid Lead to Pro-cyclical Fiscal Policy? An Empirical Analysis for Sub-Saharan Africa By Jean-Louis Combes; Rasmané OUEDRAOGO

  1. By: Yuting Bai; Tatiana Kirsanova; Campbell Leith
    Abstract: Most analyses of monetary policy delegation schemes typically ignore the behavior of the fiscal policy maker. The paper investigates how monetary price level targeting or monetary nominal income targeting may yield social gain in an economy with government debt and where the fiscal policymaker, acting strategically, may take counter actions. We argue that the choice of fiscal policy instrument plays an important role for the performance of monetary policy. The optimal choice of monetary policy delegation scheme depends crucially on the level of government debt and its maturity, with a switch from price level targeting being desirable to nominal income targets being strongly preferred as debt levels rise and maturity shortens.
    Keywords: Monetary and Fiscal Policy Interactions, Price Level Targeing, Nominal Income Targeting, Discretionary Policy
    JEL: E31 E52 E58 E61 C61
    Date: 2015–06
  2. By: Florian Huber (Oesterreichische Nationalbank); Manfred M. Fischer (Department of Socioeconomics, Vienna University of Economics and Business)
    Abstract: This paper develops a multivariate regime switching monetary policy model for the US economy. To exploit a large dataset we use a factor-augmented VAR with discrete regime shifts, capturing distinct business cycle phases. The transition probabilities are modelled as time-varying, depending on a broad set of indicators that influence business cycle movements. The model is used to investigate the relationship between business cycle phases and monetary policy. Our results indicate that the effects of monetary policy are stronger in recessions, whereas the responses are more muted in expansionary phases. Moreover, lagged prices serve as good predictors for business cycle transitions.
    Keywords: Non-linear FAVAR, business cycles, monetary policy, structural model
    JEL: C30 E52 F41 E32
    Date: 2015–08
  3. 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
  4. By: Chattopadhyay, Siddhartha; Daniel, Betty C.
    Abstract: The monetary authority loses the ability to implement the Taylor Rule at the zero lower bound. However, the promise to implement a Taylor Rule upon exit remains an effective policy instrument. We present two Taylor-Rule exit policies, each with different commitment requirements, as alternatives to a truncated Taylor Rule. A Taylor Rule with an optimally-chosen exit date and time varying inflation target delivers fully optimal policy, but requires a negative inflation target, possibly threatening the ability to commit. A Taylor Rule with only an optimally-chosen exit date delivers almost all the gains of fully optimal policy with no need to commit to the negative inflation target.
    Keywords: New-Keynesian Model, Inflation Target, Liquidity Trap
    JEL: E52 E58 E63
    Date: 2015–08–11
  5. By: Pesenti, Amos
    Abstract: This paper shows how a disorderly-working bank-based payment system negatively affects monetary stability. This occurs when firms invest their profits in production with the aim of forming and accumulating (fixed) capital, while at the same time banks carry out the payment of workers’ wages and enter the corresponding payment order in the architecture for domestic payments. In fact, if the payment of wages is financed with profits, this payment operation corresponds to an emission of (empty) money without it being endowed with value, to wit, purchasing power. It follows that the existing value of money is “diluted” in a greater amount of money units, so much so that the current purchasing power of each unit of money is reduced. This monetary phenomenon can be defined as inflation, which, in turn, exerts an upward pressure on the general price level. A structural reform of the bank-based payment system, as suggested in this paper, may consequently improve the defective architecture for domestic payments and thereby promote long-run monetary stability.
    Keywords: banks; deflation; inflation; money; payment systems; profits; wages
    JEL: E20 E31 E42 E51
    Date: 2015–08–12
  6. By: Fritz Breuss; Werner Roeger; Jan in ’t Veld
    Abstract: This paper analyses the stabilising properties of a European Banking Union in case of financial shocks in the euro area.
    JEL: C54 E12 E32 E42 E63 F41 G21
    Date: 2015–06
  7. By: Joshua C.C. Chan; Angelia L. Grant
    Abstract: We compare a number of widely used trend-cycle decompositions of output in a formal Bayesian model comparison exercise. This is motivated by the often markedly different results from these decompositions—different decompositions have broad implications for the relative importance of real versus nominal shocks in explaining variations in output. Using US quarterly real GDP, we find that the overall best model is an unobserved components model with two features: 1) a nonzero correlation between trend and cycle innovations; 2) a break in output growth in 2007. Under this specification, annualized trend output growth decreases from about 3.4% to 1.5% after the break. The results also indicate that real shocks are more important than nominal shocks.
    Keywords: Bayesian model comparison, unobserved components, structural break, business cycle
    JEL: C11 C52 E32
    Date: 2015–08
  8. By: Jean-Baptiste Michau (Department of Economics, Ecole Polytechnique - CNRS - Polytechnique - X)
    Abstract: This paper relies on the new Keynesian model with inflation persistence to characterize the optimal monetary and fiscal policy in a liquidity trap. It shows that, with a Phillips curve that is both forward and backward looking, the monetary policy that is implemented during a liquidity trap episode can lift the economy out of depression. The central bank does not need to commit beyond the end of the crisis to get some traction on the level of economic activity. Regarding fiscal policy, inflation persistence justifies some front-loading of government expenditures to get ination started, which reduces the real interest rate. The magnitude of the optimal fiscal stimulus is decreasing in the degree of inflation persistence. Finally, if inflation persistence is due to adaptive expectations, rather than to price indexation, then monetary policy is ineffective while the optimal fiscal stimulus is large and heavily front-loaded.
    Date: 2014–12–01
  9. By: Surico, Paolo (London Business School); Trezzi, Riccardo (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: A major change of the property tax system in 2011 generated significant variation in the amount of housing taxes paid by Italian households. Using new questions added to the Survey on Household Income and Wealth (SHIW), we exploit this variation to provide an unprecedented analysis of the effects of property taxes on consumer spending. A tax on the main dwelling leads to large expenditure cuts among households with mortgage debt and low liquid wealth but generates only small revenues for the government. In contrast, higher tax rates on other residential properties reduce private savings and yield large tax revenues.
    Keywords: Fiscal consolidation; marginal propensity to spend; mortgage debt; residential property taxes
    JEL: E21 E62 H31
    Date: 2015–07–27
  10. By: Hintermaier, Thomas; Koeniger, Winfried
    Abstract: We show that the size of collateralized household debt determines an economy's vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt levels this liquidity feedback effect is strong enough to give rise to multiplicity of house prices. In a dynamic setup, we conceptualize confidence as a realization of rationally entertainable belief-weightings of multiple future prices. This delivers debt-leveldependent bounds on the extent to which confidence may drive house prices and aggregate consumption.
