nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒10‒17
97 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Fiscal Seigniorage "Laffer-curve effect" on Central Bank Autonomy in India. By Chakraborty, Lekha
  2. Savings and Inflation Using the Example of Russia in 1992 By BLINOV, Sergey
  3. Monetary Development and Transmission in the Eurosystem By Anton, Roman
  4. Domestic and international macroeconomic effects of the Eurosystem expanded asset purchase programme By Pietro Cova; Patrizio Pagano; Massimiliano Pisani
  5. The impact of the ECB's conventional and unconventional monetary policies on stock markets By Reinder Haitsma; Deren Unalmis; Jakob de Haan
  6. The coming US interest rate tightening cycle: smooth sailing or stormy waters? By Carlos Arteta; M. Ayhan Kose; Franziska Ohnsorge; Marc Stocker
  7. Transmisión del efecto cambiario a la economía de la frontera Colombo–Venezolana By Diego Hernán Rodríguez
  8. An interest rate rule to uniquely implement the optimal equilibrium in a liquidity trap By Duarte, Fernando M.; Zabai, Anna
  9. Natural Expectations and Home Equity Extraction By Pancrazi, Roberto; Pietrunti, Mario
  10. Resurrecting the Role of the Product Market Wedge in Recessions By Bils, Mark; Klenow, Peter J.; Malin, Benjamin A.
  11. Lumpy investment and variable capacity utilization: firm-level and macroeconomic implications By Andreas Bachmann
  12. Household Debt and Crises of Confidence By Hintermaier, Thomas; Koeniger, Winfried
  13. QE and the Bank Lending Channel in the United Kingdom By Butt, Nicholas; Churm, Rohan; McMahon, Michael; Morotz, Arpad; Schanz, Jochen
  14. "The Euro's Savior? Assessing the ECB's Crisis Management Performance and Potential for Crisis Resolution" By Jorg Bibow
  15. The Use of Monetary Aggregates as Indicators of the Future Evolution of Consumer Prices: Monetary Growth and Inflation Target By Ramos Francia Manuel; Noriega Antonio E.; Rodríguez-Pérez Cid Alonso
  16. "Secular Stagnation or Stagnation Policy? Steindl after Summers" By Eckhard Hein
  17. Household debt and spending in the United Kingdom By Bunn, Philip; Rostom, May
  18. Some Unpleasant Properties of Loglinearized Solutions When the Nominal Rate is Zero By Braun, R Anton; Koerber, Lena; Waki, Yuichiro
  19. Is Economic Policy Uncertainty Related to Suicide Rates? Evidence from the United States By Nikolaos Antonakakis; Rangan Gupta
  20. Monetary Policy, Fiscal Policy, and Secular Stagnation at the Zero Lower Bound. A View on the Eurozone By Kleczka, Mitja
  21. Provincial Public Expenditure in China: A Tale of Profligacy By Sampawende Jules TAPSOBA; Mary-Françoise RENARD; Jean-Louis COMBES
  22. Okun's law and youth unemployment in Germany and Poland By Dunsch, Sophie
  23. Optimal time-consistent macroprudential policy By Javier Bianchi; Enrique G Mendoza
  24. Still Very Accommodative By Bullard, James B.
  25. Wealth-income ratios in a small, late-industrializing, welfare-state economy: Sweden, 1810–2014 By Waldenström, Daniel
  26. A big-picture socioeconomic perspective of Israel: the story of two nations in one By Ben-David, Dan
  27. Choques Macroeconômicos e a Probabilidade de Permanecer Empregado ou Desempregado By Marco A. F. H. Cavalcanti; Ajax R. B. Moreira
  28. Distribución de Ingresos y Dolarización Endógena By Castillo, Paul; Montoro, Carlos
  29. Theinformational content of market-based measures of inflation expectations derived from govenment bonds and inflation swaps in the United Kingdom By Liu, Zhuoshi; Vangelista, Elisabetta; Kaminska, Iryna; Relleen, Jon
  30. What Determines Purchasing Power Parity Exchange Rates? - Working Paper 416 By Alan Gelb, Anna Diofasi
  31. Structural Fiscal Balances in Latin America and the Caribbean: New Dataset and Estimations By Martín Ardanaz; Ana Corbacho; Alberto Gonzáles; Nuria Tolsa Caballero
  32. The crisis of economic governance in the European Union By Ernesto Longobardi
  33. Capital Controls or Macroprudential Regulation? By Anton Korinek; Damiano Sandri
  34. The Gambia: 2015 Article IV Consultation-Press release; Staff Report; and Statement by the Executive Director for the Gambia By International Monetary Fund. African Dept.
