nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒10‒10
eighty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. An SVAR Approach to Evaluation of Monetary Policy in India: Solution to the Exchange Rate Puzzles in an Open Economy By William Barnett; Soumya Liting Su
  2. Disaster Risk and Preference Shifts in a New Keynesian Model By Marlène Isoré; Urszula Szczerbowicz
  3. El choque petrolero y sus implicaciones en la economía colombiana By Jorge Toro; Aarón Garavito; David Camilo López; Enrique Montes
  4. Household Inflation Expectations: The Term Structure and the Anchor Effects of Monetary Policy By Koichiro.Kamada; Jouchi Nakajima
  5. On stock-flow consistent approachesd the like: the 'rediscovery' of model building By Cavalieri, Duccio
  6. Eléments de Macroéconomie By Keita, Moussa
  7. Macroeconomics of “NaMo” Budget 2014 in India By Chakraborty, Lekha S
  8. Impact of Monetary Policy on Inflation Control in Nigeria By Onwachukwu, Chinedu Increase
  9. Egypt Relative to the COMESA’s Member States: Do Fiscal Policy Rules Matter? By Kamal, Mona
  10. Inflation, growth and employment in South Africa: Trends and trade-offs By C. Vermeulen
  11. The Use of Divisia Monetary Aggregates in Nominal GDP Targeting By Barnett, William A.; Su, Liting
  12. Trend Dominance in Macroeconomic Fluctuations By Katsuyuki Shibayama
  13. Optimal Inflation with Corporate Taxation and Financial Constraints By Finocchiaro, Daria; Lombardo, Giovanni; Mendicino, Caterina; Weil, Philippe
  14. The influence of monetary policy on bank profitability By Claudio Borio; Leonardo Gambacorta; Boris Hofmann
  15. Forecasting Inflation with the Hybrid New Keynesian Phillips Curve: A Compact-Scale Global VAR Approach By Medel, Carlos A.
  16. Countercyclical Recruiting Rates and the Value of Jobs By Yashiv, Eran
  17. Inflation forecasts: Are market-based and survey-based measures informative? By Grothe, Magdalena; Meyler, Aidan
  18. Forward Guidance and the State of the Economy By Benjamin D. Keen; Alexander W. Richter; Nathaniel A. Throckmorton
  19. Is the active use of macroprudential tools institutionally realistic? By Dudley, William
  20. Jagged cliffs and stumbling blocks: interest rate pass-through fragmentation during the Euro area crisis By Holton, Sarah; Rodriguez d'Acri, Costanza
  21. Macroprudential policy: case study from a tabletop exercise By Adrian, Tobias; de Fontnouvelle, Patrick; Yang, Emily; Zlate, Andrei
  22. The Implemented Monetary Policy in Turkey after 1994 By Suleyman UGURLU; Murat BESER; Nazife Ozge KILIC
  23. The cyclicality of leverage By Adrian, Tobias; Boyarchenko, Nina; Shin, Hyun Song
  24. Heterogeneous Conformism and Wealth Distribution in a Neoclassical Growth Model By Kazuo MIno; Yasuhiro Nakamoto
  25. Sovereign debt exposure and the bank lending channel: impact on credit supply and the real economy By Margherita Bottero; Simone Lenzu; Filippo Mezzanotti
  26. On the Theoretical Efficacy of Quantitative Easing at the Zero Lower Bound By Boel, Paola; Waller, Christopher J.
  27. News on State-Dependent Fiscal Multipliers: The role of Confidence By Juan Manuel Figueres
  28. Precio del petróleo y el ajuste de las tasas de interés en las economías emergentes By Paula Andrea Beltrán-Saavedra
  29. Man-cessions, Fiscal Policy, and the Gender Composition of Employment By Christian Bredemeier; Falko Juessen; Roland Winkler
  30. The Optimal Level of the Inflation Target: A Selective Review of the Literature and Outstanding Issues By Oleksiy Kryvtsov; Rhys R. Mendes
  31. Understanding the productivity slowdown. The importance of entry and exit of workers By Thomas von Brasch; Ådne Cappelen; Diana-Cristina Iancu
  32. Cobweb diagram as a tool for assesing changes in the most important financial stability risks By Nadeþda Siòenko; Olga Lielkalne
  33. Self-Fulfilling Debt Crises: Can Monetary Policy Really Help? By Eric van Wincoop; Philippe Bacchetta
  34. Characterising the financial cycle: a multivariate and time-varying approach By Hiebert, Paul; Schüler, Yves S.; Peltonen, Tuomas A.
  35. Indicador mensual de actividad económica (IMAE) para el Valle del Cauca By Pavel Vidal Alejandro; Lya Paola Sierra Suárez; Johana Sanabria Dominguez; Jaime Andres Collazos Rodríguez
  36. Les déterminants de la croissance économique en zone cemac: Une approche en données de panel By Nzingoula, Gildas crépin
  37. A supply and demand model for the Venezuelan economy By Jose Ustorgio Mora Mora
  38. Beggar-thy-neighbor? The international effects of ECB unconventional monetary policy measures By Bluwstein, Kristina; Canova, Fabio
  39. Labour Market Institutions and Inflation Differentials in the EU By D'Adamo, Gaetano; Rovelli, Riccardo
  40. Impactos de los fenómenos climáticos sobre el precio de los alimentos en Colombia By Davinson Stev Abril Salcedo; Luis Fernando Melo Velandia; Daniel Parra Amado
  41. The perils of debt deflation in the euro area: A multi regime model By Semmler, Willi; Haider, Alexander
  42. Reserve requirements and the bank lending channel in China By Fungácová , Zuzana; Nuutilainen , Riikka; Weill , Laurent
  43. Inequality, Financial Deepening and Current Account Impact By Jorge Carrera; Esteban Rodríguez; Mariano Sardi
  44. Unemployment and Labor Force Participation in Turkey By Aysit Tansel; Zeynel Abidin Ozdemir; Emre Aksoy
  45. Human Capital Investment in a Late-Developing Economy: Evidence from Württemberg, c. 1600 – c. 1900 By Sheilagh Ogilvie and Markus Küpker
  46. The effectiveness of countercyclical capital requirements and contingent convertible capital: a dual approach to macroeconomic stability By Hylton Hollander
  47. Heterogeneous EIS and Wealth Distribution in a Neoclassical Growth Model By Nakamoto, Yasuhiro
  48. Vulnerability to climatic variability: An assessment of drought prevalence on water resources availability and implications for the Ugandan economy By Nicholas Kilimani
  49. Lift-off Uncertainty: What Can We Infer From the FOMC's Summary of Economic Projections? By Octavio Portolano Machado; Carlos Carvalho; Tiago Berriel
  50. Macro-Finance Separation by Force of Habit By J. David Lopez-Salido; Francisco Vazquez-Grande; Pierlauro Lopez
  51. Do Credit Market Imperfections Justify a Central Bank’s Response to Asset Price Fluctuations? By Kengo Nutahara
  52. Cross-Border Asset Holdings and Comovements in Sovereign Bond Markets By Asgharian, Hossein; Liu, Lu; Larsson, Marcus
  53. Income taxation and equity: new dominance criteria and an application to Romania By P. Brunori; F. Palmisano; V. Peragine
  54. Collateral Values and Corporate Employment By Nuri Ersahin; Rustom M. Irani
  55. Regulation and liquidity provision By Dudley, William
  56. Transition and capital misallocation : the Chinese case By Damien Cubizol
  57. Measuring the effects of monetary policy on house prices and the economy By Williams, John C.
  58. The predictive content of business survey indicators: evidence from SIGE By Tatiana Cesaroni; Stefano Iezzi
  59. Explaining the Recent Slump in Investment: the Role of Expected Demand and Uncertainty By M. Bussière; L. Ferrara; J. Milovich
  60. Social policy and economic growth in some Latin American countries (1980 – 2010) By Clarimar Pulido; Jose Ustorgio Mora Mora
  61. The great moderation in historical perspective. Is it that great? By María Dolores Gadea; Ana Gómez-Loscos; Gabriel Perez-Quiros
  62. The Japanese Labour Market during the Global Financial Crisis and the Role of Non-Standard Work: A Micro Perspective By Hijzen, Alexander; Kambayashi, Ryo; Teruyama, Hiroshi; Genda, Yuji
  63. Portfolio Flows in a two-country RBC model with financial intermediaries By Haakon Kavli and NIcola Viegi
  64. Impact of Wage Policy on Economic Growth in Transitive Countries and New Interpretation of the Phillips Curve By BAZHAL, IURII
  65. Macroeconomic Imbalance Procedure in the EU: a Welfare Evaluation By Torój, Andrzej
  66. Endogenous Product Turnover and Macroeconomic Dynamic By Francesco Zanetti; Masashige Hamano
  67. "Cult of equity": actuaries and the transformation of pension fund investing, 1948–1960 By Yally Avrahampour
  68. Polityka fiskalna w modelach DSGE By Korniluk, Dominik
  69. Where has all the education gone? Nowhere, but too much By HONGCHUN ZHAO
  70. "Endogenous Uncertainty and Credit Crunches" By Straub, Ludwig; Ulbricht, Robert
  71. Higher bank capital requirements and mortgage pricing: evidence from the Countercyclical Capital Buffer (CCB) By Christoph Basten; Catherine Koch
  72. Volatilities of Investment in Human Capital on Iran’s Economic Growth: A Bound Testing approach and GARCH Mod By Mosayeb Pahlavani
  73. Non-Euclidean geometry and political economy How Jacques Rueff explained unemployment in England (1919-1931) By Adrien Lutz
  74. An Asset Allocation Framework with Tranches for Foreign Reserves By Julián David García-Pulgarín; Javier Gómez-Restrepo; Daniel Vela-Barón
  75. 2002 Sonrasi Türkiye Ekonomisinin Performansi: Karsilastirmali Bir Analiz By Ahmet Benlialper; Hasan COmert; Guney Duzcay
  76. The New Keynesian Transmission Channel By Tobias Broer; Per Krusell; Niels-Jakob Hansen; Erik Oberg
  77. The Long-Run Phillips Curve: A Structural VAR Investigation By Luca Benati
  78. South African Stock Returns Predictability using Domestic and Global Economic Policy Uncertainty: Evidence from a Nonparametric Causality-in-Quantiles Approach By Mehmet Balcilar; Rangan Gupta; Clement Kyei
  79. Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake By Christoph E. Boehm; Aaron Flaaen; Nitya Pandalai-Nayar
  80. On commercial gluts Unexpected affinities between Jean-Baptiste Say and the Saint-Simonians By Adrien Lutz
  81. Empirical Analysis of Yield Determinants in Japan’s Municipal Bond Market: Does Credit Risk Premium Exist? By Hattori, Takahiro; Miyake, Hiroki

  1. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Soumya Liting Su (Department of Economics, The University of Kansas;)
    Abstract: One of the hottest topics in monetary policy research has been the revival of the proposal for “nominal GDP targeting.” Recent research has emphasized the potential importance of the Divisia monetary aggregates in implementing that policy. We investigate bivariate time series properties of Divisia money and nominal GDP to investigate the viability of recent proposals by authors who advocate a role for a Divisia monetary aggregate in nominal GDP targeting. There are two particularly relevant proposals: (1) the proposal by Barnett, Chauvet, and Leiva-Leon (2015) to use a Divisia monetary aggregate as an indicator in the monthly Nowcasting of nominal GDP, as needed in implementation of any nominal GDP targeting policy; and (2) the proposal by Belongia and Ireland (2015) to use a Divisia monetary aggregate as an intermediate target, with nominal GDP being the final target of policy. We run well known diagnostic tests of bivariate time series properties of the Divisia M2 and nominal GDP stochastic processes. Those tests are for properties that are necessary, but not sufficient, for the conclusions of Belongia and Ireland (2014) and Barnett, Chauvet, and Leiva-Leon (2015). We find no time series properties that would contradict those implied by either of those two approaches.