    Keywords: Household debt, Consumer confidence, Collateral constraints, Multiple equilibria.
    JEL: E21 E32 D91
    Date: 2015–08
  11. By: Huang, Xianguo (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute)
    Abstract: This paper studies the impact of tax-financed universal health coverage schemes on macroeconomic aspects of labor supply, asset holding, inequality, and welfare, while taking into account features common to developing economies, such as informal employment and tax avoidance, by constructing a dynamic stochastic general equilibrium model with heterogeneous agents. Agents have different education levels, employment statuses, and idiosyncratic shocks. Given three tax financing options, calibration results suggest that the financing options matter for outcomes both at the aggregate and disaggregate levels. Universal health coverage, financed by labor income tax revenue, could reduce inequality due to its large redistributive role. Social welfare cannot be improved when labor decisions are endogenous and distortions are higher than the redistributive gains for all tax financing options. In the absence of labor supply choice, mild welfare gains are found.
    Keywords: universal health coverage; DSGE model; idiosyncratic shocks; social welfare
    JEL: E24 E26 E62 H23 H51 J11
    Date: 2015–08–10
  12. By: De Koning, Kees
    Abstract: In the U.S. individual households have the freedom to borrow funds if they need to do so; other households have the freedom to offer their surplus funds to the financial markets. These simple freedoms hide the fundamental reality that these two types of households are in an unequal financial position. Borrowing means that future income levels will be needed and used to repay outstanding debt levels. Savings means that additional income out of savings is added to income levels in future. The borrowing households, nearly always the lower and middle-income classes, face the loss of their homes or seriously reduced income levels if they can no longer afford to repay outstanding debts. The saving households, usually the better off classes, might see their income out of savings reduced, when economic times become tougher, but face less risks over their principal income. In this paper over the period 1997-2008, the actual mortgage lending patterns of U.S. banks, including Fannie Mae and Freddy Mac, have been studied. Such patterns reflect the supply side of money for this particular use. On the other hand the paper has elaborated on a “need for funds” approach. This need for funds reflects the demand side of funds based on two factors: the physical need for shelter and the long-term ability to repay outstanding mortgages out of current income levels. The U.S. needs about 1.8 million new homes annually. The mortgage borrowers need to see their income growth more or less in line with house price developments in order to sustain debt servicing. The supply side of mortgage funds, represented by the banking and financial markets sectors, is based on different parameters than for the demand side. For the supply side the availability of funds, the profit motive, competition and regulatory controls are the most important. Regretfully, over the period 1998-2007, the powers of the supply side overwhelmed the “need for funds” approach. More mortgage lending can create more homes being built, but it can also force house prices up faster than the income growth levels of the lower and median income classes. The financial regulators did not see this as a threat until it was too late. The balance of power had swung too strongly in favor of the banks, rather than to the borrowers. The supply motives drove the equilibrium further and further away until breaking point. In future, one may need to ensure that the “need for funds” approach prevails over the supply side. As this was not done, the effects of the financial crisis were devastating. 22.1 million households faced foreclosure proceedings over the period 2006-2013 or one in six households. 5.8 million homes were repossessed. Between January 2008 and October 2009 7.8 million individuals lost their jobs. In 2013 median households incomes were 8% lower in real terms than in 2007. The government added an extra $7.7 trillion to its debts as a consequence of the financial crisis. The Fed bought about $4.2 trillion in government bonds and mortgage-backed securities. Mortgage borrowers repaid on a net basis $1.24 trillion of their outstanding mortgages over the period 2008 to first quarter 2015. The future is not all bleak. Unemployment rates are substantially down. Median income levels are improving and house prices according to the needs for funds approach are currently in line with actual house prices.
    Keywords: U.S financial crisis; home mortgage lending, supply side of mortgages; "need for funds" approach, Federal Reserve,
    JEL: E32 E4 E43 E44 E5 E52
    Date: 2015–08–14
  13. By: Tang, Bo; Bethencourt, Carlos
    Abstract: This study investigates the asymmetric unemployment-output tradeoff in the Eurozone. Building upon the augmented Okun’s law framework, the relationships between unemployment and output cannot be correctly specified in the static linear, static asymmetric and dynamic linear regressions. By contrast, the nonlinear autoregressive distributed lag (NARDL) model is well-specified and in this case indicates that the nature of Okun’s law is asymmetric. For the Eurozone, the NARDL estimates demonstrate that labour markets quickly respond to cyclical outputs in a short period, while the adjustments towards new equilibrium become weak in the long run. Furthermore, the cross-sectional analysis of long run asymmetries indicates that government spending and trade balance are key factors affecting the asymmetric unemployment-output tradeoff. Thus, these results seem to suggest that, in spite of the fact that member states lack monetary sovereignty, flexible application of fiscal reforms or labour market reforms could help to reduce asymmetric effects.
    Keywords: unemployment-output tradeoff, nonlinear autoregressive distributed lag (NARDL), asymmetry determinants.
    JEL: C22 E32 J64
    Date: 2015–06
  14. By: Ghrissi Mhamdi (Université de Sousse)
    Abstract: The aim of this paper is to give an answer to the question that remains wide open; Is Central Bank of Tunisia, capable to transmit all the information on the evolution of prices to economic agents through targeting monetary aggregates. To answer this question, a way that focuses on the stability of the money demand function through the test of Cumulative Sum of residues (SUMCU) and Chow's Forecast test is followed. The results of this study indicate that there is no significant and important relationship between money and prices either in short term or long term. In addition, by estimating the money demand function and its long-term stability, the results show that this relationship is not stable in the case of the Tunisian economy. Introduction The instability of money demand can be explained by the instability of the flow velocity. More frequently, the instability of the application is shown on the factors included in the demand function. Anderson (1985) identified three sources of instability in the demand for money, (i) the change in velocity in response to changes in interest rates as well as movements in other variables the demand function of the currency other than real income, (ii) The demand function of the currency itself may change. For example, financial innovations and releasing the interest rate may change the demand for money, and (iii) short-term monetary stocks actually provided may not correspond to the desired equilibrium. In other words, if the speed of adjustment is small compared to unexpected shocks, this can lead to unexpected changes in the velocity of circulation of money. 1. The relationship between money and prices in the Tunisian economy 1.1. Variables and data As Central Bank of Tunisia (CBT) targets the rate of increase in the money supply within the meaning of M3, then M3 is the variable used to measure changes in the money supply in the Tunisian economy. Concerning the measurement of inflation, changes in the price index (CPI) is the variable most suitable for our study. The adoption of the CPI instead of other measures of inflation is explained by two considerations. The first is the data. Indeed, the monthly data on the CPI are available for longer periods. The second consideration is the wide use of the CPI in the economic literature worldwide. While the CPI may involve some bais, it represents the most widely used measure as an indicator of inflation in empirical studies and analyzes of monetary policy. Regarding the sources of monthly data M2, M3 and CPI, they are issued by the IFC, and the CD-R 2008 IMF.