  35. Three Challenges to Central Bank Orthodoxy By Bullard, James B.
  36. Namibia: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Namibia By International Monetary Fund. African Dept.
  37. Does trend inflation make a difference? By Michele Loberto; Chiara Perricone
  38. From financial to real economic crisis: Evidence from individual firm-bank relationships in Germany By Dwenger, Nadja; Fossen, Frank M.; Simmler, Martin
  39. Forecasting Feds Fund Rate: 1982-2014 By Mohajeryami, Saeed
  40. Can Intra-Regional Trade Act as a Global Shock Absorber in Africa? By Zuzana Brixiová; Qingwei Meng; Mthuli Ncube
  41. Ordoliberalism and the macroeconomic policy in the face of the euro crisis By Michal Moszynski
  42. Aufwind im Westen Mittel-, Ost- und Südosteuropas: Wichtige Wachstumsimpulse für Österreich By Mario Holzner
  43. The End of the Flat Tax Experiment in Slovakia By Michal Horváth; Matúš Senaj; Zuzana Siebertová; Norbert Švarda
  44. Spillovers from China onto Sub-Saharan Africa: Insights from the Flexible System of Global Models (FSGM) By Derek Anderson; Jorge Iván Canales Kriljenko; Paulo Drummond; Pedro Espaillat; Dirk Muir
  45. The National Wealth of Sweden, 1810–2014 By Waldenström, Daniel
  46. Monetary Policy Transmission in Emerging Asia: The Role of Banks and the Effects of Financial Globalization By Nasha Ananchotikul; Dulani Seneviratne
  47. Stress Testing Corporate Balance Sheets in Emerging Economies By Julian T. S. Chow
  48. L'histoire (faussement) naïve des modèles DSGE By Francesco Sergi
  49. Factors of price convergence and its estimated level in Hungary By Péter Bauer
  50. Big Players Out of Synch: Spillovers Implications of US and Euro Area Shocks By Carolina Osorio Buitron; Esteban Vesperoni
  51. The banking crisis with interbank market freeze. By Jin Cheng; Meixing Dai; Frédéric Dufourt
  52. Financial-Monetary Instability Factors within the Framework of the Recent Crisis in Romania By Filip, Bogdan Florin
  53. Demographic structure and macroeconomic trends. By Yunus Aksoy; Ron P. Smith; Tobias Grasl; Henrique S. Basso
  54. Matching and credit frictions in the housing market By Eerola , Essi; Määttänen , Niku
  55. Dealing with the Dutch Disease: Fiscal Rules and Macro-Prudential Policies By Javier García-Cicco; Enrique Kawamura
  56. Leverage on the buy side By Fernando Avalos; Ramon Moreno; Tania Romero
  57. Stochastic levels and duration dependence in US unemployment By de Bruijn, B.; Franses, Ph.H.B.F.
  58. Financial Intermediation in a Global Environment By Nuguer Victoria
  59. Inflation Dynamics in LATAM: A Comparison with Global Trends and Implications for Monetary Policy By Elías Albagli; Alberto Naudon; Rodrigo Vergara
  60. Intergenerational Mobility and the Timing of Parental Income By Pedro Carneiro; Italo Lopez Garcia; Kjell G. Salvanes; Emma Tominey
  61. Exchange rate pass - through after the crisis: the Hungarian experience By Mihály Hajnal; György Molnár; Judit Várhegyi
  62. Zimbabwe: Second Review Under the Staff-Monitor Program-Press Release; and Staff Report By International Monetary Fund. African Dept.
  63. Effective Tax Rates on Consumption and Factor Incomes: a quarterly frequency estimation for Brazil By Cyntia Freitas Azevedo; Angelo Marsiglia Fasolo
  64. Sovereign Risk, Private Credit, and Stabilization Policies By Pancrazi, Roberto; Seoane, Hernan D; Vukotic, Marija
  65. Australia: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Australia By International Monetary Fund. Asia and Pacific Dept
  66. Exchange Rate Pass-Through to Prices: VAR Evidence for Chile By Santiago Justel; Andrés Sansone
  67. Impact of E-Commerce on Organization Performance; Evidence from Banking Sector of Pakistan By Azeem, Muhammad Mehtab; Ozari, Assit.Prof. Dr.Cidgem; Marsap, Prof.Dr.Akin; Arhab, Prof. Dr.Said; Jilani, Abdul Haseeb
  68. Intertemporal equilibrium with heterogeneous agents, endogenous dividends and borrowing constraints By Stefano Bosi; Cuong Le Van; Ngoc-Sang Pham
  69. Indeterminacy in a Matching Model of Money with Productive Government Expenditure By Chu, Angus C.; Liao, Chih-Hsing; Liu, Xiangbo; Zhang, Mengbo
  70. Senegal: Request for a Three-Year Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director for Senegal By International Monetary Fund. African Dept.