    Keywords: money, aggregation theory, index number theory, Divisia index, Divisia monetary aggregates, nominal GDP targeting.
    JEL: C43 E01 E3 E40 E41 E51 E52 E58
    Date: 2015–10
  2. By: Marlène Isoré; Urszula Szczerbowicz
    Abstract: This paper analyzes the effects of a change in a small but time-varying “disaster risk” à la Gourio (2012) in a New Keynesian model. Real business cycle models featuring disaster risk have been successful in replicating observed moments of equity premia, yet their macroeconomic responses are highly sensitive to the chosen value of the elasticity of intertemporal substitution (EIS). In particular, we show here that an increase in the probability of disaster causes a recession only when imposing an EIS larger than unity, which may be arbitrarily large. Nevertheless, we also find that incorporating sticky prices allows to conciliate recessionary effects of the disaster risk with a plausible value of the EIS. The disaster risk shock causes endogenous shifts in preferences which provide a rationale for discount factor first- (Christiano et al., 2011) and second- (Basu and Bundick, 2014) moment shocks.
    Keywords: disaster risk;rare events;uncertainty;asset pricing;DSGE models;new Keynesian models;business cycles
    JEL: D81 D90 E20 E31 E32 E44 G12 Q54
    Date: 2015–09
  3. By: Jorge Toro; Aarón Garavito; David Camilo López; Enrique Montes
    Abstract: La economía colombiana se ha visto impactada por la fuerte caída en la cotización internacional del petróleo, la cual se caracterizó por ser sorpresiva, acelerada y de magnitud considerable. Según los analistas, este choque podría ser persistente y extenderse por varios años. Sumado a lo anterior, el volumen de producción de hidrocarburos en el territorio nacional también podría caer, como resultado de la menor inversión en el sector ante los bajos precios del crudo. El presente documento hace un análisis descriptivo del choque petrolero reciente y de sus determinantes, así como de sus implicaciones para la economía colombiana. A la fecha, el desplome de los precios ha afectado los términos de intercambio del país y con ello el ingreso nacional, impactando las cuentas externas y la tasa de cambio, las finanzas públicas, la confianza de los mercados y el riesgo país. Lo anterior se ha traducido en una significativa desaceleración de la actividad económica. La respuesta de política económica ha sido coherente con un sólido marco institucional previamente establecido, que ha propiciado un ajuste ordenado de la economía a las nuevas circunstancias externas. Entre las características más importantes de dicho marco de política se destacan un régimen de inflación objetivo con flexibilidad cambiaria, una regla fiscal para el Gobierno Nacional y una política macro-prudencial que aboga por la estabilidad financiera. ****** The Colombian economy has been hit by the sharp fall of international oil prices, which was characterized for being unexpected, sudden and of considerable magnitude. According to analysts, this shock could be persistent and last for several years. On top of that, the volume of oil production in the country could also decrease due to a fall of investment in the sector in the context of lower oil prices. This document aims to provide a descriptive analysis of the recent oil shock, its determinants, and their implications for the Colombian economy. To date, falling oil prices have deteriorated the country's terms of trade and thus, its national income. Other key variables such as the current account, the exchange rate, the public finance, market’s confidence and the country risk premium have also been affected. As a result, a significant economic slowdown is taking place. The economic policy response has been coherent with a sound institutional framework previously established, which has encouraged an orderly adjustment to the new external circumstances. Among the key elements of such framework it is worth mentioning an inflation-targeting scheme with flexible exchange rate, a fiscal rule for the central Government, and a macro-prudential policy aiming at preserving financial stability.
    Keywords: Petróleo, sector externo, ingresos fiscales, términos de intercambio.
    JEL: E20 Q30 Q31 Q34 Q43 H62 H63
    Date: 2015–10–02
  4. By: Koichiro.Kamada (Bank of Japan); Jouchi Nakajima (Bank of Japan)
    Abstract: The management of inflation expectations is one of the means by which central banks aim to achieve price stability. This is the reason why central bankers are required to have a deep understanding of the dynamics of inflation expectations. Kamada et al. (2015) examined a household survey and found that short-term and long-term inflation expectations behave differently: short-term expectations are easily affected by actual inflation, while long-term expectations are stable and immune to actual price developments. This result indicates that inflation expectations are anchored to a certain level in Japan from the long term point of view. Long-term expectations, however, are changeable and influenced by monetary policy. The price stability target and quantitative and qualitative monetary easing introduced by the Bank of Japan in 2013 are likely to raise and stabilize inflation expectations in Japan.
    Keywords: Inflation expectations; Term structure; Inflation target; Inflation anchor; Quantitative and qualitative monetary easing
    JEL: E31 E52 E58
    Date: 2015–09–30
  5. By: Cavalieri, Duccio
    Abstract: This paper on the theoretical foundations of macroeconomic modelling pursues a need of conceptual clarification of a debated methodological problem concerning monetary and fiscal policies. In the first part of the paper the key features of Stock-Flow Consistent Approaches and Modern Monetary Theory are examined, in a critical perspective. These schools of thought consider the interaction between real and monetary factor at an aggregate level and re-propose with minor changes a well known system dynamics methodology, without implementing it and without even mentioning it. They rely on unrealistic and oversimplifying assumptions. Monetary circuit theories are also criticized. In the second part of the essay the guidelines of an alternative theoretical perspective are presented and their policy implications are discussed. Monetary and fiscal policy are not mutually independent. A reasoned choice of policy-mix is suggested.
    Keywords: money, SFCA, MMT, MCT, New Consensus, monetary and fiscal policy , New Consensus, monetary and fiscal policy
    JEL: B22 B41 E10 E4 E40 E42
    Date: 2015–09
  6. By: Keita, Moussa
    Abstract: This manuscript revisits some key concepts of traditional macroeconomics. In the first step, it proposes a discussion on the equilibrium conditions on the market of goods and services and on the market of money. And in the second step, a discussion is conducted on the general equilibrium the conditions created by the confrontation of the two markets by the mean of interest rate. This comparison is made in the ISLM models framework that allows to analyze the effects of various economic and monetary policies. The discussion was then extended to growth models in order to study the long-term equilibrium conditions and growth path of the economy.
    Keywords: Macroeconomics, market of goods and services, market of money, Equilibrium,ISLM Model, Economic policies.
    JEL: E1 E2 E3 E4 E5 E6
    Date: 2015–10
  7. By: Chakraborty, Lekha S
    Abstract: The present government has inherited an economy characterised by low growth, high inflation, high current account deficit and large fiscal imbalance at the Union level. What has struck me about Union budget 2014-15 is not the fiscal arithmetic, but the macroeconomic framework. One could sense a deal for fiscal-monetary policy co-ordination in the budget speech, especially with the announcement of Finance Minister for a “New Monetary framework”. The paper focuses on the macroeconomic framework of the budget rather than dealing with the fiscal arithmetic, in terms of policy announcements and budgetary allocations. The dynamics between North Block and Mint Road is always challenging, and so far India has witnessed a fiscal dominance, over monetary policy.The announcement by Finance Minister on “new monetary framework” for India needs to be co-read with the advancements in RBI seeking more ‘central bank independence’ to manage inflation and how it plays out in the macroeconomic context of India in light of the Expert Committee to Revise and Strengthen the Monetary Policy Framework. The underlying macroeconomic framework of the budget revealed two thematic priorities of the present government; (i) growth revival and (ii) macroeconomic stability. This sets the track. The Union budget was simultaneously ensuring a ‘continuity’ and ‘change’. The ‘continuity’ elements in the budget may be to ensure a bipartisan approach in tackling the issues of national interest, especially in case of fiscal consolidation path of earlier government. However the ‘changes’ suggested in the budget in terms of new monetary framework is disturbing.
    Keywords: Fiscal Consolidation , New Monetary Framework, Union Budget India
    JEL: E5 E6 H6
    Date: 2014
  8. By: Onwachukwu, Chinedu Increase
    Abstract: Inflation is a major problem facing Nigeria as a country today. This has led to reduction in the standard of living of Nigerians. The Central Bank of Nigeria (CBN), however, has made efforts to fight it using different policy measures, of which monetary policy is one of them. Thus this paper focuses on the use of monetary policy to check inflation in Nigeria. The study is based on time series data from 1970 to 2010. Employing the method of Ordinary Least Squares (OLS) to estimate the model results, the study found that bank rate, deposit with the central bank, liquidity ratio, and broad money supply are statistically significant in explaining changes in inflation. However, exchange rate was found not to account for significant changes in inflation in Nigeria. The study recommended the need to check the excess reserves of commercial banks, which will help keep money supply at a low level.
    Keywords: Monetary Policy, Inflation, Money Supply
    JEL: E31 E5 E52
    Date: 2014–08–08
  9. By: Kamal, Mona
    Abstract: This paper compares Egypt’s most essential macroeconomic indicators with respect to its sisters in the COMESA region. Based on this descriptive analysis, the paper supports mutual coordination between fiscal and monetary policies as a way to enhance the effectiveness of both policies. It suggests the utilization of rule-based fiscal policies rather than discretionary ones to attain social welfare for the whole region. Finally, it recommends the establishment of a supranational coordinating body for fiscal policies within a time frame of 3 to 5 years.
    Keywords: Policy Objectives, Policy Designs and Consistency, Policy Coordination, Fiscal Policy, Comparative Analysis of Fiscal and Monetary Policy
    JEL: E61 E62 E63
    Date: 2015–10–06
  10. By: C. Vermeulen
    Abstract: It is often publicly contended that overly strict application of inflation targeting stifles employment growth in South Africa, with the Phillips curve often cited as seemingly authoritative reference. This paper revisits this debate and argues that the Phillips curve has often been misinterpreted and subsequently applied incorrectly. Furthermore, this paper investigates the effect of inflation on employment in South Africa via the effects of inflation on output. It aims to determine whether higher inflation could contribute to employment creation. Using the Engle-Granger Error-Correction approach, long run trends as well as short run dynamics of this relationship in the South African economy are explored. Evidence is found of a positive cointegrating long run relationship between employment and output, leading to the assertion that anything that negatively effects output (such as high inflation) will by extension harm employment creation. No significant relationship in the short run between the level of inflation or shocks to inflation and employment creation could be found. The conclusion is that the current relatively low and constant inflationary environment, attributed to the inflation targeting regime, is actually conducive to employment creation in South Africa.
    Keywords: Inflation, Employment, Phillips curve, Error-Correction, neutrality of money
    JEL: E24 E52 E63
    Date: 2015
  11. By: Barnett, William A.; Su, Liting
    Abstract: One of the hottest topics in monetary policy research has been the revival of the proposal for “nominal GDP targeting.” Recent research has emphasized the potential importance of the Divisia monetary aggregates in implementing that policy. We investigate bivariate time series properties of Divisia money and nominal GDP to investigate the viability of recent proposals by authors who advocate a role for a Divisia monetary aggregate in nominal GDP targeting. There are two particularly relevant proposals: (1) the proposal by Barnett, Chauvet, and Leiva-Leon (2015) to use a Divisia monetary aggregate as an indicator in the monthly Nowcasting of nominal GDP, as needed in implementation of any nominal GDP targeting policy; and (2) the proposal by Belongia and Ireland (2015) to use a Divisia monetary aggregate as an intermediate target, with nominal GDP being the final target of policy. We run well known diagnostic tests of bivariate time series properties of the Divisia M2 and nominal GDP stochastic processes. Those tests are for properties that are necessary, but not sufficient, for the conclusions of Belongia and Ireland (2014) and Barnett, Chauvet, and Leiva-Leon (2015). We find no time series properties that would contradict those implied by either of those two approaches.