    Date: 2013–10–18
  15. By: Pau Rabanal (IMF); Marzie Sanjani (International Monetary Fund)
    Abstract: During the early 2000s, the euro area periphery countries experienced a credit and house price boom, but with moderate CPI inflation. We suggest a new approach for analyzing the role of credit and house prices in potential output and estimating the output gap. We present a two-country DSGE model for the core and periphery of the euro area, with financial frictions at the household level. We use several macroeconomic variables, including house prices and household credit for each region, to estimate the model. We find that, in the core, the measure of output gap is independent of financial frictions and is similar to that obtained with the Hodrick and Prescott filter, because of the absence of a credit boom. On the contrary, in the periphery, the presence of financial frictions amplify economic fluctuations and the output gap. We also present evidence of the trade-offs faced by the European Central Bank when trying to stabilize two regions in a currency union with divergent economic cycles.
    Date: 2015
  16. By: Michal Moszynski (Nicolaus Copernicus University, Poland)
    Abstract: The global economic crisis and the crisis in the euro zone exposed the deep differences of opinion between German economists and scientists from other European countries and the US. The German approach conceptually differs in the views on the strategies and tools of anti-crisis policy, especially fiscal stimulus in the Keynesian-style, quantitative easing monetary policy of the ECB, the question of financial assistance to Greece and restructuring its debt. The other areas of difference are the approach to the rules in macroeconomic policy, fiscal consolidation, and interpretation of current account surplus. Given the size and performance of German economy it is important to understand the reasons for these opposites, which constitute the research goal of this article. Considerations are based on the thesis that ordoliberal thought still has a strong impact on the practice of macroeconomic policy in Germany and also at European level. The analysis is built on the short overview of ideological foundations of the German social market economy and its most important postulates, which then will be applied for interpretation of intellectual distinctions between economists from Germany and other countries in the theoretical and practical dimensions of economic policy observed in Europe. The methodology includes the critical literature studies and the comparative analysis of macroeconomic policy through the prism of economic thought.
    Keywords: Germany, macroeconomic policy, ordoliberalism, rules, economic order
    JEL: B25 E61 H12
    Date: 2015–08
  17. By: Michal Horvath; Matus Senaj; Zuzana Siebertova; Norbert Svarda
    Abstract: The paper provides a quantitative assessment of the consequences of departing from a flat-tax system in the context of Slovakia. A behavioural microsimulation model of the labour supply is embedded into ageneral equilibrium framework with search and matching frictions. Some recently implemented marginal changes in the tax system leave aggregate labour market indicators as well as inequality measures virtually unaffected. We also examine hypothetical revenue-neutral reforms that would significantly increase the progressivity of the system through graduated marginal tax rates. We find that there are narrow limits to what policy makers could accomplish through such reforms in terms of employment and equality of income. Hence, an income tax reform should at best be seen as a complementary tool to other initiatives promoting such objectives. Moreover, we highlight an important trade-off: income tax reforms that promote employment may harm growth.
    Keywords: flat tax, microsimulation, general equilibrium, search and matching, labour supply elasticity
    JEL: E24 H24 H31 J22
    Date: 2015–08
  18. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (South Asia Department, ADB); Asian Development Bank (ADB) (South Asia Department, ADB); Asian Development Bank (ADB)
    Abstract: The Bangladesh Quarterly Economic Update (QEU) has been produced by the Bangladesh Resident Mission of the Asian Development Bank since March 2001. The QEU provides information and analysis on Bangladesh’s macroeconomic and sector developments, key development challenges, and policy and institutional reforms. The QEU has wide readership in government, academia, development partners, private sector, and civil society.
    Keywords: bangladesh economy, bangladesh economic growth, inflation, fiscal management, bangladesh macroeconomic updates, fiscal year 2015, bangladesh gdp growth, bangladesh agriculture growth, bangladesh services sector growth, bangladesh fy2015, bangladesh fy2016
    Date: 2015–04
  19. By: Haroon Mumtaz (Queen Mary University of London); Konstantinos Theodoridis (Bank of England)
    Abstract: We use a factor model with stochastic volatility to decompose the time-varying variance of Macro economic and Financial variables into contributions from country-specific uncertainty and uncertainty common to all countries. We find that the common component plays an important role in driving the time-varying volatility of nominal and financial variables. The cross-country co-movement in volatility of real and financial variables has increased over time with the common component becoming more important over the last decade. Simulations from a two-country DSGE model featuring Epstein Zin preferences suggest that increased globalisation and trade openness may be the driving force behind the increased cross-country correlation in volatility.
    Keywords: FAVAR, Stochastic Volatility, Uncertainty Shocks, DSGE Model
    JEL: C15 C32 E32
    Date: 2015–08
  20. By: Sergio Cesaratto (University of Siena)
    Abstract: A number of economists holding Keynesian or pragmatic monetarist views warned that political union was a necessary premise for a viable monetary union. Inspired by Goodhart, we name this the Cartalist view. The European currency union was, however, strongly influenced by New Classical Macroeconomics, which gave new strength to older traditions, like ordoliberalism, that back separation of monetary and fiscal policy, legitimizing a Stateless currency. Again like Goodhart, we call this the Metallist view. This distinction is particularly relevant for assessing two alternative perspectives of the nature of the Euro area crisis. On one hand, there are those who argue that the crisis is akin to a traditional balance of payment crisis of the kind typically occurring in fixed exchange rate regimes. On the other, there are those who attribute the crisis to obstacles to more resolute intervention by the European Central Bank (ECB). Accordingly, belated intervention by the ECB led to worsening of the fiscal crisis of peripheral Euro area states, subsequently exacerbated by austerity policies. In this view, a classical balance of payment crisis can be excluded as a cause of the crisis, because Target 2, a payment mechanism analogous to Keynes’s International Clearing Union, protects the Euro area. In this paper, I argue that although a balance of payments crisis cannot exist in a viable sovereign monetary union, it is still conceivable in a flawed, stateless monetary union like the Euro zone, possibly obscured by Target 2. In this regard, I also show that, while timely and resolute ECB intervention would have been appropriate, in the absence of federal institutions (particularly a federal budget controlled by a European democratic parliament), once this intervention finally took place, austerity measures necessarily accompanied it to check moral hazard possibilities of peripheral member countries. I argue that the German neo-mercantilist orientation and the influence of the predominant mainstream credo that monetary policy should be detached from politics and fiscal policy are obstacles to a viable federal union. I also warn about the risk that the Parliament of such a union would be divided according to national rather than ideological/class interests. Virtue out of necessity, Hayek pointed out long-ago that a currency union among different nation-States could only survive with a minimalist federal State.