  71. Seasonalities and cycles in time series: A fresh look with computer experiments By Michel Fliess; Cédric Join
  72. Comments on "Microprudential Versus Macroprudential Supervision" by Paul Tucker 59th Economic Conference–Macroprudential Monetary Policy Federal Reserve Bank of Boston Boston, MA October 2, 2015 By Mester, Loretta J.
  73. Japan's Balance of Payments Statistics for 2014 and International Investment Position at Year-End 2014 By International Department
  74. Un índice coincidente para Medellín By Gerardo Alberto Villa Durán
  75. Money demand estimations in Mexico and of its stability 1986-2010, as well as some examples of its uses By Noriega Antonio E.; Ramos Francia Manuel; Rodríguez-Pérez Cid Alonso
  76. Explicit solutions to a vector time series model and its induced model for business cycles By Xiongzhi Chen
  77. The Inequality Accelerator By Pancrazi, Roberto; Mengus , Eric
  78. Procyclicality of credit rating systems: how to manage it By Tatiana Cesaroni
  79. How Robust Are SVARs at Measuring Monetary Policy in Small Open Economies? By Carrillo Julio A.; Elizondo Rocío
  80. Stairway to Excellence. Country Report: Croatia By Domagoj RaÄić; Jadranka Å varc
  81. Structural transformation, biased technological change, and employment in Vietnam By Philip Abbott; Finn Tarp; Ce Wu
  82. Jamaica: Ninth Review Under the Arrangement Under the Extended Fund Facility and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Jamaica By International Monetary Fund. Western Hemisphere Dept.
  83. Proyección de la inflación agregada con modelos de vectores autorregresivos bayesianos By Carrera, Cesar; Ledesma, Alan
  84. The impact of unemployment insurance savings accounts on subsequent employment quality By Nagler P.
  85. Infrastructure Investment in the Western Balkans By Mario Holzner; Robert Stehrer; Hermine Vidovic
  86. Toward Better Global Poverty Measures - Working Paper 417 By Martin Ravallion
  87. News Shocks in Open Economies: Evidence from Giant Oil Discoveries By Rabah Arezki; Valerie A Ramey; Liugang Sheng
  88. Better fiscal rules for Europe: Reflections based on new empirical evidence By Asatryan, Zareh; Foremny, Dirk; Heinemann, Friedrich; Solé-Ollé, Albert; Stratmann, Thomas; Yeter, Mustafa
  89. Unified money circulation equation and an analogical explanation for its solvability By Miura, Shinji
  90. Getting the Dog to Bark: Disclosing Fiscal Risks from the Financial Sector By Timothy Irwin
  91. The impact of China?s slowdown on the Asia pacific region : an application of the GVAR model By Inoue,Tomoo; Kaya,Demet; Ohshige,Hitoshi
  92. Any lessons for today? Exchange-rate stabilisation in Greece and South-East Europe between economic and political objectives and fiscal reality, 1841-1939 By Matthias Morys
  93. Cheating and Incentives: Learning from a Policy Experiment By Cesar Martinelli; Susan W. Parker; Ana Cristina PeÌrez-Gea; Rodimiro Rodrigo
  94. On the distributive effects of inflation By Gottlieb, Charles
  95. The time varying effect of oil price shocks on euro-area exports By Marianna Riggi; Fabrizio Venditti
  96. Why Has the U.S. Current Account Deficit Persisted? International Sustainable Heterogeneity under Floating Exchange Rates By Harashima, Taiji
  97. The Structure of the Models of Structural Change and Kaldor's Facts: A Critical Survey By KUROSE, Kazuhiro

  1. By: Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: It is often emphasised that seigniorage financing of public sector deficits is technically a "free lunch" if the economy has not attained the full employment levels. However, conservative macroeconomic policies in many emerging and developing economies, especially in the last two decades, have moved away from seigniorage financing to debt financing of deficits to give greater autonomy to the central banks. Against this backdrop, the paper analyses the fiscal and monetary policy co-ordination in India by constructing a fiscal seigniorage Laffer curve. If such a curve exists, it is possible to derive a seigniorage-maximizing inflation rate to estimate the optimal level of seigniorage financing of deficits. The illustrative estimates from the Indian data using error correction mechanism models confirm the possibility of a fiscal seigniorage Laffer curve.
    Keywords: Fiscal-Monetary Policy Co-ordination ; Seigniorage ; Fiscal Deficits ; Error Correction Mechanism ; Seigniorage Laffer Curve
    JEL: E52 E58 E62 E63 H62
    Date: 2015–09
  2. By: BLINOV, Sergey
    Abstract: Savings are a huge boon for the economy. This means both growth today and prospects for growth tomorrow. This is both an investment resource and a medicine for inflation. However, mistakes made in managing the savings by economic authorities, may turn everything upside down and then the savings become a cause of inflation and many other economic woes. This is exactly what happened in the far-off 1992 in Russia. Two approaches: reliable tools and advantages of the bond type form of savings would enable Russia to quickly create a significant stock of «long» money and increase the GDP and, at the same time, significantly reduce inflation.