    Keywords: Money, aggregation theory, index number theory, Divisia index, Divisia monetary aggregates, nominal GDP targeting.
    JEL: C43 E01 E3 E41 E51 E52 E58
    Date: 2015–05–25
  12. By: Katsuyuki Shibayama
    Abstract: This paper investigates multivariate Beverage-Nelson decomposition of the key macro aggregate data. Among others, most importantly we find (a) inflation seems to be dominated by its trend component, and, perhaps as a result of this, the short-term interest rate is also trend dominated; and (b) consumption also seems to be dominated by its trend component perhaps due to consumption smoothing as the permanent income hypothesis suggests. What is new here is that, although the difficulty of rejecting a unit root for these variables has been long recognized in the literature, we show indeed these unit root processes account for the large share of the variable fluctuations. This raises a concern about the convention that the non-stationary data is detrended in the standard DSGE type structural estimation, in the sense that a significant portion of data variation actually may come from the trend components.
    Keywords: Beveridge-Nelson Decomposition; DSGE; VECM; Detrending
    JEL: C32 E21 E31 E32 E52
    Date: 2015–09
  13. By: Finocchiaro, Daria (Research Department, Central Bank of Sweden); Lombardo, Giovanni (Bank for International Settlements); Mendicino, Caterina (European Central Bank); Weil, Philippe (Université Libre de Bruxelles)
    Abstract: This paper revisits the equilibrium and welfare effects of long-run inflation in the presence of distortionary taxes and financial constraints. Expected inflation interacts with corporate taxation through the deductibility of i) capital expenditures at historical value and ii) interest payments on debt. Through the first channel, inflation increases firms’ taxable profits and further distorts their investment decisions. Through the second, expected inflation affects the effective real interest rate negatively, relaxes firms’ financial constraints and stimulates investment. We show that, in the presence of collateralized debt, the second effect dominates. Therefore, in contrast to earlier literature, we find that when the tax code creates an advantage of debt financing, a positive rate of long-run inflation is beneficial in terms of welfare as it mitigates the financial distortion and spurs capital accumulation.
    Keywords: optimalmonetary policy; Friedman rule; credit frictions; tax benefits of debt
    JEL: E31 E43 E44 E52 G32
    Date: 2015–09–01
  14. By: Claudio Borio; Leonardo Gambacorta; Boris Hofmann
    Abstract: This paper investigates how monetary policy affects bank profitability. We use data for 109 large international banks headquartered in 14 major advanced economies for the period 1995-2012. Overall, we find a positive relationship between the level of short-term rates and the slope of the yield curve (the "interest rate structure", for short), on the one hand, and bank profitability - return on assets - on the other. This suggests that the positive impact of the interest rate structure on net interest income dominates the negative one on loan loss provisions and on non-interest income. We also find that the effect is stronger when the interest rate level is lower and the slope less steep, ie that non-linearities are present. All this suggests that, over time, unusually low interest rates and an unusually flat term structure erode bank profitability.
    Keywords: monetary policy, bank profitability, financial crisis
    Date: 2015–10
  15. By: Medel, Carlos A.
    Abstract: In this article, it is analysed the multihorizon predictive power of the Hybrid New Keynesian Phillips Curve (HNKPC) making use of a compact-scale Global VAR for the headline inflation of six developed countries with different inflationary experiences; covering from 2000.1 until 2014.12. The key element of this article is the use of direct measures of inflation expectations--Consensus Economics--embedded in a Global VAR environment, i.e. modelling cross-country interactions. The Global VAR point forecast is evaluated using the Mean Squared Forecast Error (MSFE) statistic and statistically compared with several benchmarks. These belong to traditional statistical modelling, such as autoregressions (AR), the exponential smoothing model (ES), and the random walk model (RW). One last economics-based benchmark is the closed economy univariate HNKPC. The results indicate that the Global VAR is a valid forecasting procedure especially for the short-run. The most accurate forecasts, however, are obtained with the AR and especially with the univariate HNKPC. In the long-run, the ES model also appears as a better alternative rather than the RW. The MSPE is obviously affected by the unanticipated effects of the financial crisis started in 2008. So, when considering an evaluation sample just before the crisis, the GVAR also appears as a valid alternative in the long-run. The most robust forecasting devices across countries and horizons result in the univariate HNKPC, giving a role for economic fundamentals when forecasting inflation.
    Keywords: New Keynesian Phillips Curve; inflation forecasts; out-of-sample comparisons; survey data; Global VAR; time-series models
    JEL: C22 C26 C53 E31 E37 E47
    Date: 2015–10–05
  16. By: Yashiv, Eran (Tel Aviv University)
    Abstract: U.S. CPS gross flows data indicate that in recessions firms actually increase their hiring rates from the pools of the unemployed and out of the labor force. Why so? The paper provides an explanation by studying the optimal recruiting behavior of the representative firm. This behavior is a function of the value of jobs, i.e., the expected present value of the marginal worker to the firm. Job values are estimated to be counter-cyclical in U.S. data, the underlying reason being the dynamic behavior of the labor share of GDP. The counter-cyclicality of hiring rates and job values, which may appear counter-intuitive, is shown to be consistent with well-known business cycle facts, such as pro-cyclical employment and pro-cyclical vacancy and job-finding rates (as well as job to job flows). The analysis emphasizes the difference between current labor productivity and the forward-looking concept of job value. The paper explains the high volatility of firm recruiting behavior, as well as the reduction in labor market fluidity in the U.S. over time, using the same framework.
    Keywords: firm recruitment, job values, business cycles, vacancies, hiring, labor market frictions, volatility, labor market fluidity
    JEL: E24 E32
    Date: 2015–09
  17. By: Grothe, Magdalena; Meyler, Aidan
    Abstract: This paper analyses the predictive power of market-based and survey-based inflation expectations for actual inflation. We use the data on inflation swaps and the forecasts from the Survey of Professional Forecasters for the euro area and United States. The results show that both, market-based and survey-based measures have a non-negligible predictive power for inflation developments, as compared to statistical benchmark models. Therefore, for horizons of one and two years ahead, market-based and survey-based inflation expectations actually convey information on future inflation developments.
    Keywords: inflation expectations; inflation forecasting; inflation swap markets; market-based inflation expectations; Survey of Professional Forecasters; survey-based inflation expectations;
    JEL: E31 E37 G13
    Date: 2015
  18. By: Benjamin D. Keen; Alexander W. Richter; Nathaniel A. Throckmorton
    Abstract: This paper examines the economic effects of forward guidance using a New Keynesian model with a zero lower bound (ZLB) constraint on the short-term nominal interest rate. Forward guidance is modeled with anticipated news shocks to the monetary policy rule. There are five key findings: (1) the stimulative effect of forward guidance falls as the economy deteriorates or as households expect a slower recovery because there is a smaller margin to lower expected policy rates; (2) longer forward guidance horizons do not generate increasingly larger impact effects on output when the total amount of news is fixed, unlike with an exogenous interest rate peg; (3) in steady state, an unanticipated shock has a larger impact effect on output than a news shock, but a news shock has a larger cumulative effect in every state of the economy; (4) at the ZLB, the cumulative effect on output from lengthening the forward guidance horizon increases over short horizons but decreases thereafter, which indicates the central bank faces limits on how far forward guidance can extend into the future and continue to add stimulus; and (5) forward guidance is stimulative in the absence of other shocks, but the observed effect on output is smaller or even negative if another shock simultaneously reduces demand.
    Keywords: Monetary Policy; Forward Guidance; Zero Lower Bound; News Shocks
    JEL: E43 E58 E61
    Date: 2015–07
  19. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Panel remarks at the Macroprudential Monetary Policy Conference, Federal Reserve Bank of Boston, Boston, Massachusetts.
    Keywords: Committee on the Global Financial System; Financial Stability Oversight Council (FSOC); tabletop exercise; macroprudential tools; Adam Posen; macroprudential standards; Automatic rules; bubbles; tool calibration; countercyclical
    JEL: E58 E66
    Date: 2015–10–03
  20. By: Holton, Sarah; Rodriguez d'Acri, Costanza
    Abstract: The financial crisis has been characterised by fragmentation in the transmission of monetary policy, reflected in high dispersion in the cost of bank finance for euro area firms. Using micro-level bank data across a number of euro area countries, we identify individual bank balance sheet characteristics that contributed to this fragmentation. Interest rate pass-through heterogeneity is estimated using an error correction framework, which captures banks' funding constraints and balance sheet structures. Results show incomplete pass-through of changes in money market rates targeted by the central bank to firms' lending rates, with increases in sovereign bond yields affecting the cost of finance for firms, particularly in stressed countries. Individual bank characteristics have an effect on pass-through during the crisis, even after controlling for changes in macroeconomic conditions. The effect is greatest when looking at characteristics that capture bank funding difficulties, suggesting that a recovery in banks' funding capacities is an important element in reducing fragmentation in the transmission of monetary policy. JEL Classification: E52, E58, G01, G20, E43
    Keywords: financial crises, Interest rate pass-through, monetary policy transmission
    Date: 2015–09
  21. By: Adrian, Tobias (Federal Reserve Bank of New York); de Fontnouvelle, Patrick (Federal Reserve Bank of Boston); Yang, Emily (Federal Reserve Bank of New York); Zlate, Andrei (Federal Reserve Bank of Boston)
    Abstract: Since the global financial crisis of 2007-09, policy makers and academics around the world have advocated the use of prudential tools for macroprudential purposes. This paper presents a macroprudential tabletop exercise that was aimed at confronting Federal Reserve Bank Presidents with a plausible, albeit hypothetical, macro-financial scenario that would lend itself to macroprudential considerations. In the tabletop exercise, the primary macroprudential objective was to reduce the likelihood and severity of possible future financial disruptions associated with the unwinding of the hypothetical overheating scenario. The scenario provided a path for key macroeconomic and financial variables that were assumed to be observed through 2016:Q4, as well as the corresponding hypothetical projections for the interval from 2017:Q1 to 2018:Q4. Prudential tools under consideration included capital-based tools such as the leverage ratios, countercyclical capital buffer, and sectoral capital requirements; liquidity-based tools such as the liquidity coverage and net stable funding ratios; credit-based tools such as caps on loan-to-value ratios and margins; capital and liquidity stress testing; and supervisory guidance and moral suasion. In addition, participants were asked to consider using monetary policy tools for financial stability purposes. This paper presents the hypothetical macro-financial scenario, the set of macroprudential tools, and their transmission mechanism, as well as an account of the participants’ assessment of vulnerabilities and potential policy actions under the scenario. The tabletop exercise abstracted from governance issues within the Federal Reserve System, focusing instead on economic mechanisms of alternative tools.
    Keywords: macroprudential policy; monetary policy; tabletop exercise
    JEL: E58 G01 G18
    Date: 2015–09–01
  22. By: Suleyman UGURLU (The Faculty of Economics and Administrative Sciences); Murat BESER (The Faculty of Economics and Administrative Sciences); Nazife Ozge KILIC (The Faculty of Economics and Administrative Sciences)
    Abstract: Inflation and financial crisis is one of the basic economic problems for all countries since 1990’s. Inflation creates domestic issues more while financial crisis constitutes regional even global problems. There is an inevitable need for an active economical and tighter fiscal policy to overcome these economic problems. Central banks have a great role to provide stable economic growth rate under low inflation in long term in addition to financial and price stability. Central banks, which are responsible for implementation of monetary policy, take economic conditions of the country and fiscal policies of the government as data to determine main monetary policy objectives, what strategies they shall implement to achieve these objectives and to decide which monetary policy tools they shall use. In this context, aim of this study is to evaluate the implementation of the monetary policy decisions of the April 5, 1994 and is to identify the extent of success of these policies. In particular, inflation targeting regime which is applied after February 2001 crisis and monetary policies after 2008 global crisis are the focal point of the study.