    Keywords: Europe, Crisis, Target2, ECB, State.
    JEL: E11 F33 N14
    Date: 2015–08
  21. By: Chattopadhyay, Siddhartha; Agrawal, Manasi
    Abstract: This paper describes a new algorithm for solving a simple Sticky Information New Keynesian model using the methodology of Wang and Wen (2006). Impulse responses for demand and supply shock have been generated and analyzed intuitively. The strength of our algorithm lies in its analytical solution, which allow to uncover better intuition from the model.
    Keywords: New-Keynesian Model, Algorithm
    JEL: C22 C61 C63 E52
    Date: 2015–04–19
  22. By: Robert Baumann (Department of Economics, College of the Holy Cross); Andrea Thompson (Department of Economics, College of the Holy Cross)
    Abstract: We estimate the impact of the 2009 financial rescue of two large American automobile companies (General Motors and Chrysler) on unemployment in Michigan. We conservatively estimate that the auto bailout saved about 7,700 workers from unemployment each month over a period of four-and-a-half years. This translates to a public savings of between $1.3 and $1.6 billion via lower transfer payments and higher tax revenues.
    Keywords: bailout, public finance, unemployment, automobile industry
    JEL: H12 H50 E24 J65
    Date: 2015–08
  23. By: Li, Xi Hao; Gallegati, Mauro
    Abstract: We consider a two-sector economy with a low-technology agriculture sector (sector A) and a high-technology manufacture sector (sector M). We investigate the scenario with mobility constraint that worker in sector A, when unemployed, has to afford the migration cost in order to move to sector M. By developing an agent-based two-sector model with computational simulation, we show that productivity growth localized at agriculture sector with mobility constraint leads to a decrease of agricultural market price, sectoral imbalance that workers are trapped unemployed in agriculture sector, and the overall economy experiencing economic downturn. In particular, localized productivity growth leads to both sectors bearing with high unemployment, low level of aggregate output, and low level of aggregate real wage income. Regarding remedy for the economic downturn under this scenario, we investigate the policy of firm migration such that agriculture firms can migrate to manufacture sector together with their employed workers. Agent-based study shows that this policy restores employment in both sectors, with a side effect of an increase of agricultural market price.
    Keywords: two-sector model, agent-based economic modeling, productivity growth, sectoral imbalance, economic downturn, mobility constraint
    JEL: C63 E17 E24 L5
    Date: 2015–07
  24. By: Didier Nibbering (Erasmus University Rotterdam, the Netherlands); Richard Paap (Erasmus University Rotterdam, the Netherlands); Michel van der Wel (Erasmus University Rotterdam, the Netherlands)
    Abstract: In this paper we study what professional forecasters actually explain. We use spectral analysis and state space modeling to decompose economic time series into a trend, a business-cycle, and an irregular component. To examine which components are captured by professional forecasters we regress their forecasts on the estimated components extracted from both the spectral analysis and the state space model. For both decomposition methods we find that the Survey of Professional Forecasters can predict almost all variation in the time series due to the trend and the business-cycle, but the forecasts contain little information about the variation in the irregular component.
    Keywords: Expert Forecast; Trend-Cycle Decomposition; State Space Modeling; Baxter-King Filter
    JEL: C22 C53 E37
    Date: 2015–08–07
  25. By: Fedotenkov, Igor
    Abstract: This paper presents a simple condition for optimal asymmetric labour (capital) taxation/subsidization in a two-sector model with logarithmic utilities and Cobb-Douglas production functions, linked to demographic factors: fertility rate and longevity. The paper shows that depending on parameter values, it may be optimal to tax or subsidize labour in the sectors. If it is optimal to tax the investment-goods sector, a Pareto-improving tax reform is possible. Larger output elasticities of capital in the sectors reduce the possibilities of a Pareto-improving reform, while population ageing in terms of higher longevity enhances the possibilities of welfare improvement for all generations. Fertility rates do not affect optimal taxation.
    Keywords: Two sectors, factor mobility, asymmetric taxation, optimality, population ageing
    JEL: E62 H21 J10
    Date: 2015–07–09
  26. By: Jean-Paul Fitoussi (OFCE - OFCE - Sciences Po)
    Abstract: An assessment of the conduct of monetary policy in Europe must necessarily be made along two distinct and complementary lines. The first is a comparison with the policies followed in the past. The second line has to assess whether monetary policy is adapted to the new conditions that came into existence with the inception of the Euro. The picture with respect to these two criteria is mixed. Monetary policy has certainly improved with respect to the policies followed in the 1990s, during the run up to the euro. In fact, the ECB proved to be much more growth friendly than its predecessors. On the other hand, though, the challenges posed by the new environment, the management of a large open economy, have not been internalized by the ECB, that was less reactive than the Fed, and too focussed on current inflation. The tightening of monetary conditions in the euro zone, mainly due to the euro appreciation, was not sufficiently cautioned by monetary policy. Especially considering the poor economic performances of the euro zone in the past few years, we must conclude that monetary policy was not helpful in fostering growth recovery in the euro area. The ECB did not fully recognise its new responsibility of conducting the monetary policy of a "big country".
    Date: 2014–04–03
  27. By: Mauro Napoletano (OFCE - OFCE - Sciences Po); Jean-Luc Gaffard (OFCE - OFCE - Sciences Po); Andrea Roventini (Department of Economics - Tilburg University)
    Abstract: We build an agent-based model to study how _scal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system. In that, _scal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study _scal multipliers in response to di_erent microeconomic shocks hitting the economy. We show that de_cit-spending _scal policy dampens the e_ect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the _scal multi- plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the e_ects of two di_erent balanced budget rules. In the _rst type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that _scal multipliers are very low with both balanced-budget rules. Finally, we show that _scal multipliers are higher into more leveraged economies.