    Keywords: Savings, Inflation, Shock Therapy, Transitional Economies, Russia
    JEL: E20 E21 E31 E32 E52 E65 N10 P20 P24
    Date: 2015–10–09
  3. By: Anton, Roman
    Abstract: Since the launch of the European Economic and Monetary Union (EMU) in January 1999 till today in 2015, the Euro has ascended to become the second largest reference currency in the world. With about €1.6 trillion of currency in circulation at present it is even positioned above the US dollar with €1.3 trillion. The Eurosystem now comprises 19 EU countries with about 340 Million people and inherits an outstanding role for the economy of the EMU, world trade, and international finance. Despite its importance, a recent independent empirical review that conclusively analyzes all key factors and efficiencies remains much obsolete. Thus, this research and review sets out to empirically-theoretically compile the last 16 years of the EMU with a focus on monetary developments, functioning of monetary transmission channels (MTCs) and mechanisms, as well as the performance of the Eurosystem and its ECB governed monetary policies (MP). For the first time it reviews a complete set of 16 MTCs and systematically evaluates the functioning of the Eurosystem and its role for the real economy and its people. It finds a high efficiency loss in all MTCs related to fractional reserve banking, excessive EU indebtedness, or legal frameworks such as MFI, financial, or equity law. Scientifically, all available data lead inescapably to the only scientific conclusion that, instead of old-fashioned reserve banking, a switch to a digital full-reserve system is in fact an inevitable must, requiring a complete monetary reform at the earliest feasible date.
    Keywords: Europe; EU; EMU; monetary; money; system; fractional; full; reserve; developments; ECB; ESCB; Euro; transmission; trends; process; EU; policy; currency; efficiency; effectiveness; review; research; empirical; financial; crisis, sovereign; debt; reform; union; quantitative; easing; model; systematic; creation; bank; financial; institution; MFI; real; economy; economic; inflation; prices; level; stability; GDP; output; employment; theory; theories; independent; digital; dollar; euro; area; euroland; eurosystem; central;
    JEL: A1 A10 E0 E00 E01 E02 E4 E40 E42 E43 E44 E47 E6 E60 P4 P44
    Date: 2015–10–07
  4. By: Pietro Cova (Bank of Italy); Patrizio Pagano (The World Bank); Massimiliano Pisani (Bank of Italy)
    Abstract: This paper evaluates the domestic and international macroeconomic effects of purchases of domestic long-term sovereign bonds by the Eurosystem. To this end, we calibrate a five-country dynamic general equilibrium model of the world economy. According to our results, the sovereign bond purchases would generate an increase in economic activity and in inflation in the euro area of about one percentage point in the first two years by inducing a fall in the long-term interest rates and an increase in liquidity. International spillovers may be nontrivial and expansionary, depending on the monetary policy stance of the partner countries and on the response of international relative prices.
    Keywords: DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound
    JEL: E43 E44 E52 E58
    Date: 2015–09
  5. By: Reinder Haitsma; Deren Unalmis; Jakob de Haan
    Abstract: Using an event study method, we examine how stock markets respond to the policies of the European Central Bank during 1999-2015. We use market prices of futures (government bonds) to identify surprises in (un)conventional monetary policy. Our results suggest that especially unconventional monetary policy surprises affect the EURO STOXX 50 index. We also find evidence for the credit channel, notably for unconventional monetary policy surprises. Our results also suggest that value and past loser stocks show a larger reaction to monetary policy surprises. These results are confirmed if identification of monetary policy surprises is based on the Rigobon-Sack heteroscedasticity approach.
    Keywords: monetary policy surprises; stock prices; event studies approach; identification through heteroscedasticity
    JEL: E43 E44 E52
    Date: 2015–09
  6. By: Carlos Arteta; M. Ayhan Kose; Franziska Ohnsorge; Marc Stocker
    Abstract: The U.S. Federal Reserve (Fed) is expected to start raising policy interest rates in the near term and thus commence a tightening cycle for the first time in nearly a decade. The taper tantrum episode of May-June 2013 is a reminder that even a long anticipated change in Fed policies can trigger substantial financial market volatility in Emerging and Frontier Market Economies (EFEs). This paper provides a comprehensive analysis of the potential implications of the Fed tightening cycle for EFEs. We report three major findings: First, since the tightening cycle will take place in the context of a robust U.S. economy, it could be associated with positive real spillovers to EFEs. Second, while the tightening cycle is expected to proceed smoothly, there are risks of a disorderly adjustment of market expectations. The sudden realization of these risks could lead to a significant decline in EFE capital flows. For example, a 100 basis point jump in U.S. long-term yields could temporarily reduce aggregate capital flows to EFEs by up to 2.2 percentage point of their combined GDP. Third, in anticipation of the risks surrounding the tightening cycle, EFEs should prioritize monetary and fiscal policies that reduce vulnerabilities and implement structural policy measures that improve growth prospects.