    Keywords: Monetary Policy, Inflation, Financial Crisis, Central Banking, Credit
    JEL: E50
  23. By: Adrian, Tobias (Federal Reserve Bank of New York); Boyarchenko, Nina (Federal Reserve Bank of New York); Shin, Hyun Song (Bank for International Settlements)
    Abstract: This paper studies the question of the economic scale of financial institutions. We show that banks actively smooth book equity by adjusting payouts to achieve a desired trajectory of book equity. The countercyclical nature of net payouts of financial institutions leads to procyclical book leverage, while market leverage is nearly entirely reflective of movements in book-to-market ratios. There is an apparent structural break after the 2008 crisis, indicated by the banking sector’s subdued growth rate relative to pre-crisis levels. Market volatility dampens the intermediary leverage cycle. We draw conclusions for theories of financial intermediation and for capital regulation.
    Keywords: financial intermediation; market volatility; macro-finance
    JEL: E02 E32 G00 G28
    Date: 2015–10–01
  24. By: Kazuo MIno (Kyoto University); Yasuhiro Nakamoto (Kansai University)
    Abstract: This paper explores the role of consumption externalities in a neoclassical growth model in which households have heterogeneous preferences. We fi…nd that a higher degree of average conformism accelerates the convergence speed of the economy towards the steady state as in the case of homogeneous conformism. Furthermore, we reveal that the wealth inequality expands or shrinks in the case of heterogeneous conformism, while it does not expand but shrinks in the case of homogeneous conformism.
    Keywords: consumption externalities, heterogeneous agents, wealth distribution
    JEL: D31 E13 E21 O40
    Date: 2015–10
  25. By: Margherita Bottero (Bank of Italy); Simone Lenzu (University of Chicago); Filippo Mezzanotti (Harvard University)
    Abstract: We study the impact of sovereign market tensions on the real economy through the bank lending channel. Using a large matched bank-firm panel data set that tracks credit relations in Italy over the period 2009-2011, we show that the Greek bailout in the spring of 2010 had a negative impact on the riskiness of government securities held in the portfolio of financial intermediaries, which in turn led to a tightening in credit supply to firms. Firms, especially riskier ones, were unable to smooth out the credit shortage. We estimate that the shock to sovereign bonds led, via the lending channel, to a drop in aggregate bank lending to corporations of almost 2 percent over the subsequent year which translated in a reduction of investment by smaller firms.
    Keywords: sovereign debt, bank lending channel, lending supply, real effects, firm investment
    JEL: E51 G21
    Date: 2015–09
  26. By: Boel, Paola (Research Department, Central Bank of Sweden); Waller, Christopher J. (Federal Reserve Bank of St. Louis)
    Abstract: We construct a monetary economy in which agents face aggregate demand shocks and hetero- geneous idiosyncratic preference shocks. We show that, even when the Friedman rule is the best interest rate policy the central bank can implement, not all agents are satiated at the zero lower bound and therefore there is scope for central bank policies of liquidity provision. Indeed, we find that quantitative easing can be welfare improving even at the zero lower bound. This is because such policy temporarily relaxes the liquidity constraint of impatient agents, without harming the patient ones. Moreover, due to a pricing externality, quantitative easing may also have beneficial general equilibrium effects for the patient agents even if they are unconstrained in their holdings of real balances. Last, our model suggests that it can be optimal for the central bank to buy private debt claims instead of government debt.
    Keywords: Money; Heterogeneity; Stabilization Policy; Zero Lower Bound; Quantitative Easing
    JEL: E40 E50
    Date: 2015–09–01
  27. By: Juan Manuel Figueres (University of Padova)
    Abstract: This paper investigates the role of consumer confidence in determining the real effects that anticipated (news) government spending shocks have on output in recessions and in expansions as for the US economy. To account for fiscal foresight, I employ a measure of anticipated fiscal shocks defined as the sums of expectations’ revisions over future fiscal spending. This variable is shown to carry relevant information about movements on government spending. Results indicate that fiscal multipliers during recession are both statistically larger than in expansions and greater than one. Importantly, consumer confidence is shown to play a decisive role in determining the real effects of an anticipated spending shock within a non-linear framework. In particular, the response of confidence is key in explaining the statistically larger fiscal multipliers during recessions. Moreover, the role of confidence is found to be relevant for the transmission of anticipated shocks only. These results qualify confidence as a key ingredient for understanding the transmission of fiscal news shocks (as opposed to unanticipated fiscal shocks).
    Keywords: Consumer Confidence, Fiscal forecast, Fiscal spending multiplier, Non-linear models, Smooth Transition Vector-AutoRegressions.
    JEL: C32 E32 E6
    Date: 2015–09
  28. By: Paula Andrea Beltrán-Saavedra
    Abstract: La caída en el precio internacional del petróleo tiene implicaciones importantes en el ciclo económico en las economías exportadoras de petróleo. De hecho, la literatura de ciclos económicos en economías emergentes presenta como hechos estilizados el comportamiento contracíclico de las tasas de interés y la vulnerabilidad ante choques en los precios de los commodities. Este documento presenta un modelo de equilibrio general, dinámico y estocástico (DSGE) para una economía pequeña, abierta y exportadora de petróleo para analizar el efecto de la caída del precio del petróleo. El canal a través del cual un choque negativo en el precio del crudo impacta el ciclo es un mecanismo de acelerador financiero que, endógenamente, genera un aumento en la prima de financiamiento que enfrenta la economía. Este mecanismo se deriva de un problema microfundamentado donde el sector petrolero se financia mediante intermediarios financieros internacionales. Varias extensiones del modelo se calibran para Colombia. Ante una caída en el precio del petróleo, se encuentra un aumento en el diferencial de tasas de interés, una depreciación de la tasa de cambio real y una caída en el producto. Las dinámicas simuladas del modelo calibrado para Colombia logran un ajuste adecuado para el producto y la prima de riesgo.
    Keywords: Modelos de ciclos de negocios, Economías emergentes, Fricciones financieras, Commodities, Choques de petróleo.
    JEL: E32 E44 F41 H68 Q43
    Date: 2015–08–27
  29. By: Christian Bredemeier; Falko Juessen; Roland Winkler
    Abstract: In recessions, predominantly men lose their jobs, which has been described by the term ?man-cessions?. We analyze whether fiscal expansions bring men back into jobs. We show empirically that expansionary fiscal shocks predominantly raise the employment of women, which further destabilizes the gender composition of employment in recessions. Our results show that man-cessions are triggered by industry effects while the gender-specific employment effects of fiscal policy are driven by disproportionate employment changes in female-dominated occupations, specifically so-called ?pink-collar? occupations. We develop a business-cycle model that explains these occupational employment dynamics as a consequence of differences in the substitutability between capital and labor across occupations.
    Keywords: Fiscal Policy, Gender, Employment, Occupations
    JEL: J16 E62 E32 J21
    Date: 2015–09–01
  30. By: Oleksiy Kryvtsov; Rhys R. Mendes
    Abstract: Bank of Canada research done prior to the most recent renewal of the inflation-control agreement in 2011 concluded that the benefits associated with a target below 2 per cent were insufficient to justify the increased risk of being constrained by the zero lower bound (ZLB) on nominal interest rates. International experience and analysis since the 2011 renewal has reinforced the importance of the ZLB. Despite the deployment of unconventional monetary policy measures by many central banks, the ZLB has proven to be a more severe and persistent obstacle to the achievement of policy goals than expected. At the same time, analysis by the Bank and others has found that interest rates are likely to be lower on average in the future than they were during the first two decades of inflation targeting. As a consequence, the probability of being constrained by the ZLB is likely higher. Together, these factors suggest that a target above 2 per cent should be considered. This paper provides an overview of the current state of knowledge and key outstanding issues regarding the costs and benefits of a higher inflation target.
    Keywords: Inflation targets, Inflation: costs and benefits, Monetary policy framework
    JEL: E E5 E52 E58
    Date: 2015
  31. By: Thomas von Brasch; Ådne Cappelen; Diana-Cristina Iancu (Statistics Norway)
    Abstract: Many OECD countries have experienced a slowdown in measured labour productivity from 2005 and onwards. Norway is no exception in this respect. Most countries use a simple aggregate of hours worked when measuring labour productivity. One way to improve measurement of labour services is to control for worker characteristics. A theoretical rationale for doing so is given by Diewert and Lippe (2010). We generalise previous analyses by allowing for exit and entry of workers when measuring labour services using Norwegian microdata. We find that the bias from using hours worked compared to a labour index capturing various compositional effects can be substantial and systematic over time. In the case of Norway the bias explains about a quarter of the productivity slowdown after 2005.
    Keywords: Labour productivity; Index numbers; Unit value indices; Drobisch index
    JEL: C43 E24 J24 O47
    Date: 2015–09
  32. By: Nadeþda Siòenko (Bank of Latvia); Olga Lielkalne (Bank of Latvia)
    Abstract: The Discussion Paper analyses a risk cobweb diagram employed as an additional analytical tool for monitoring and assessing financial stability risks in Latvia. The aim of the risk cobweb diagram is to depict the most important financial stability risks across specified risk categories and the direction of their changes in a single chart. The risk cobweb diagram and the dynamics of the index corresponding to each risk category and its components make it possible to visualise and analyse development of external and domestic macrofinancial risks and vulnerability changes of the banking sector in Latvia by assessing the credit risk of non-financial corporations and households, profitability and solvency risks of credit institutions, as well as funding and liquidity risks. The Discussion Paper gives the overview of the use of the risk cobweb diagram and its methodology in other countries. It also outlines the process of the development of such a diagram in Latvia and describes selected risk categories an indicators. The Discussion Paper concludes that the results of the back-testing of the risk cobweb diagram have been adequate. In 2008 and 2009, the risk category assessments of the risk cobweb diagram signalled threats to financial stability, while risk category indices and their components allowed the identification of the areas where accumulation and materialisation of financial stability risks occurred. Keywords: financial stability, risk cobweb diagram, risk categories, monitoring of financial system stability, assessment of financial system stabilityThe Discussion Paper analyses a risk cobweb diagram employed as an additional analytical tool for monitoring and assessing financial stability risks in Latvia. The aim of the risk cobweb diagram is to depict the most important financial stability risks across specified risk categories and the direction of their changes in a single chart. The risk cobweb diagram and the dynamics of the index corresponding to each risk category and its components make it possible to visualise and analyse development of external and domestic macrofinancial risks and vulnerability changes of the banking sector in Latvia by assessing the credit risk of non-financial corporations and households, profitability and solvency risks of credit institutions, as well as funding and liquidity risks. The Discussion Paper gives the overview of the use of the risk cobweb diagram and its methodology in other countries. It also outlines the process of the development of such a diagram in Latvia and describes selected risk categories and indicators. The Discussion Paper concludes that the results of the back-testing of the risk cobweb diagram have been adequate. In 2008 and 2009, the risk category assessments of the risk cobweb diagram signalled threats to financial stability, while risk category indices and their components allowed the identification of the areas where accumulation and materialisation of financial stability risks occurred. Keywords: financial stability, risk cobweb diagram, risk categories, monitoring of financial system stability, assessment of financial system stability.