    Date: 2014–09
  28. By: Nicolas Petrosky-Nadeau (ECON - Département d'économie - Sciences Po); Etienne Wasmer (ECON - Département d'économie - Sciences Po)
    Abstract: This paper shows that goods-market frictions drastically change the dynamics of the labor market, bridging the gap with the data both in terms of persistence and volatility. In a DSGE model with three imperfect markets - goods, labor and credit - we find that credit- and goods-market imperfections are substitutable in raising volatility. Goods-market frictions are however unique in generating persistence. The two key mechanisms generating autocorrelation in growth rates and the hump-shaped pattern in the response to productivity shocks are related to the goods market: i) countercyclical dynamics of goods market tightness and prices, which alter future profit flows and raise persistence and ii) procyclical search effort in the goods market, by either consumers, firms or both, raises both amplification and persistence. Expanding our knowledge of goods market frictions is thus needed for a full account of labor market dynamics.
    Date: 2014–02
  29. By: Best, Michael Carlos (Stanford University); Cloyne, James (Bank of England); Ilzetzki, Ethan (London School of Economics); Kleven, Henrik Jacobsen (London School of Economics)
    Abstract: Using a novel source of quasi-experimental variation in interest rates, we study the response of household debt and intertemporal consumption allocation to interest rates. We also develop a new approach to structurally estimate the Elasticity of Intertemporal Substitution (EIS). In the United Kingdom, the mortgage interest rate schedule features discrete jumps — notches — at thresholds for the loan-to-value (LTV) ratio, creating strong incentives for bunching below those thresholds. We document large and sharp bunching below every notch, which translates into sizable interest elasticities of mortgage debt, between 0.1 and 1.4 across different LTV levels. We develop a dynamic model that links these reduced-form responses to the underlying structural EIS. The EIS is much smaller and less heterogeneous than the reduced-form elasticities, between 0.05-0.25 across LTV levels and household types. We show that our structural approach is robust to a wide range of assumptions on beliefs about the future, uncertainty, risk aversion, discount factors and present bias. Our findings have implications for the numerous calibration studies in economics that rely on larger values of the EIS.
    Keywords: Interest rates; mortgage debt; elasticity of intertemporal substitution; notches.
    JEL: D14 D91 E21 E43 G21 R22
    Date: 2015–08–14
  30. By: Olivier Allais (Laboratoire de recherche sur la Consommation - Institut national de la recherche agronomique); Yann Algan (ECON - Département d'économie - Sciences Po); Edouard Challe (CEREG - Centre d'études et de recherches sur l'espace germanophone - Université Paris III - Sorbonne nouvelle); Xavier Ragot (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC))
    Abstract: What are the costs of inflation fluctuations and who bears those costs? In this paper, we investigate this question by means of a quantitative incomplete-market, heterogenous-agent model wherein households hold real and nominal assets and are subject to both idiosyncratic labor income shocks and aggregate inflation risk. A key feature of our analysis is a nonhomothetic specication for households' preferences towards money and consumption goods. Unlike traditional specications, ours allows the model to reproduce the broad features of the distribution of monetary assets (in addition to being consistent with the distribution of nonmonetary assets). Inflation risk is found to generate significant welfare losses for most households, i.e., between 1 and 1.5 percent of permanent consumption. The loss is small or even negative for households at the very top of the productivity and/or wealth distribution.
    Date: 2015–05–27
  31. By: Xavier Ragot (Paris School of Economics); Julien Matheron (Banque de France); Juan Rubio-Ramirez (Duke University); Edouard Challe (Ecole Polytechnique)
    Abstract: We formulate and estimate a tractable macroeconomic model with time-varying precautionary savings. We argue that the latter affect aggregate fluctuations via two main channels: a stabilizing aggregate supply effect working through the supply of capital; and a destabilizing aggregate demand effect generated by a feedback loop between unemployment risk and consumption demand. Using the estimated model to measure the contribution of precautionary savings to the propagation of recent recessions, we find strong aggregate demand effects during the Great Recession and the 1990-1991 recession. In contrast, the supply effect at least offset the demand effect during the 2001 recession
    Date: 2015
  32. By: Michael Kleemann (Deutsche Bundesbank); Gernot Mueller (University of Bonn); Zeno Enders (University of Heidelberg)
    Abstract: We assess the contribution of "undue optimism" (Pigou) to business-cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines long-run economic activity. We develop a new strategy to estimate the effects of optimism shocks - autonomous, but fundamentally unwarranted changes in the assessment of productivity. Specifically, we show that by including survey-based nowcast errors regarding current output growth in a VAR model, it is possible to identify optimism shocks. These shocks, in line with theory, generate negative nowcast errors, but raise economic activity in the short run. They account for about 30 percent of short-run fluctuations.
    Date: 2015
  33. By: Verbrugge, Randal (Federal Reserve Bank of Cleveland); Dorfman, Alan (Bureau of Labor Statistics Office of Survey Methods Research); Johnson, William (Bureau of Labor Statistics Statistical Methods Division); Marsh !!!, Fred (Bureau of Labor Statistics Statistical Methods Division); Poole, Robert (Bureau of Labor Statistics Statistical Methods Division); Shoemaker, Owen (Bureau of Labor Statistics Statistical Methods Division)
    Abstract: We study 2001-2004 and 2004-2007 rent growth of 18,000 rental units, ending our study prior to the Great Recession. Which variables correlate with rent growth: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market, help statistical agencies make decisions about sample stratification and substitution, and expose coverage problems. We document significant rent stickiness. Initial relative rent level is the best predictor, though mainly due to mean reversion. "Location" comes in second, though often not statistically significantly: the relative value of location is persistent. Age and occupancy duration are also notable. Our findings are reassuring to statistical agencies.
    Keywords: location; rent stickiness; mean reversion; inflation measurement
    JEL: E3 L8 R11 R21 R31
    Date: 2015–08–05
  34. By: Altunbas, Yener (Bangor Business School); Manganelli, Simone (European Central Bank); Marques-Ibanez, David (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: In the years preceding the 2007-2009 financial crisis, forward-looking indicators of bank risk concentrated and suggested unusually low expectations of bank default. We assess whether the ex-ante (i.e. prior to the crisis) cross-sectional variability in bank characteristics is related to the ex-post (i.e. during the crisis) materialization of bank risk. Our tailor-made dataset crucially accounts for the different dimensions of realized bank risk including access to central bank liquidity during the crisis. We consistently find that less reliance on deposit funding, more aggressive credit growth, larger size and leverage were associated with larger levels of realized risk. The impact of these characteristics is particularly relevant for capturing the systemic dimensions of bank risk and tends to become stronger for the tail of the riskier banks. The majority of these characteristics also predicted bank risk as materialized before the financial crisis.