    Keywords: Federal Reserve, liftoff, tightening, interest rates, monetary policy, emerging markets, frontier markets, capital flows, sudden stops, crises.
    JEL: E52 E58 F30 G15
    Date: 2015–10
  7. By: Diego Hernán Rodríguez
    Abstract: La frontera se considera como un espacio de interacción entre población de territorios de dos o más países, que comparten vínculos históricos, económicos, sociales y culturales. En los últimos años, la dinámica económica en las ciudades colombianas fronterizas con Venezuela, ha estado enmarcada en un escenario de continua depreciación del bolívar, lo que directa y/o indirectamente se ha visto reflejado en deterioro del comercio exterior, debilidad del sector productivo, alto desempleo e informalidad y la inflación al consumidor más baja del país. El documento presenta un análisis descriptivo, y en algunos casos cuantitativo, de tales canales de transmisión del efecto cambiario en la economía de Cúcuta.
    Keywords: Frontera, Cúcuta, Tasa de Cambio, Consumo, Empleo, Comercio Exterior
    JEL: E21 E24 E26 F31 O24
    Date: 2014–11–19
  8. By: Duarte, Fernando M. (Federal Reserve Bank of New York); Zabai, Anna (Bank for International Settlements)
    Abstract: We propose a new interest rate rule that implements the optimal equilibrium and eliminates all indeterminacy in a canonical New Keynesian model in which the zero lower bound on nominal interest rates (ZLB) is binding. The rule commits to zero nominal interest rates for a length of time that increases in proportion to how much past inflation has deviated—either upward or downward—from its optimal level. Once outside the ZLB, interest rates follow a standard Taylor rule. Following the Taylor principle outside the ZLB is neither necessary nor sufficient to ensure uniqueness of equilibria. Instead, the key principle is to respond strongly enough to deviations of past inflation from optimal levels by sufficiently increasing the amount of time interest rates are promised to be kept at zero.
    Keywords: zero lower bound; ZLB; liquidity trap; New Keynesian model; indeterminacy; monetary policy; Taylor rule; Taylor principle; interest rate rule; forward guidance
    JEL: E43 E52 E58
    Date: 2015–10–01
  9. By: Pancrazi, Roberto (Department of Economics University of Warwick); Pietrunti, Mario (Banca d’Italia and Toulouse School of Economics)
    Abstract: In this paper we propose a novel explanation for the increase in households' leverage during the recent boom in U.S. housing prices. We use the U.S. housing market's boombust episode that led to the Great Recession as a case study, and we show that biased long-run expectations of both households and, especially, nancial intermediaries about future housing prices had a large impact on households' indebtedness. Specically, first we show that it is likely that financial intermediaries used forecasting models that ignored the long-run mean reversion of housing prices after a short-run momentum, thus leading to an overestimation of future households' housing wealth. We frame this finding in the theory of natural expectations, proposed by Fuster et al. (2010), to the housing market. Then, using a tractable model of collateralized credit market populated by households and banks, we find that: (1) mild variations in long-run forecasts of housing prices result in quantitatively considerable dierences in the amount of home equity extracted during a housing price boom; (2) the equilibrium levels of debt and interest rate are particularly sensitive to nancial intermediaries' naturalness; (3) home equity extraction data are better matched by models in which agents are fairly natural.
    Keywords: Natural expectations ; Home equity extraction ; Consumption/saving decision ; Housing pricecreation-date: 2015
    JEL: E21 E32 E44 D84
  10. By: Bils, Mark (University of Rochester); Klenow, Peter J. (University of Stanford); Malin, Benjamin A. (Federal Reserve Bank of Minneapolis)
    Abstract: Employment and hours appear far more cyclical than dictated by the behavior of productivity and consumption. This puzzle has been called “the labor wedge” — a cyclical intratemporal wedge between the marginal product of labor and the marginal rate of substitution of consumption for leisure. The intratemporal wedge can be broken into a product market wedge (price markup) and a labor market wedge (wage markup). Based on the wages of employees, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because employee wages may be smoothed versions of the true cyclical price of labor, we instead examine the self-employed and intermediate inputs, respectively. Looking at the past quarter century in the United States, we find that price markup movements are at least as important as wage markup movements — including during the Great Recession and its aftermath. Thus, sticky prices and other forms of countercyclical markups deserve a central place in business cycle research, alongside sticky wages and matching frictions.