    Keywords: assessment of financial system stability, financial stability, monitoring of financial system stability, risk categories, risk cobweb diagram
    JEL: E32 E44 E58 G10
    Date: 2015–07–17
  33. By: Eric van Wincoop (University of Virginia); Philippe Bacchetta (University of Lausanne)
    Abstract: This paper examines quantitatively the potential for monetary policy to avoid self-fulfilling sovereign debt crises. We combine a version of the slow-moving debt crisis model proposed by Lorenzoni and Werning (2014) with a standard New Keynesian model. We consider both conventional and unconventional monetary policy. With price rigidity, the real cost of debt can be reduced through lower real interest rates. On the other hand, deflation of long-term debt is less effective and requires higher inflation rates. In general, we show that crisis equilibria can only be avoided with steep inflation rates for a sustained period of time, the cost of which is likely to be much larger than government default.
    Date: 2015
  34. By: Hiebert, Paul; Schüler, Yves S.; Peltonen, Tuomas A.
    Abstract: We introduce a methodology to characterise financial cycles combining a novel multivariate spectral approach to identifying common cycle frequencies across a set of indicators, and a time varying aggregation emphasising systemic developments. The methodology is applied to 13 European Union countries as well a synthetic euro area aggregate, based on a quarterly dataset spanning 1970-2013. Results suggest that credit and asset prices share cyclical similarities, which, captured by a synthetic financial cycle, outperform the credit-to-GDP gap in predicting systemic banking crises on a horizon of up to three years. Financial cycles tend to be long, particularly in upswing phases and with important dispersion across country cases. Concordance of financial and business cycles is observed only 2/3 of the time. While a similar degree of concordance for financial cycles is apparent across countries, heterogeneity is high – whereby a cluster of countries tends to exhibit a high synchronisation in their financial cycle phases. JEL Classification: E30, E40, C54
    Keywords: financial cycle, macroprudential policy, power cohesion, spectral analysis
    Date: 2015–09
  35. By: Pavel Vidal Alejandro; Lya Paola Sierra Suárez; Johana Sanabria Dominguez; Jaime Andres Collazos Rodríguez
    Abstract: En el presente trabajo se lleva a un contexto regional la metodología de Stock y Watson (1991), usualmente aplicada en la construcción de indicadores de actividad económicas a nivel macroeconómico. A partir de siete series históricas claves del departamento del Valle del Cauca en Colombia, en el período enero del 2000 a marzo de 2015, se construyó un indicador coincidente mensual de actividad económica (IMAE). Para ello se estimó, mediante el filtro de Kalman, un factor común a todas las variables empleando la metodología de los modelos factoriales dinámicos. El factor común estimado se ajustó a los datos anuales del crecimiento del PIB y luego se suavizó mediante un modelo estructural univariante de series temporales. Se obtiene así un indicador mensual que permite disponer de información en tiempo real sobre el estado de la economía del departamento, el cual sigue un patrón cíclico con una periodicidad promedio de cuatro años y 10 meses.
    Keywords: Indicador, Modelo Factorial Dinámico, Filtro de Kalman, Valle del Cauca, Regional
    JEL: E32 E37 C43 C53
    Date: 2015–08–25
  36. By: Nzingoula, Gildas crépin
    Abstract: This research highlights through a panel data approach the determinants of economic growth over the last decade in the Economic and Monetary Community of Central Africa (CEMAC). These factors or determinants are essential to enable CEMAC’s countries to reach the level of economic emergence. To do this, we use Stata 12 software for estimates, a sample panel data composed of the six CEMAC member countries, namely : Congo, Cameroon, Gabon, Equatorial Guinea, Central African Republic and Chad; for the period from 2000 to 2013. The results obtained after estimating ordinary least squares, the fixed effects model, the random effects model, the generalized method of moments and specification tests show that the best model to estimate these different types of data in CEMAC is the fixed effects model. Besides, the main determinants of economic growth in CEMAC are the Foreign Direct Investment (FDI) and loans to the economy (CREDIT). If FDI act positively and very significantly on economic growth, CREDIT due to lack of good governance is significant, but acts in a negative way on CEMAC economic growth.
    Keywords: Keywords: economic growth; emerging determinants; CEMAC; panel data; fixed effects model; random effects model; ordinary least squares; GMM; Test Specification.
    JEL: A10 A11 E6 O1 O2 O3
    Date: 2015–09–01
  37. By: Jose Ustorgio Mora Mora (Faculty of Economics and Management, Pontificia Universidad Javeriana Cali)
    Abstract: This paper presents an aggregate demand and supply model for the Venezuelan economy assuming two productive sectors (oil and non-oil), a fixed exchange rate regime and cero capital mobility. This model helps explain the impacts that domestic (fiscal, monetary productivity, etc.) and foreign shocks have on real output and the price level. Although results are consistent with economic theory, it is necessary to emphasize that a Bolivar devaluation contracts real output and raises the price level and that an oil price increase causes an increase in real output but triggers an ambiguous effect on the price level.
    Keywords: oil producing countries, aggregate supply, aggregate demand, business cycles, exchange rate regimes.
    JEL: B22 E12 E32 N56
    Date: 2015–09
  38. By: Bluwstein, Kristina; Canova, Fabio
    Abstract: The effects that European Central Bank unconventional monetary policy measures have on nine European countries not adopting the Euro are examined with a novel Bayesian mixed frequency Structural Vector Autoregressive technique. The technique accounts for the fact that macro, monetary and financial data have different frequencies. Unconventional monetary policy disturbances generate important domestic fluctuations. The wealth, the risk, and the portfolio rebalancing channels matter for international propagation; the credit channel does not. International spillovers are larger in countries with more advanced financial systems and a larger share of domestic banks. A comparison with conventional monetary policy disturbances and with announcement surprises is provided.
    Keywords: Bayesian Mixed Frequency SVAR; Financial Spillovers; International Transmission; Unconventional Monetary Policy
    JEL: C11 C32 E52 F42 G15
    Date: 2015–10
  39. By: D'Adamo, Gaetano (Universidad de Valencia); Rovelli, Riccardo (University of Bologna)
    Abstract: Adopting a simple Phillips curve framework, we show that different labour market institutions across EU countries are associated with significant differences in the response of inflation to unemployment and exchange rate shocks. More wage coordination and higher union density flatten the Phillips curve and increase the response to the real exchange rate, i.e. the exchange rate pass-through. In addition, using a new approach to the classification of goods and services as "traded" or "non-traded", we show that both these institutional effects are significantly stronger for the more exposed (traded) sector.
    Keywords: labour market institutions, inflation determinants, sectoral inflation differentials, EU 27
    JEL: E31 J50 J60
    Date: 2015–09
  40. By: Davinson Stev Abril Salcedo; Luis Fernando Melo Velandia; Daniel Parra Amado
    Abstract: En este documento se estima el impacto de los fenómenos climáticos sobre el crecimiento de la inflación de alimentos. Para ello se utiliza funciones de impulso respuesta generalizadas de un modelo no lineal de transición suave para la inflación de alimentos y las anomalías del índice de la temperatura superficial del mar 3.4 (ENSO). Este análisis se realiza para el periodo mensual comprendido entre junio de 1955 y mayo de 2015. Los resultados obtenidos indican que estos choques son transitorios y asimétricos. En particular, un choque positivo y fuerte sobre ENSO tiene un efecto significativo sobre el crecimiento de la inflación de alimentos y la incrementa en aproximadamente 100 puntos básicos cinco meses después.
    Keywords: Fenómenos climáticos, modelos no lineales de transición suave, precios de alimentos.
    JEL: C22 C50 E31
    Date: 2015–09–02
  41. By: Semmler, Willi; Haider, Alexander
    Abstract: Academic research and policy makers in the Euro area are currently concerned with the threat of debt deflation and secular stagnation in Europe. Empirical evidence seems to suggest that secular stagnation and debt deflation in the Euro area may be rather slowly developing. Yet what appears as major peril is that debt deflation with a lack of economic growth, rising real interest rates and further rising debt may trigger household defaults, defaults of firms and banks, rise of risk premia, and default risk of certain sectors of the economy or sovereign defaults. It is this rising default and financial risk then that may lead to a regime change to a slowly moving debt crisis with high financial risk and high financial stress. In order to explore those issues, a macro policy model of Svensson type is introduced, exhibiting a regime of low and high financial stress. Then, a four dimensional multi-regime VAR is employed to an Euro area data set to support the theoretical model and the claim that in particular Southern Euro area countries are affected by debt deflation and financial market stress.
    Keywords: Debt Deflation,Secular Stagnation,Euro Area,Interest Rate Spread,Multi Regime Model
    JEL: E43 F36
    Date: 2015
  42. By: Fungácová , Zuzana (BOFIT); Nuutilainen , Riikka (BOFIT); Weill , Laurent (BOFIT)
    Abstract: This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004–2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy.
    Keywords: Chinese banks; bank lending channel; bank ownership
    JEL: E52 G21 P52
    Date: 2015–09–21
  43. By: Jorge Carrera (Central Bank of Argentina, UNLP); Esteban Rodríguez (Central Bank of Argentina); Mariano Sardi (Central Bank of Argentina)
    Abstract: In this paper we analyze if changes in levels of inequality are associated, ceteris paribus, with changes in the balance of the current account, taking in consideration the role of the development stage of the economy in the interaction between these variables. In this sense, the financial system emerges as a key intermediary, which may affect the sign and intensity of these relationships. Using panel data from 29 countries for the 1970-2011 periods, our results confirm the need to distinguish between functional and personal income distribution. Greater participation of wages in total income is related with a deterioration of the current account. This result is robust to different specifications and estimation methodologies. On the other hand, while we find evidence that deterioration in personal income distribution is associated with a lower current account balance, our results shows that the relationship is stronger in emerging economies than in advanced, unlike what is suggested by the recent literature, which has focused mainly on the case of the US. The existence of differences between groups of countries confirms that the relationship between income concentration and external sector is mediated by various structural and idiosyncratic factors and, as a result, the net effect will vary depending on the sample used. Given the complexity of these relationships, we warn about the risks of generalizing to emerging countries results based only in the study of advanced economies.
    Keywords: inequality, current account, financial intermediation, global imbalances, financial crisis
    JEL: C23 D31 D33 E44 F32 F41
    Date: 2015–09
  44. By: Aysit Tansel (Department of Economics, METU; Institute for the Study of Labor (IZA) Bonn, Germany; Economic Research Forum (ERF) Cairo, Egypt); Zeynel Abidin Ozdemir (Department of Economics, Gazi University; Economic Research Forum (ERF) Cairo, Egypt); Emre Aksoy (Department of Economics, Kirikkale University)
    Abstract: This paper investigates the relationship between labor force participation rate and unemployment rate in Turkey a developing country. Cointegration analysis is carried out for the aggregate and gender and age specific series. The findings indicate that there is no long-run relationship between labor force participation and unemployment rates in Turkey. Thus, unlike in the case of the developed countries the unemployment invariance hypothesis is supported in Turkey.
    Keywords: Unemployment Invariance Hypothesis, Cointegration, Turkey.