    Keywords: Bank risk; business models; Great Recession
    JEL: E58 G15 G21 G32
    Date: 2015–08–04
  35. 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 and estimate a new-Keynesian DSGE model, integrating sticky prices in goods market and frictions in labor and credit markets. A search and matching labor market and a costly-state verication framework in the credit market are introduced. Capital spending, vacancy posting costs and wage bill require to be paid in advance of production and thus require external nancing in a frictional credit market. Search and matching in labor market is uncertain and costly. We nd that the procyclicality of the risk premium (the cost of external over internal funds) impacts the vacancy posting decision and thus the level of unemployment in the economy. Credit markets frictions may be the source of lower posting vacancies, lower bargained wages and higher unemployment level. Then, the transmission channel of shocks among both markets is investigated. We also analyze to what extent frictions alter main variables response to monetary and credit shocks. An empirical evidence is presented by regressing principle variables in both markets using a Bayesian VAR method. The shocks identication is based on sign restrictions and penalty function strategies. Moreover, the theoretical model is log-linearized around the steady-state and estimated using a Bayesian approach. The calibration is based on post-war US data and observed variables cover the period 1960-2007. We nd that asymmetric information in the credit market pushes up the marginal cost of labor by adding a risk premium to the negotiated wage, to compensate for uncertainty related to the recruitment process eciency. Although the wage is a result of a right-to-manage bargaining process, credit market imperfections aect labor supply through the nal good mark-up.
    Date: 2015–05–22
  36. By: Oet, Mikhail V. (Federal Reserve Bank of Cleveland); Dooley, John (Federal Reserve Bank of Cleveland); Gramlich, Dieter (Baden-Wuerttemberg Cooperative State University); Sarlin, Peter (Center of Excellence SAFE at Goethe University, the Hanken School of Economics, and RiskLab Finland at Arcada University of Applied Sciences); Ong, Stephen J. (Federal Reserve Bank of Cleveland)
    Abstract: Timely identification of coincident systemic conditions and forward-looking capacity to anticipate adverse developments are critical for macroprudential policy. Despite clear recognition of these factors in literature, an evaluation methodology and empirical tests for the information value of coincident measures are lacking. This paper provides a twofold contribution to the literature: (i) a general-purpose evaluation framework for assessing information value for measures of systemic conditions, and (ii) an empirical assessment of the information value for several alternative measures of US systemic conditions. We find substantial differences among the measures, of which the Cleveland Financial Stress Index shows best-in-class identification performance. In terms of forecasting performance, Kamakura’s Troubled Company Index, Cleveland Financial Stress Index, and Goldman Sachs Financial Conditions Index show moderately stable usefulness metrics over time.
    Keywords: Information value; Systemic conditions; Coincident measures; Early warning; Macroprudential policy
    JEL: E32 E37 G01 G18 G28
    Date: 2015–08–06
  37. By: Fujita, Shigeru (Federal Reserve Bank of Philadelphia)
    Abstract: Supersedes Working Paper 11-44\R. The purpose of this paper is to identify possible sources of the secular decline in the job separation rate over the past four decades. I use a simple labor matching model with two types of workers, experienced and inexperienced, where the former type faces a risk of skill loss during unemployment. When the skill loss occurs, the worker is required to restart his career and thus suffers a drop in his wage. I show that a higher risk of skill loss results in a lower separation rate. The key mechanism is that the experienced workers accept lower wages in exchange for keeping their jobs.
    Keywords: Separation Rate; Wage Loss; Turbulence
    JEL: E24 J31 J64
    Date: 2015–08–07
  38. By: Goulven Rubin (EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - PRES Université Lille Nord de France - Université Charles-de-Gaulle Lille 3 - Sciences humaines et sociales - Université Lille 1 - Sciences et technologies - Université Lille II - Droit et santé)
    Abstract: In 2013, Roger Backhouse and Mauro Boianovsky published Transforming Modern Macroeconomics Exploring Disequilibrium Microfoundations, 1956-2003. This book is the first comprehensive history of the “search for disequilibrium microfoundations” or disequilibrium theories. While being sympathetic to this general undertaking, this essay points two weaknesses of the book. Firstly, the presentation of the origins of the search for disequilibrium microfoundations downplays the interactions between key players like Patinkin, Clower, Arrow or Hahn. As a consequence, Backhouse and Boianovsky tend to overemphasize the heterogeneity of their approaches. Secondly, they argue that disequilibrium theories left a deep mark on contemporary macroeconomics. But this claim is not supported by a step by step analysis. Reading the book is also be the occasion to take stock and identify the issues that remain unanswered and need to be clarified in order to complete the history of disequilibrium macroeconomics.
    Date: 2014
  39. By: Holanda Oliveira, Lucio Hellery; Carrasco Gutierrez, Carlos Enrique
    Abstract: The traditional current account intertemporal model assumes that all individuals follow the permanent income theory. The innovation proposed in this work is to incorporate the idea that some consumers have rule of thumb behavior with the classic current account dynamics model and also to include habit formation in the utility function. Two stage least squares and generalized method of moments econometric techniques are applied to estimate the parameters: the share of aggregate income that follows the rule of thumb behavior and the habit formation coefficient. Based on the current account data on the Brazilian economy, the results confirm some stylized facts presented in the literature as well as some testable basic propositions of the intertemporal current account model. The rule of thumb behavior is significant and ranges from 0.48 to 0.54, indicating that the rule of thumb hypothesis is important in the model. Moreover, the habit formation coefficient also has some significance in the estimated model.
    Keywords: Rule of Thumb; Consumption; Current Account; Intertemporal Model; Habit Formation.
    JEL: C22 E21 F32
    Date: 2015
  40. By: Priewe, Jan
    Abstract: The article provides a broad-based overview on competing development strategies and the economic performance of developing countries, mainly since the year 2000. Four traditional mainstream development strategies are discussed (Washington Consensus, neo-liberalism, "good governance" and MDGs) and three long-debated key strategic issues are reconsidered (inward or outward development with export-led growth, industrialisation or growth with predominant primary goods exports, foreign-aid-based development). A heterodox approach to development with a focus on macroeconomic policies and structural change is added and discussed in more detail. Implicitly, this lays the groundwork for a macroeconomic theory of development. The rough empirical comparison finds that countries and areas with strong emphasis on macroeconomic policies, mainly in Asia, have performed unambiguously better than the mainstream approaches since 1980. From successful Asian countries, it can be learnt that a long-run continuous growth and development performance with more resilience against adverse shocks is key. Almost all larger middle-income countries have embarked on industrialisation, thereby strategies based upon primary commodities or high current account deficits are unlikely to be successful in the long run. A stronger role of a package of six macroeconomic policies is advised, particularly for the larger economies. Size matters in this respect. Smaller countries depend stronger on market niches and idiosyncratic strategies. The global economic order, due to liberalisation of trade and finance, including the prevailing global currency system, sets harsh constraints for policy space towards implementing national strategies.