    Keywords: Business cycles; Labor wedge; Price markups; Wage markups
    JEL: E24 E32
    Date: 2015–10–09
  11. By: Andreas Bachmann
    Abstract: Abstract The macroeconomic implications of firms' lumpy investment behavior are subject to ongoing research. Lumpy investment results from fixed capital adjustment costs which give firms an incentive to reduce the frequency of capital adjustments. However, previous studies have underestimated the lumpiness. Their assumption of constant capital utilization reduces firms' incentives to undertake large investments as it prevents reserve capacity building. This paper shows that if capacity utilization is allowed to vary, firms optimally undertake larger investments and leave parts of the new capital stock idle for some periods, thereby reducing the frequency of investment activities. Using a dynamic stochastic general equilibrium model with fixed capital adjustment costs, heterogeneous firms, variable utilization, and aggregate technology shocks, I numerically compute firms' optimal decisions on investment, utilization and labor demand. Compared to the constant utilization model, the findings reveal magnified investment lumpiness: Firms adjust capital less frequently, but invest more when they adjust. However, this appears to be of minor macroeconomic relevance: Moments and impulse responses of macroeconomic quantities change in a similar way when variable utilization is introduced in a lumpy or in a frictionless model. New empirical evidence based on firm-level panel data confirms some of the theoretical findings.
    Keywords: lumpy investment; adjustment costs; reserve capacity; utilization; business cycles
    JEL: E22 E32 D92
    Date: 2015–09
  12. By: Hintermaier, Thomas; Koeniger, Winfried
    Abstract: We show that the size of collateralized household debt determines an economy's vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt levels this liquidity feedback effect is strong enough to give rise to multiplicity of house prices. In a dynamic setup, we conceptualize confidence as a realization of rationally entertainable belief-weightings of multiple future prices. This delivers debt-level-dependent bounds on the extent to which confidence may drive house prices and aggregate consumption.
    Keywords: collateral constraints; consumer confidence; household debt; multiple equilibria
    JEL: D91 E21 E32
    Date: 2015–10
  13. By: Butt, Nicholas; Churm, Rohan; McMahon, Michael; Morotz, Arpad; Schanz, Jochen
    Abstract: We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives 'flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.
    Keywords: bank lending channel; monetary policy; Quantitative Easing
    JEL: E51 E52 G20
    Date: 2015–10
  14. By: Jorg Bibow
    Abstract: This study assesses the European Central Bank's (ECB) crisis management performance and potential for crisis resolution. The study investigates the institutional and functional constraints that delineate the ECB's scope for policy action under crisis conditions, and how the bank has actually used its leeway since 2007--or might do so in the future. The study finds that the ECB may well stand out positively when compared to other important euro-area or national authorities involved in managing the euro crisis, but that in general the bank did "too little, too late" to prevent the euro area from slipping into recession and protracted stagnation. The study also finds that expectations regarding the ECB's latest policy initiatives may be excessively optimistic, and that proposals featuring the central bank as the euro's savior through even more radical employment of its balance sheet are misplaced hopes. Ultimately, the euro's travails can only be ended and the euro crisis resolved by shifting the emphasis toward fiscal policy; specifically, by partnering the ECB with a "Euro Treasury" that would serve as a vehicle for the central funding of public investment through the issuance of common Euro Treasury debt securities.
    Keywords: Monetary Policy, Currency Union, ECB, Lender of Last Resort, Euro Crisis, Banking Union
    JEL: E42 E44 E52 E58 E61
    Date: 2015–09
  15. By: Ramos Francia Manuel; Noriega Antonio E.; Rodríguez-Pérez Cid Alonso
    Abstract: We construct inflation pressure indicators based on the long-run relationship that exists between monetary aggregates and prices, once it is adequately adjusted to account for the scale of transactions, as well as the opportunity cost of holding money. To that end, an extensive long-run econometric analysis of money demand is carried out for Mexico using the monetary aggregate M1. Based on it, two indicators are calculated, the money gap and the m* indicator. Such gap measures deviations of real M1 from its relationship with its long-run determinants. The m* indicator is based on the estimation of the price index which is congruent with the quantity of M1 in the economy once it is adjusted for the long-run tendency of its determinants considering its long-run coefficients. Our results indicate that monetary policy has been congruent with the inflation target of Banco de México.
    Keywords: Money demand; Inflation; Money gap; Autoregressive distributed lag model; Cointegration; General-to-specific; Stability; Structural change.