    JEL: E24
    Date: 2015–02
  45. By: Sheilagh Ogilvie and Markus Küpker
    Abstract: Modern growth models view human capital, particularly education, as central to economic growth. But historical evidence has proved elusive. This paper investigates human capital levels in Württemberg, a late-developing German economy, between 1610 and 1899. Württemberg achieved higher and more universal literacy than any other European economy before 1800. A multivariate analysis reveals that this exceptional level of human capital in Württemberg was largely decoupled from economic variables from a very early date. Literacy declined significantly with individuals’ age, suggesting that education was irrelevant to economic life. The Württemberg human capital miracle was unrelated to economic growth or human development indicators, casting doubt on theories that ascribe education a central role in economic growth. economic history; human
    Keywords: capital; education; growth; Germany
    JEL: N33 E24 J24 O15
    Date: 2015–09–29
  46. By: Hylton Hollander
    Abstract: This paper studies the effectiveness of countercyclical capital requirements and contingent convertible capital (CoCos) in limiting financial instability, and its associated influence on the real economy. To do this, I augment both features into a standard real business cycle framework with an equity market and a banking sector. The model is calibrated to real U.S. data and used for simulations. The findings suggest that CoCos effectively re-capitalize the banking sector and foster the objectives of countercyclical capital requirements (i.e., Basel III). Under financial shocks, CoCos provide an effective automatic stabilization effect on the financial cycle and the real economy. Conversely, a countercyclical capital adequacy rule dominates CoCos in the stabilization of real shocks.
    Keywords: Contingent convertible debt, bank capital, bank regulation, Basel
    JEL: G28 G38 E44
    Date: 2015
  47. By: Nakamoto, Yasuhiro
    Abstract: We introduce the heterogeneities of EIS (elasticities of intertemporal substitution) into the Ramsey version of macrodynamic model with a finite number of agents. The assumption that the degrees of EIS differ among agents means that our economy has various growth rate of private consumption. Then, our contributions are as follows. First, we analytically characterize the steady-state levels of individual capital. Second, we analytically examine the role of heterogeneous EIS for the wealth inequality. Finally, we give numerical examples to see the complicated dynamic motion and the steady-state characterization of wealth inequality.
    Keywords: Heterogeneous agents, Elasticity of intertemporal substitution, Convergence speed, Wealth distribution
    JEL: C00 E13 E20
    Date: 2015–08
  48. By: Nicholas Kilimani
    Abstract: The volatile changes in climate are increasingly becoming a threat to many economies globally. This study assesses Uganda’s vulnerability to climatic variability in the context of how these volatile changes in climate are likely to affect long-run water resources availability. This is done by using household survey data, rainfall data as well as findings from a water resource accounting study on Uganda. First, we use the results from the water accounts to establish the current level of demand for available water resources. Second, these findings are mirrored to the drought prevalence results with a view to highlight the potential adverse affects on water availability, and ultimately economic activity in Uganda.Whereas the country’s water resource accounting position shows that the current level of water resources is still adequate to meet current demand, drought is affecting economic activity primarily in the agricultural sector since it is rain-fed. It is also affecting the water recharge system as a big proportion of precipitation is lost through evapo-transpiration. This has implications for long-run water availability for the country. The findings point to the need for policy interventions that can ensure optimal water use in the economy. These may include improved hydrological planning and the development of water supply infrastructure.
    Keywords: Water accounting, Drought, Standardized Precipitation Index, Economic activity, Uganda
    JEL: E01 Q56
    Date: 2015
  49. By: Octavio Portolano Machado (PUC-Rio); Carlos Carvalho (PUC-Rio); Tiago Berriel (PUC-Rio)
    Abstract: When the policy rate is constrained by the zero lower bound (ZLB), inference about central bank behavior becomes more difficult. As a result, despite possible efforts to counteract this effect through more active communication, policy uncertainty tends to increase. In particular, uncertainty about the degree of commitment becomes key. We use standard New Keynesian models subject to the ZLB to quantify the uncertainty around interest rate forecasts provided in the FOMC's Summary of Economic Projections (SEP). The first step involves an assessment of the degree of Fed commitment to provide accommodation for extended periods of time. To that end, we calibrate versions of the models under different assumptions about the degree of policy commitment, and assess which specification provides the best fit to the so-called "SEP dots". We then use the best-fitting specification to construct uncertainty bands around SEP interest rate forecasts, obtained by simulating policy responses to economic developments going forward. Our results suggest that the degree of Fed commitment to low rates for an extended period of time decreased since 2013. The reduction followed a change in FOMC forward guidance, and intensified as Quantitative Easing tapering took place. Quantitatively, our median projection indicates that lift-off will occur in 2015Q2, but there is some risk that rates will remain at zero until the end of 2016.
    Date: 2015
  50. By: J. David Lopez-Salido (Federal Reserve Board); Francisco Vazquez-Grande (Federal Reserve Board); Pierlauro Lopez (Banque de France)
    Abstract: We incorporate risk premia variation arising from Campbell-Cochrane habit formation in a standard DSGE framework. We show how the simultaneous presence of consumption and labor habits can produce a separation between quantity and risk premia dynamics, and hence unite nonlinear habits and a production economy without compromising the ability of the model to fit macroeconomic variables. We can then use economic theory rather than a reduced-form approach to restrict several cashflow processes endogenously and study their pricing. First, nominal price rigidities explain an endogenous difference between aggregate consumption and market dividends and between real and nominal bonds that can rationalize two major asset pricing puzzles - an initially downward-sloping term structure of equity and an upward-sloping term structure of interest rates. Second, the model is able to explain the capital market's reaction to a monetary policy shock documented by the extant literature.
    Date: 2015
  51. By: Kengo Nutahara
    Abstract: Do credit market imperfections justify a central banks response to asset price fluctuations? This study addresses this question from the perspective of equilibrium determinacy. In the model we use, prices are sticky and the working capital of firms is subject to asset values because of a lack of commitment. If credit market imperfections exist to a small degree, the Taylor principle is a necessary and sufficient condition for equilibrium determinacy, and monetary policy response to asset price fluctuations is good from the perspective of equilibrium determinacy. However, if credit market imperfections exist to a large degree such that the collateral constraint is binding, then the Taylor principle no longer guarantees equilibrium determinacy, and monetary policy response to asset price fluctuations becomes a source of equilibrium indeterminacy. We find that the existence of credit market imperfections makes it unsuitable to initiate a monetary policy response to deal with asset price fluctuations. We also find that reductions in credit market imperfections can enlarge the indeterminacy region of the model parameters.
    Date: 2015–09
  52. By: Asgharian, Hossein (Department of Economics, Lund University); Liu, Lu (Department of Economics, Lund University); Larsson, Marcus (Handelsbanken, Stockholm)
    Abstract: We analyze the importance of different types of asset holdings for the interdependence of the yield curves in the EMU using a spatial VAR model. We find that the cross-border holdings of long-term debt and bank lending are important for the interdependence. Our analysis of cross-sectional dispersion in sovereign-CDS-premium term structure shows that the differential in sovereign creditworthiness in the EMU is a main driver of the yield-curve divergence after 2008. The degree to which EMU countries’ yield-curve slopes depend on the US slope decreases in the recent US recession, reflecting expectations during this period about future divergence of the US and EMU economies.
    Keywords: yield-curve factors; cross-border asset holding; spatial dependence; EMU; sovereign credit default swap
    JEL: C31 E43 G15
    Date: 2015–10–06
  53. By: P. Brunori (Università di Bari); F. Palmisano (U); V. Peragine (Università di Bari)
    Abstract: This paper addresses the problem of the normative evaluation of income tax systems and income tax reforms. While most of the existing criteria, framed in the utilitarian tradition, are uniquely based on information about individual incomes, this paper, building upon the opportunity egalitarian theory, proposes new equity criteria which take into account also the socio-economic characteristics of individuals. Suitable dominance conditions that can be used to rank alternative tax systems are derived by means of an axiomatic approach. Moreover, the theoretical results are used to assess the redistributive effects of an hypothetical tax reform in Romania through a microsimulation analysis.
    Keywords: income inequality; inequality of opportunity; tax reforms; microsimulation; progressivity; horizontal equity.
    JEL: D63 E24 O15 O40
    Date: 2014–12
  54. By: Nuri Ersahin; Rustom M. Irani
    Abstract: We examine the impact of real estate collateral values on corporate employment. Our empirical strategy exploits regional variation in local real estate price growth, firm-level data on real estate holdings, as well as establishment-level data on employment and the location of firms' operations from the U.S. Census Bureau. Over the period from 1993 until 2006, we show that a typical U.S. publicly-traded firm increases employment expenditures by $0.10 per $1 increase in collateral. We show this additional hiring is funded through debt issues and the effects are stronger for firms likely to be financially constrained. These firms increase employment at establishments outside of their core industry focus and away from the location of real estate holdings, leading to regional spillover effects. We document how shocks to collateral values influence labor allocation within firms and how these effects show up in the aggregate.
    Keywords: Financial Constraints; Collateral Lending Channel; Employment
    JEL: D22 D24 E44 G31 G32
    Date: 2015–09
  55. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the SIFMA Liquidity Forum, New York City.
    Keywords: bank regulation; capital requirements; regulatory requirements; liquidity standards; liquidity measurement; supplementary leverage ratio (SLR); Comprehensive Capital Analysis and Review (CCAR)
    JEL: E58
    Date: 2015–09–30
  56. By: Damien Cubizol (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France)
    Abstract: This paper addresses the allocation puzzle of capital flows and privatization in emerging countries in transition. It demonstrates that the allocation of household savings to State-Owned Enterprises (SOEs), and not to the increasing share of private firms, solves both the allocation puzzle of capital flows and the drop in consumption in China. The contribution is to explain these two elements in a dynamic general equilibrium model with TFP growth that differentiates FDI and financial capital. In addition to other frictions, public banks and SOEs have the crucial role in capital misallocation by misdirecting household savings. It modifies firms’ labor and capital intensiveness, creates shifts in savings accumulation, and households satisfy the large cheap labor demand coupled with low returns on their savings. With a calibration adapted to the Chinese case and deterministic shocks, the model also matches to a large extent the data for a variety of stylized facts over the last 30 years.
    Keywords: Financial capital flows, FDI, China's transition, privatization, global imbalances, consumption, credit and capital markets frictions, TFP growth
    JEL: E20 F21 F32 P30
    Date: 2015
  57. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to Bank Indonesia, BIS Conference on “Expanding the Boundaries of Monetary Policy in Asia and the Pacific”, Jakarta, Indonesia, August 20, 2015
    Date: 2015–08–20
  58. By: Tatiana Cesaroni (Bank of Italy); Stefano Iezzi (Bank of Italy)
    Abstract: Business survey indicators represent an important tool in economic analysis and forecasting practices. While there is wide consensus on the coincident properties of such data, there is mixed evidence on their ability to predict macroeconomic developments in the short term. In this study we extend the previous research on the predictive content of business surveys by examining the leading properties of the main business survey indicators of the Italian Survey on Inflation and Growth Expectations (SIGE). To this end, we provide a complete characterization of the business cycle properties of survey data (volatility, stationarity, turning points etc.) and we compare them with the national accounts reference series. We further analyse the ability of SIGE indicators to detect turning points using both discrete and continuous dynamic single equation models as compared with their benchmark (B)ARIMA models. Overall, the results indicate that SIGE business indicators are able to make detect early the turning points of their corresponding national account reference series. These findings are very important from a policy-making point of view.
    Keywords: Business cycle, business survey data, turning points, cyclical analysis, forecast accuracy, macroeconomic forecasts
    JEL: C32 E32
    Date: 2015–09
  59. By: M. Bussière; L. Ferrara; J. Milovich
    Abstract: The recent weakness in business investment among advanced economies has revived interest in investment models and opened a debate on the main drivers of the “investment slump” and what the policy response should be – if any. In particular, it is essential to assess precisely whether the investment slump stems mostly from weak aggregate demand, financial constraints or uncertainty, as these different explanatory factors have different policy implications. This paper presents an empirical investigation of the main determinants of business investment for a panel of 22 advanced economies. The main contribution is that we present results from an augmented accelerator model using vintage forecast data as a measure of expected demand and show that this forward-looking variable goes a long way in explaining the weakness in investment since the Global Financial Crisis. Moreover, our results also underline the importance of uncertainty, whereas measures of capital cost seem to play a more modest role. Finally, we show that systematically over-optimistic GDP growth forecasts since 2008 have supported business investment to a large extent.