    Keywords: Development,Macroeconomic Policies,Developmental State,Economic Growth,Good Governance,International Trade,Washington Consensus,Millennium Development Goals
    JEL: E6 O4 O11 O20 O23 O57
    Date: 2015
  41. By: Fregert, Klas (Department of Economics, Lund University)
    Abstract: Eli F. Heckscher found that in 16'th century Sweden: 1) indirect barter was the most common exchange method and 2) monetary exchange was carried out with different coins, none a generally accepted medium of exchange. These findings refute models of the emergence of money, which builds on Jevons and Menger. Heckscher and later Wesley C. Mitchell thought the historical evolution of the exchange system would be a central theme and organizing principle for economic history, which has not happened. I discuss how the ideas of Heckscher may be combined with modern monetary theory to explain gradual monetization.
    Keywords: monetization; Sweden; microfoundations of money; indirect barter; monetary exchange; double coincidence of wants
    JEL: B22 E40 N13
    Date: 2015–08–10
  42. By: Ekrame Boubtane (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Dramane Coulibaly (EconomiX - EconomiX - UP10 - Université Paris 10, Paris Ouest Nanterre La Défense); Hippolyte D'Albis (CES - Centre d'économie de la Sorbonne - Université Paris 1 Panthéon-Sorbonne)
    Abstract: This paper quantitatively assesses the interaction between permanent immigration into France and France's macroeconomic performance as seen through its GDP per capita and its unemployment rate. It takes advantage of a new database where immigration is measured by the flow of newly- issued long-term residence permits, categorized by both the nationality of the immigrant and the reason of permit issuance. Using a VAR model estimation of monthly data over the period 1994-2008, we find that immigration flow significantly responds to France's macroeconomic performance: positively to the country's GDP per capita and negatively to its unemployment rate. At the same time, we find that immigration itself increases France's GDP per capita, particularly in the case of family immigration. This family immigration also reduces the country's unemployment rate, especially when the families come from developing countries.
    Date: 2015–03–25
  43. By: Hansen, Jörgen (Concordia University); Lkhagvasuren, Damba (Concordia University)
    Abstract: We present new evidence on the wage and mobility of young and old workers, which is difficult to explain using standard human capital theory. Instead, we propose a simple dynamic extension of the Roy model, where worker migration and wages are jointly determined at the individual level. According to this model, a higher moving cost among older workers is the main factor driving the lower mobility among this group. Because of the higher moving costs, older workers require a higher wage increase to move across regions than younger workers, a pattern that is consistent with individual-level U.S. data. We also find an interesting dynamic effect suggesting that, given a persistent labor income shock, a higher future moving cost makes workers more mobile today.
    Keywords: geographic mobility, labor mobility by age, labor income shock, moving cost, multi-sector model
    JEL: E24 J31 J61 R23
    Date: 2015–08
  44. By: Borri, Nicola; Reichlin, Pietro
    Abstract: We use a simple two-sector, life-cycle economy with bequests to explain the increasing wealth to income ratio, housing wealth and wealth inequality that have been observed in several countries over the long-run as a consequence of a rising labor efficiency in manufacturing (housing cost disease). When consumption inequality across households is sufficiently large, the housing cost disease has adverse effects on a measure of social welfare based on an egalitarian principle: the higher the housing's value appreciation, the lower the welfare benefit of a rising labor efficiency in manufacturing.
    Keywords: Capital; Housing; Productivity; Wealth; Wealth Inequality
    JEL: D9 E2 O4
    Date: 2015–08
  45. By: Antoine Le Riche (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)
    Abstract: This chapter analyzes the effect of international trade on the local stability properties of economies in a Heckscher-Ohlin free-trade equilibrium. We formulate a two-factor (capital and labor), two-good (consumption and investment), two-country overlapping generations model where countries only differ with respect to their discount rate. We consider a CES non increasing returns to scale technology in the consumption good sector and a Leontief constant returns to scale technology in the investment good sector. In the autarky equilibrium and the free-trade equilibrium, we show the existence of endogenous cycles with dynamic efficiency when the consumption good is capital intensive, the value of the elasticity of intertemporal substitution in consumption is intermediate and the degree of returns to scale is sufficiently high. Finally using a numerical simulation, we show that period-two cycles can occur in the free-trade equilibrium although one country is characterized by saddle-point stability in the autarky equilibrium.
    Date: 2014–11
  46. By: Vladimiro Giacché (a/simmetrie)
    Abstract: Summers has recently reintroduced the hypothesis of “secular stagnation”, first proposed by Alvin Hansen in 1938 as an explanation for the protracted slump of the US economy. However, the secular stagnation hypothesis looks rather as a description, than as an explanation of the current low-growth environment. In this paper we consider the Marxian hypothesis of the tendency of the rate of profit to fall as an alternative theoretical paradigm. Looking at the post-WWII data, the Marxian hypothesis provides an adequate picture of the long-run growth trends. This conclusion is reinforced once we take into account the counteracting factors mentioned by Marx, all of which, and in particular the use of share capital, were operating in the last decades. The paper concludes by outlining some alternative scenarios of recovery.
    Keywords: Marxian economics, Marxian model, Economic growth, Secolar stagnation, Comparative analysis of economic systems
    JEL: B51 E11 O40 P51
    Date: 2015–08
  47. By: Copeland, Adam (Federal Reserve Bank of New York); Garratt, Rod (Federal Reserve Bank of New York)
    Abstract: The multiple payments settlement systems available in the United States differ on several dimensions. The Fedwire Funds Service, a utility that operates a U.S. large-value payments-settlement service, offers the fastest speed of settlement. Recognizing that payments differ in the urgency with which they need to be settled, Fedwire offers banks a decreasing block-price schedule. This approach allows Fedwire to price discriminate, charging high fees for urgent payments and low fees for less urgent ones. We analyze banks’ demand for Fedwire Funds given this nonlinear scheme, taking into account competing settlement systems. We show that how banks respond to Fedwire’s pricing depends crucially on the need to settle payments quickly. If the urgency for immediate settlement is great enough, banks will respond to marginal price; otherwise, they will respond to average price. We test whether banks respond to marginal or to average price. Our identification comes from exogenous variation in Fedwire’s pricing, which results in differential changes in marginal and average price for comparable banks. We find that banks respond to average price.