    JEL: C22 C32 E31 E41 E51
    Date: 2015–07
  16. By: Eckhard Hein
    Abstract: The current debate on secular stagnation is suffering from some vagueness and several shortcomings. The same is true for the economic policy implications. Therefore, we provide an alternative view on stagnation tendencies based on Josef Steindl's contributions. In particular, Steindl (1952) can be viewed as a pioneering work in the area of stagnation in modern capitalism. We hold that this work is not prone to the problems detected in the current debate on secular stagnation: It does not rely on the dubious notion of an equilibrium real interest rate as the equilibrating force of saving and investment at full employment levels, in principle, with the adjustment process currently blocked by the unfeasibility of a very low or even negative equilibrium rate. It is based on the notion that modern capitalist economies are facing aggregate demand constraints, and that saving adjusts to investment through income growth and changes in capacity utilization in the long run. It allows for potential growth to become endogenous to actual demand-driven growth. And it seriously considers the role of institutions and power relationships for long-run growth--and for stagnation.
    Keywords: Secular Stagnation; Stagnation Policy; Distribution and Growth; Steindl
    JEL: B22 E11 E12 E65 O11
    Date: 2015–10
  17. By: Bunn, Philip (Bank of England); Rostom, May (Bank of England)
    Abstract: Household debt rose sharply in the United Kingdom in the decade before the financial crisis. This paper uses household level microdata to investigate the relationship between mortgage debt and consumption. We find evidence that more highly indebted groups of households made larger cuts in spending following the financial crisis: spending cuts associated with debt may have reduced the level of aggregate private consumption by up to 2% after 2007. Survey data suggest that large cuts in spending by indebted households after 2007 may reflect a combination of tighter credit conditions and increased concerns about ability to make future debt repayments. The potential for household indebtedness to lead to large adverse impacts on aggregate demand was an important reason why the Bank of England’s Financial Policy Committee took policy action at its June 2014 meeting.
    Keywords: Household spending; debt
    JEL: D10 D11 D14 E21
    Date: 2015–10–06
  18. By: Braun, R Anton (Federal Reserve Bank of Atlanta); Koerber, Lena (Bank of England); Waki, Yuichiro (University of Queeensland)
    Abstract: Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian (NK) literature is that the answer to this question is yes. Evidence presented here suggests that the NK model’s implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it. For a range of empirically relevant parameterizations, employment increases when the labour tax rate is cut and the government purchase multiplier is less than 1.05.
    Keywords: Zero lower bound; fiscal policy; New Keynesian model
    JEL: E52 E62
    Date: 2015–10–05
  19. By: Nikolaos Antonakakis (University of Portsmouth, Webster Vienna Private University and Johannes Kepler University); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: While it has long been recognised that periods of economic uncertainty, characterised by increased unemployment and lower economic activity, are associated with increased suicide rates, no study has examined the direct impact of policy-related economic uncertainty on suicide mortality. The aim of this study is to provide the first systematic evidence of a relationship between economic policy uncertainty and suicide mortality in the United states over the period 1950-2013, while controlling for several other socioeconomic determinants of suicide mortality. The results of the analysis reveal that increased economic policy uncertainty is associated with increased suicide mortality of the youngest and the oldest segments of the male population in the United States, while the female population is found to be resilient to policy-related economic uncertainty.
    Keywords: United States, Economic policy uncertainty, suicide
    JEL: E60 I31 J11 C22
    Date: 2015–10
  20. By: Kleczka, Mitja
    Abstract: This paper delivers a contemporary estimate of the Eurozone’s natural real rate of interest. While it is found that the natural real rate has declined substantially between 1997 and 2015, it has not become negative. Thus, even in the presence of low inflation and nominal interest rates at the zero lower bound, the Eurozone does not face an acute threat of secular stagnation as defined by Lawrence Summers. Similarly, it is deemed unlikely that a number of ‘headwinds’ or a demise of technological growth will lead to a secular decline of the Eurozone’s economic growth. At the same time, it is found that the Eurozone faces a rather profound threat of ‘diversity stagnation’, as large inter-state differences impair the efficiency of its single monetary policy. Combined with the insufficient enforcement of fiscal rules, this erodes the Eurozone’s economic potential as well as its stability. Far-reaching reforms of the monetary and fiscal framework could overcome the detrimental status quo. However, conflicting economic and political incentives among the different member states and governments render the implementation of a necessary reform unlikely.
    Keywords: Secular stagnation; natural rate of interest; zero lower bound; land; headwinds; innovation stagnation; Taylor rule; public debt; tragedy of the commons.