    Keywords: Business investment, aggregate demand, expectations, uncertainty, financial frictions, macroeconomic forecasts.
    JEL: C23 E22 D84
    Date: 2015
  60. By: Clarimar Pulido; Jose Ustorgio Mora Mora (Faculty of Economics and Management, Pontificia Universidad Javeriana Cali)
    Abstract: This paper analyzes the impact that social public policies might have had on the economic growth of Argentina, Brazil, Colombia, Chile, Mexico, and Venezuela during the period of 1980 to 2010. It also examines the hypothesis of convergence in these countries. To accomplish this goal, it uses panel data analysis on data extracted from the CEPAL and the Penn World Table databases. Empirical results are consistent with those found by Barro and Lee (1991), Caselli, Esquivel, and Lefort (1996), and Barro and Sala-i-Martin (2004). In other words, it was found that social public policies have positively influenced growth in these economies. Particularly, it was found that there are non-observed variables (fixed effects) that positively affect the economic growth in Venezuela and Chile; meanwhile there are other non-observed variables that might be negatively affecting growth in Brazil and Mexico. Regarding the convergence hypothesis, results reveal that the speed of convergence diminishes as real income rises, implying that these countries might be converging to their steady states.
    Keywords: Economic growth, social policy, Latin
    JEL: I25 E24 O54 O47
    Date: 2015–09
  61. By: María Dolores Gadea (University of Zaragoza); Ana Gómez-Loscos (Banco de España); Gabriel Perez-Quiros (Banco de España)
    Abstract: The Great Moderation (GM) is widely documented in the literature as one of the most important changes in the US business cycle. All the papers that analyze it use post-WWII data. In this paper, we set the GM for the first time against a long-dated historical backdrop, stretching back a century and a half, which includes secular changes in the economic structure and a substantial reduction of output volatility. We find two robust structural breaks in volatility at the end of WWII and in the mid-eighties, showing that the GM still holds in the longer perspective. Furthermore, we show that GM volatility reduction is only linked to expansion features. We also date the US business cycle in the long run, finding that volatility plays a primary role in the definition of the business cycle, which has important consequences for econometricians and forecasters.
    Keywords: business cycle, volatility, structural breaks, secular changes
    JEL: C22 E32
    Date: 2015–10
  62. By: Hijzen, Alexander (OECD); Kambayashi, Ryo (Hitotsubashi University); Teruyama, Hiroshi (Kyoto University); Genda, Yuji (University of Tokyo)
    Abstract: This paper analyses aggregate labour dynamics during the global financial crisis in Japan and the role of nonstandard work using micro data. The analysis proceeds in two steps. First, using comprehensive establishment-level datasets for the period 1991-2009, it provides a detailed portrait of the adjustment behaviour of establishments at the micro level. Second, it compares aggregate labour market dynamics during the global financial crisis with that observed during the 1997 crisis and decomposes the observed differences into components that can be attributed to changes in the micro-adjustment behaviour of Japanese establishments, changes in the incidence of non-standard work and changes in the distribution of shocks across establishments. It finds that the incidence of non-standard work has increased considerably, worker turnover is much higher among non-standard than standard workers and adjustments in working-time are less important for non-standard workers. Counterfactual simulations suggest that the employment response during the global crisis would have been smaller if the incidence of non-standard work remained at the level observed during the 1997 crisis. The relatively small employment response observed during the global financial crisis is therefore driven by factors others than the increase in the incidence of non-standard work.
    Keywords: labour market duality, labour market resilience, job quality, temporary work, crisis
    JEL: D22 E24 J23 J41
    Date: 2015–09
  63. By: Haakon Kavli and NIcola Viegi
    Abstract: The paper presents a two-country real business cycle model with a financial sector that intermediates portfolio flows. It is changes in demand for nancial assets from foreign investors relative to domestic investors that gives rise to portfolio flows. The simulations show that portfolio flows to emerging markets respond negatively to global risk in line with findings from the empirical literature. The transmission channel that links portfolio flows to credit in emerging markets is the financial intermediary's demand for deposit liabilities (demand for savings).One can avoid the transmission by absorbing the shock before it affects the intermediary's demand for savings. The results show that financial shocks (eg: risk) can be absorbed by optimal changes in the supply of risk free assets. Real shocks (eg: income) can be absorbed by keeping the supply of financial assets fixed and instead allowing the prices to adjust to demand. Macroprudential regulation that limits the total risk exposure of the financial sector increases the volatility of portfolio flows, but reduces the volatility of consumption and labour and therefore increases welfare. Volatility in the composition of the balance sheet (portfolio flows), does not necessarily increase volatility in the aggregate size of the balance sheet (savings). The model uses a risk-constraint on bank balance sheets as a tool to ensure less-than-perfect elasticity of demand for financial assets. The elasticity of demand is important because it determines the size and direction of portfolio flows.
    Keywords: Portfolio Flows, RBC model, Financial Intermediaries, macroprudential regulation
    Date: 2015
    Abstract: This paper considers the problem why minimal and average earnings differ dramatically in rich and new EU countries, as well as in Ukraine. Such phenomenon is usually explained by the difference among levels of labour productivity but the modern globalization processes have been doing the technology of production in many emerging economies very similar, especially in cases of the transnational companies’ influences. The practice of the Post-Socialist transitive countries also has been demonstrating such problem. While in the beginning of the reforms they were at more or less equal economic levels, very soon they were becoming a very differ by labour cost, and it led to significant differentiation of GDP per capita. For the short-term period it is difficult to explain this phenomenon by the cardinal changes in the physical labour productivity of existing productions, but it can be done taking into account the difference in the wages policy, and the innovation changing of technological structure of production. Mentioned problems have been analysed using the Phillips curve approach. The analysis shows the transitive countries which had undertaken considerable gradual increasing of labour cost and simultaneously stimulating of the innovation activities then later they have got a high dynamics of real GDP per capita.
    Keywords: Comparative economics, Wages policy, Phillips curve, Innovation development, Ukraine economy.
    JEL: E24 E64 J38 O47 P52
    Date: 2015–06–25
  65. By: Torój, Andrzej (Warsaw School of Economics)
    Abstract: We develop a framework for assessing the welfare implications of the new European Union's (EU) Macroeconomic Imbalance Procedure (MIP) implemented in 2012, with a special focus on the current account (CA) constraint, real effective exchange rate (REER) constraint and nominal unit labour cost (ULC) constraint. For this purpose, we apply a New Keynesian 2-region, 2-sector DSGE model, using the second order Taylor approximation of the households' utility around the steady state as a measure of welfare. The compliance with the CA criterion is ensured by modifying the policymakers' loss function in line with Woodford's (2003) treatment of the zero lower bound of nominal interest rates. The introduction of MIP threshold on CA balance results in a welfare loss equivalent to steady-state decrease in consumption of 0.0274% after the euro adoption or 0.0152% before that. If we consider the 4% threshold on current plus capital account (rather than current account alone), this cost decreases to equivalent to 0.0117% steady-state consumption under the euro and approximately a half of that without the euro. The welfare cost for the converging economies is higher due to persistent, but equilibrium-consistent CA deficits, as well as REER appreciation. MIP can also be seen as a factor augmenting the cost of euro adoption. This working paper is an updated version of the working paper Excessive Imbalance Procedure in the EU: a Welfare Evaluation.
    Keywords: Macroeconomic Imbalance Procedure; EMU; DSGE; welfare; constrained optimum policy
    JEL: C54 D60 E42 F32
    Date: 2015–10–01
  66. By: Francesco Zanetti; Masashige Hamano
    Abstract: Abstract This paper introduces endogenous products entry and exit based on creation and destruction of product variety in a general equilibrium model. Recessionary technology shocks induce exit of unprofitable products on impact, allocating resources towards more productive production lines. However, during the recovery phase less productive production lines survive destruction, counteracting the original increase in productivity. The analysis shows that recoveries hinge on lower product destruction rather than higher product creation. Endogenous product destruction is critical to evaluate the effect of permanent policies of entry deregulation and subsidies aimed to stimulate the economy.
    Keywords: Firm heterogeneity, endogenous product destruction, business cycles.
    JEL: D24 E23 E32 L11 L60
    Date: 2015–10–01
  67. By: Yally Avrahampour
    Abstract: This article examines the mid-twentieth-century transformation of U.K. pension fund investment policy known as the “cult of equity.” It focuses on the influence exercised by the Association of Superannuation and Pension Funds over actuarial and corporate governance standards, through actuaries who were members of its council. This intervention led to increasingly permissive actuarial valuations that reduced contributions for sponsors of pension funds investing in equities. Increased demand for equities required pension funds to adopt a more permissive approach to corporate governance than insurance companies and investment trusts, and contributed to declining standards of corporate governance.
    JEL: E6
    Date: 2015
  68. By: Korniluk, Dominik (Warsaw School of Economics; Ministry of Finance in Poland)
    Abstract: Niniejsza praca stanowi przegląd literatury na temat polityki fiskalnej w dynamicznych modelach stochastyczej równowagi ogólnej (DSGE): realnego cyklu koniunkturalnego oraz nowokeynesowskich (nowej syntezy neoklasycznej). Celem artykułu jest określenie pożądanych cech modelu DSGE, który mógłby posłużyć znalezieniu odpowiedzi na pytanie o optymalny poziom i strukturę wydatków rządowych. Szczególną uwagę zwrócono na specyfikację wydatków rządowych w funkcji użyteczności gospodarstw domowych i funkcji produkcji oraz modelowanie ograniczenia budżetowego (w tym reguł fiskalnych) i zadłużenia rządu. Zaproponowane rozwiązania zostały poddane ocenie pod kątem prostoty i zgodności założeń oraz implikowanych predykcji z rzeczywistością.
    Keywords: modele DSGE; polityka fiskalna; przegląd literatury
    JEL: B22 E62
    Date: 2015–08–26
    Abstract: Lant Pritchett (2001) asked a famous question, “Where has all the education gone?†bringing the lack of correlation between the growth of measured education and the growth of income in developing countries to broad attention. This finding confirms that after WWII the human capital-output ratios tend to be higher in less developed countries than those in developed countries. I explain this pattern using a dynamic general equilibrium model which explicitly considers that workers with different types have different costs when choosing schooling years and employers are unable to directly observe workers’ types, and find that simulation results with public subsidies to schooling could well mimic the features of data. At last, I make a speculative but reasoned conjecture about the schooling years-output relation in 2040.
    Keywords: education, informational asymmetry, signaling model, general equilibrium, heterogeneity
    JEL: D82 E24 I25 O15 O47
    Date: 2015–05–15
  70. By: Straub, Ludwig; Ulbricht, Robert
    Abstract: We develop a theory of endogenous uncertainty where the ability of investors to learn about firm-level fundamentals declines during financial crises. At the same time, higher uncertainty reinforces financial distress of firms, giving rise to “belief traps”— a persistent cycle of uncertainty, pessimistic expectations, and financial constraints, through which a temporary shortage of funds can develop into a long-lasting funding problem for firms. At the macro-level, belief traps provide a rationale for the long-lasting recessions that typically entail financial crises. In our model, financial crises are characterized by high levels of credit misallocation, an increased cross-sectional dispersion of growth rates, endogenously increased pessimism, uncertainty and disagreement among investors, highly volatile asset prices, and high risk premia. A calibration of our model to U.S. micro data on investor beliefs matches the slow recovery after the 08/09 crisis remarkably well.