    Keywords: nonlinear pricing; marginal versus average pricing
    JEL: E42 L11 L51 L97
    Date: 2015–08–01
  48. By: Lorenzo Ductor; Danilo Leiva-Leon
    Abstract: In this paper, we rely on regime-switching models to provide a comprehensive analysis of the timevarying interdependence among the economic cycles of the major world economies during the post- Great Moderation period. We document a structural increase in the global business cycles interdependence occurred in the early 2000s. A clustering analysis reveals that such increase is mainly attributed to the emerging market economies, since their business cycles became more synchronized with the rest of the world around that time. Moreover, we find that the break in global interdependence can be explained by decreasing differences in sectoral composition among countries, specifically in the agricultural component.
    Date: 2015–07
  49. By: Céline Antonin (OFCE - OFCE - Sciences Po); Christophe Blot (OFCE - OFCE - Sciences Po); Sabine Le Bayon (OFCE - OFCE - Sciences Po); Hervé Péléraux (OFCE - OFCE - Sciences Po); Christine Rifflart (OFCE - OFCE - Sciences Po); Danielle Schweisguth (OFCE - OFCE - Sciences Po); Xavier Timbeau (OFCE - OFCE - Sciences Po); Marion Cochard (OFCE - OFCE - Sciences Po); Bruno Ducoudre (OFCE - OFCE - Sciences Po); Amel Falah (OFCE - OFCE - Sciences Po); Eric Heyer (OFCE - OFCE - Sciences Po); Amel Falah (OFCE - OFCE - Sciences Po); Catherine Mathieu (OFCE - OFCE - Sciences Po)
    Abstract: Six ans après le déclenchement de la récession, peu de pays ont rattrapé le niveau d'activité de 2008. Le double choc de la récession en 2008 et en 2009 et des politiques de consolidation budgétaire mises en place à partir de 2010 pour réduire les déficits hérités de la première phase de la crise ont plongé les économies dans un double dip dont elles ne sont toujours pas sorties. Les politiques monétaires très accommodantes se sont efforcées d'atténuer l'effet récessif des plans d'austérité, mais la zone euro, confrontée à la violence de la crise des dettes souveraines, n'a pas bénéficié de la stabilité financière des États-Unis. Les politiques de rigueur y ont provoqué une deuxième récession au moment où les multiplicateurs étaient élevés. Les objectifs initiaux de réduction des déficits n'ont pas été atteints, les marchés n'ont pas été rassurés et les taux d'intérêt n'ont pas reculé. La rigueur a donc été accentuée. Un pas vers la résolution de la crise des dettes souveraines a été accompli par la Banque centrale européenne, avec les déclarations de son président en juillet 2012 (The ECB is ready to do whatever it takes to preserve the euro) et la création du dispositif d'Opérations Monétaires sur Titres en septembre, qui ont convaincu les marchés et permis la baisse des taux. En 2013, la zone euro est sortie de la récession. Mais la " vraie " reprise se fera attendre. En 2014 et en 2015, la croissance restera molle de part et d'autre de l'Atlantique. D'abord parce que les politiques budgétaires resteront restrictives, même si elles le seront moins que par le passé. Ensuite parce que le ralentissement de l'inflation, et même la menace d'une entrée en déflation, réévaluent les taux réels d'aujourd'hui et de demain. Enfin parce que les pays émergents subissent plus qu'ils n'impulsent la croissance mondiale.
    Date: 2014–04
  50. By: Dholakia, Ravindra H.; Kadiyala Sri Virinchi
    Abstract: Methods followed in earlier studies for estimating the sacrifice ratio or the real cost of deliberate disinflation have focused only on aggregate supply side ignoring aggregate demand. The present study considers the adjustment path obtained as a locus of short run equilibria to arrive at a theoretically acceptable sacrifice ratio. The study uses quarterly data from the period between 1996-97Q1--2013-14Q4 in India and employs both the regression as well as the direct methods to estimate the ratio. The results have revealed a sacrifice ratio ranging from 1.7 to 3.8 depending on the method and the measure of inflation used. Such a magnitude of the real cost of disinflation in India, also relevant in the long run, clearly contradict the dominant view among policymakers that the trade-off, if any, is negligible. Deliberate disinflation policy needs to consider the real cost of sacrificing output and employment particularly when its magnitude is substantial.
  51. By: Pierre Boudes (LIPN - Laboratoire d'Informatique de Paris-Nord - CNRS - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - Institut Galilée); Antoine Kaszczyc (LIPN - Laboratoire d'Informatique de Paris-Nord - CNRS - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - Institut Galilée); Luc Pellissier (LIPN - Laboratoire d'Informatique de Paris-Nord - CNRS - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - Institut Galilée)
    Abstract: An agent-based simulation of a monetary economy as a whole should be stock-flow consistent [7]. We aim at providing a compile-time verification of the preservation of this invariant by the computation. We guarantee this invariant by wrapping the accounting operations in a monad. Our objective is to increase the confidence in the SFCness of an existing complex simulation with a minimal refactoring of code.
    Date: 2015–06–05
  52. By: Oya Celasun; Francesco Grigoli; Keiko Honjo; Javier Kapsoli; Alexander Klemm; Bogdan Lissovolik; Jan Luksic; Marialuz Moreno Badia; Joana Pereira; Marcos Poplawski-Ribeiro; Baoping Shang; Yulia Ustyugova
    Abstract: Latin America’s bold fiscal policy reaction to the global financial crisis was hailed as a sign that the region had finally overcome its procyclical fiscal past. However, most countries of the region have not yet rebuilt their fiscal space, despite buoyant commodity revenues and relatively strong growth in the aftermath of the crisis. Using the experience of Brazil, Chile, Colombia, Mexico, Peru, and Uruguay, this paper examines the lessons and legacies of the crisis by addressing the following questions, among others: How much did the 2009 fiscal stimulus help growth? What shortcomings were revealed in the fiscal policy frameworks? What institutional reforms are now needed to provide enduring anchors for fiscal policy? How much rebuilding of buffers is needed going forward?
    Keywords: Fiscal policy;Latin America;fiscal institutions, debt, expenditure, financial crisis, Structure and Scope of Government, General, General, General,
    Date: 2015–04–30
  53. By: Jean-Louis Combes (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Rasmané OUEDRAOGO (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: This paper examines the so-popular anecdote according to which pro-cyclical fiscal policies are due to pro-cyclical behavior of financing. We address the question of whether or not pro-cyclical aid leads to pro-cyclical fiscal policies in SSA recipient countries. We employed panel data techniques covering 39 SSA countries over the period 1985- 2012. We found that results depend on the type of aid: pro-cyclical bilateral aid is negatively associated to pro-cyclical fiscal policy, while pro-cyclical ODA from multilateral agencies leads to more pro-cyclical fiscal policy. This finding is robust to potential error bias, alternative specifications, additional controls and different estimation methods.
    Date: 2014–11–19

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