    Keywords: Belief traps, credit crunches, dispersed information, endogenous uncertainty, internal persistence of financial shocks, resource misallocation
    JEL: D83 E32 E44
    Date: 2015–10–01
  71. By: Christoph Basten; Catherine Koch
    Abstract: How has the CCB affected mortgage pricing after Switzerland became the first country to activate this Basel III macroprudential tool? By analyzing a database with several offers per mortgage request, we construct a picture of mortgage supply and demand. We find, first, that the CCB changes the composition of mortgage supply, as relatively capital-constrained and mortgage-specialized banks raise prices more than their competitors do. Second, risk-weighting schemes linked to borrower risk do not amplify the CCB's effect. To conclude, changes in the supply composition suggest that the CCB has achieved its intended effect in shifting mortgages from less resilient to more resilient banks, but stricter capital requirements do not appear to have discouraged less resilient banks from risky mortgage lending.
    Keywords: banks, macroprudential policy, capital requirements, mortgage pricing
    Date: 2015–09
  72. By: Mosayeb Pahlavani (University of Sistan and Baluchestan)
    Abstract: In this study, we investigated the effect of "volatility" of investment in human capital on Iran’s economic growth, such that the government expenditure on educational and R & D budget have been replaced as proxies of human capital variable. Volatility of government expenditure on education and volatility in research and development budget have been estimated using the Generalize Autoregressive Conditional Heteroskedasticity (GARCH) Models. Coefficients of the short term and long term are estimated using Auto-Regressive Distributed Lag (ARDL) pattern. The results indicate that the costs of educational and R & D budget have a positive effect on economic growth, but the effect of volatility in these variables on economic growth is negative and significant. More addition, the effect of long term coefficients is more than the short term. Therefore, to achieve a high growth rate, development of human capital and its continuation is essential.
    Keywords: Human capital, Volatility, R&D, expenditure on education, Economic growth
    JEL: C32 E24 H52
  73. By: Adrien Lutz (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France, Université Jean Monnet, Saint-Etienne, F-42000, France)
    Abstract: This paper provides new perspectives on the French liberal economist Jacques Rueff (1896-1978), especially as regards his early writings on unemployment. We aim to show that Rueff distinguishes the root causes of permanent unemployment in England (1919-1931) based upon an interesting reading of non-Euclidean geometry. Controversially, this enables him to locate the cause of unemployment in the stickiness of the wage/price ratio. Hence, arguing that reality remains inaccessible in itself, Rueff focuses on a succession of variables (price, wage, unemployment), supplemented by his concepts of rational ego and the reasoning machine, in order to approach this reality.
    Keywords: Rueff, unemployment, real wage
    JEL: B13 E24 N00
    Date: 2015
  74. By: Julián David García-Pulgarín; Javier Gómez-Restrepo; Daniel Vela-Barón
    Abstract: This document explores an alternative strategic asset allocation framework for foreign exchange reserves, whose main purpose is to maximize the risk-adjusted returns maintaining the objectives of liquidity and safety of a foreign reserves’ portfolio. The overall portfolio can be fragmented into two tranches. On the one hand the Safety Tranche is comprised of liquid, almost default-free and low volatile assets, where the financial goals of safety and liquidity are met. On the other hand, the Wealth Tranche aims to maximize the return with a broader range in the asset space and a longer investment horizon. It is found that through this framework both the historical and forward looking performance of an aggregate portfolio is improved, while maintaining the safety and liquidity needs of a traditional foreign exchange reserves portfolio.
    Keywords: Foreign Exchange Reserves, Reserves Adequacy, Strategic Asset Allocation, Investment Horizon, Mental Accounting
    JEL: E58 G11 C61 F30
    Date: 2015–08–12
  75. By: Ahmet Benlialper (Department of Economics, Ipek University, Ankara, Turkey); Hasan COmert (Department of Economics, METU, Ankara, Turkey); Guney Duzcay (Department of Economics, METU, Ankara, Turkey)
    Abstract: Bu calismada hem betimsel istatistiklerden hem de basit bir performans endeksinden faydalanilarak Turkiye’nin iktisadi performansi benzer ulke gruplari ve ulkelere gore incelenmektedir. Calismamiz siyasi ve iktisadi olarak bir donum noktasi olarak kabul edilebilecek 2002 yili ile 2014 yillari (verilerin el verdigi olcude) arasini kapsamaktadir. Calismanin temel bugulari sunlardir: Birincisi, Turkiye ekonomisininin goreli performansi tum donem ve alt donemlerde bir ya da iki degisken disinda ya ortalamanin altinda ya da ortalamaya yakindir. Bu bakimdan orneklemdeki ulkelerle karsilastirildiginda Turkiye icin istisnai bir basaridan soz etmek mumkun degildir. Ikincil olarak, kirilganlik gostergeleri olarak yorumlanabilecek gostergelere odaklanildiginda Turkiye en kirilgan ulkelerin basinda gelmektedir. Ozellikle rezerv yeterliligi, dis borc ve kompozisyonu, cari acik ve bunla ilgili olarak da sermaye hareketlerinin boyutu ve kompozisyonu diger gelismekte olan ulkelere gore epey kotu durumdadir. Makroekonomik endeks ile yaptigimiz analiz betimsel istatistikleri desteklemektedir. Hatta endeksleme analizi hem Turkiye’nin goreli performansinin tum donem boyunca en kotuler arasinda olduguna, hem de performansinin son donemde daha da kotulestigine isaret etmektedir. Politika yapicilarin ve ilgili kurumlarin var olan durumun gercekci bir analizi ile bir an once ortaya cikan tabloya gore adimlar atmasi gerekmektedir. Aksi takdirde kuresel devinimlere bagli olarak 1980 sonrasinda Turkiye’de ve diger bir cok gelismekte olan ulkede cokca gordugumuz sureclerin tekrarini yakin zamanda izlemek zorunda kalabiliriz.
    Keywords: Turkiye Ekonomisi, Gelismekte Olan Ulkeler, Makro-eknomik Performans, Makro-ekonomik Politikalar, Karisilastirmali Ulke Calismalari.
    JEL: O53 E00 E60 O57
    Date: 2015–05
  76. By: Tobias Broer (Stockholm University); Per Krusell (Stockholm University); Niels-Jakob Hansen; Erik Oberg (Stockholm University)
    Abstract: The success of the New Keynesian framework stems from its ability to match the aggregate responses to innovations in monetary policy and total factor productivity (TFP). Specifically, the model can account for negative responses of output to innovations in the policy rate and a negative response of employment to innovations in TFP. We reexamine the transmission channel of the textbook model and show that these successful results rely on the assumption that firm profits are redistributed to working households. We contrast the textbook model to a worker-capitalist model where profits are consumed by non-working capitalists. This modification renders employment and output unresponsive to monetary policy and employment unresponsive to TFP. The reason is that the income and substitution effects of changes in the wage level cancel when the worker receive income from wages alone. Given the empirically observed distribution of equity ownership and the VAR evidence on the business cycle behavior of profits, we argue that our results cast doubt on the transmission channel in the textbook model.
    Date: 2015
  77. By: Luca Benati (University of Bern)
    Abstract: I use structural VARs identified based on either long-run restrictions, or a combination of long-run and sign restrictions, to investigate the long-run tradeoff between inflation and the unemployment rate in the U.S., the Euro area, the U.K., Canada and Australia over the post-WWII period. Results based on VARs featuring a single permanent inflation shock do not allow to reject the null hypothesis of a vertical long-run Phillips curve for either country. Results based on VARs allowing for four permanent inflation shocks, which are sorted out from one another by means of DSGE-based robust sign restrictions, produce a very similar picture. The overall extent of uncertainty is however substantial, thus suggesting that the data are compatible with a comparatively wide range of possible slopes of the long-run trade-off. For all countries, Johansen's cointegration tests point towards the presence of cointegration between either inflation and unemployment, or inflation, unemployment, and a short-term interest rate, with the long-run Phillips trade-off implied by the estimated cointegrating vectors being negative and sizeable. I argue however that this evidence should be discounted, as, conditional on the estimated structural VARs--which, by construction, do not feature cointegration between any variable--Johansen's procedure tends to spuriously detect cointegration a non-negligible, and sometimes large, fraction of the times.
    Date: 2015
  78. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, via Mersin 10, Northern Cyprus, Turkey and Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria); Clement Kyei (Department of Economics, University of Pretoria)
    Abstract: This paper analyses whether we can predict South African stock returns based on a measure of economic policy uncertainty (EPU) of South Africa and twenty other developed and emerging markets. While, linear Granger causality tests fail to find evidence of predictability, barring couple of cases, strong evidence of causality is detected from all the EPUs using a nonparametric causality-in-quantiles test. In addition, predictability is found to hold over the entire conditional distribution of stock returns, with the same being strongest around the median, i.e., when the stock market is in a normal mode. Given the existence of nonlinearity and regime changes in our data set, we consider the results from the nonparametric test as more robust relative to the standard causality test.
    Keywords: Economic Policy Uncertainty, Stock Prices, Linear Causality, Nonparametric Quantile Causality, South Africa
    JEL: C32 C53 E60 G12 G17
    Date: 2015–10
  79. By: Christoph E. Boehm; Aaron Flaaen; Nitya Pandalai-Nayar
    Abstract: Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffered large drops in U.S. output in the months following the shock, roughly one-for-one with the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our results suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.
    Keywords: Multinational Firms, International Business Cycles, Elasticity of Substitution
    JEL: F10 F23 F44 E32
    Date: 2015–09
  80. By: Adrien Lutz (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France, Université Jean Monnet, Saint-Etienne, F-42000, France)
    Abstract: A standard reading in the history of economic thought considers Saint-Simonianism to be embodied in the works of a set of European social thinkers including Robert Owen, William Godwin and Sismondi, all of whom are seen as standing in strict opposition to the doctrine of laissez-faire. This article, however, argues that, during the first quarter of the 19th century, the Saint-Simonians and the liberal economist Jean-Baptiste Say can be seen to adopt convergent views on commercial gluts. First, it shows how the Saint-Simonians and Say both see undersupply and lack of industry as causes of gluts. Next, we assert that their intellectual affinities are also visible in their belief that increasing production remains an appropriate solution for gluts. Finally, this convergence is explained by their common heritage : Saint-Simonianism is embedded in a neo-Smithian tradition for which Say can be taken as representative. We argue that this legacy explains their convergence.
    Keywords: Saint-Simonianism, Jean-Baptiste Say, Adam Smith, Laissez-faire, Commercial gluts
    JEL: B10 E5 N00
    Date: 2015
  81. By: Hattori, Takahiro; Miyake, Hiroki
    Abstract: In this study, we examine the determinants of the yield spread between issuers in Japan’s municipal bond market using panel data and focus on identifying whether credit risk premium exists. The results of the panel data analysis reveal new evidence on the municipal bond market for FY 2002–2013. In the first half of the 2000s, the fundamental fiscal statistics, that is, the credit risk indicators, had no impact on the yield spreads, suggesting the absence of credit risk premium. Second, Yūbari city’s insolvency in 2006 led to a structural break and since then, investors have begun accounting for local governments’ outstanding debt. Third, when important financial events occur, other credit risk indicators also significantly impact the yield spread, suggesting that during such events, investors are more aware of credit risk presence. Finally, the findings of this study provide implications for, perhaps, financial institutions, market participants, regulators.
    Keywords: Yield spread; Municipal bond market; Credit risk; Japan
    JEL: E43 G12 G14 H74
    Date: 2015–10–07

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