    JEL: E42 E5 H6
    Date: 2015–09–30
  21. By: Sampawende Jules TAPSOBA (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Mary-Françoise RENARD (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Jean-Louis COMBES (Centre d'Etudes et de Recherches sur le Développement International(CERDI))
    Abstract: This paper examines the cyclicality of provincial expenditure in China during the period 1978-2013. We assess whether provincial expenditure has been pro-cyclical using panel data for our analysis. Profligacy is found to be a regular feature of provincial fiscal policy. This profligacy occurs both in good and bad times and has markedly increased since 1994 with the increased autonomy of provinces. We further find that the profligacy bias is mitigated when financial constraints are relaxed, the remaining political life of the governor is long, government efficiency is strong, corruption incidence is low, and governments are large.
    Keywords: China, Fiscal cyclicality, regional growth
    JEL: R12 H60 H50 E62
    Date: 2015–10
  22. By: Dunsch, Sophie
    Abstract: The unemployment rates, especially youth unemployment rates, increased in various countries of Europe over the last years. This paper examines youth unemployment developments in Germany and Poland with Okun's law to test the hypothesis that young employees are more exposed to the business cycle. I estimate age and country specific Okun coefficients for five different age cohorts. The results show that youth in Poland is more sensitive to the business cycle than adults, while in Germany the difference between the age cohorts is not that distinctive. A further examination of the different labor market institutions regarding youth employment results in policy recommendations beyond GDP growth, such as job-search assistance as short-term and structural reforms regarding education as long-term recommendation.
    Keywords: Youth Unemployment,Okun's Law,Poland,Germany
    JEL: E24 J64
    Date: 2015
  23. By: Javier Bianchi; Enrique G Mendoza
    Abstract: Collateral constraints widely used in models of financial crises feature a pecuniary externality: Agents do not internalize how borrowing decisions taken in "good times" affect collateral prices during a crisis. We show that agents in a competitive equilibrium borrow more than a financial regulator who internalizes this externality. We also find, however, that under commitment the regulator's plans are time-inconsistent, and hence focus on studying optimal, time-consistent policy without commitment. This policy features a state-contingent macroprudential debt tax that is strictly positive at date t if a crisis has positive probability at t + 1. Quantitatively, this policy reduces sharply the frequency and magnitude of crises, removes fat tails from the distribution of returns, and increases social welfare. In contrast, constant debt taxes are ineffective and can be welfare-reducing, while an optimized "macroprudential Taylor rule" is e effective but less so than the optimal policy.
    Keywords: Financial crises, macroprudential policy, systemic risk, collateral constraints
    Date: 2015–10
  24. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: September 25, 2015. President James Bullard discussed the case for monetary policy normalization during an event co-sponsored by the Global Interdependence Center and the St. Louis Fed. He noted that, once normalization begins, monetary policy will remain extremely accommodative through the medium term. Following his prepared remarks, he and Laurence Meyer, senior managing director at Macroeconomic Advisers and former Fed governor, participated in a moderated discussion on new directions in monetary policy.
    Date: 2015–09–25
  25. By: Waldenström, Daniel (Uppsala Center for Fiscal Studies)
    Abstract: This paper uses new data on Swedish national wealth over a period of two hundred years to study whether the patterns in wealth-income ratios previously found by Piketty and Zucman (2014) for some very rich and large Western economies extend to smaller countries that were historically backward and developed a different set of political and economic institutions during the twentieth century. The findings point to both similarities and differences. In the pre-industrial era, Sweden had much lower wealth levels than the rest of Europe, and the main explanation is that the Swedes were too poor to save their income. Over the twentieth century, Swedish aggregate trends and levels are much more similar to those of the rest of Europe, but the structure of national wealth differs. In Sweden, government wealth grew much faster and became more important, not least through its relatively large public pension system. This suggests an explicit role of historical economic and political institutions for the long-run evolution of wealth-income ratios.
    Keywords: Wealth-income ratios; National wealth; Household portfolios; Pension wealth; Welfare state; Institutions; Economic history
    JEL: D30 E01 E02 N30
    Date: 2015–10–07
  26. By: Ben-David, Dan
    Abstract: One of the main challenges that economists have in relaying information to senior policy-makers without formal economic training is the conversion of advanced statistical analyses and technical language into clear, descriptive portrayals of core economic issues. In the vacuum that frequently exists, professional advocacy and lobbying providing one-sided perspectives often carries the day. Using Israel as an example, the purpose of this paper is to show how it might be possible to move the focus away from distracting short-term issues to strategically vital long-term ones, to shift analyses from cyclical behavior to long-run trajectories. Israel is a study in contrasts, and as such, much of the prevailing wisdom on the country is based on partial vantage points that often lead to misleading conclusions. It is a country facing existential issues that are primarily domestic and socioeconomic in nature rather than external national security threats as is more commonly perceived. It is also a country that still has time to adopt policies reflecting a turnaround in budgetary priorities – if it begins to comprehend the scope and magnitude of the long-run issues not currently on its national radar. The issues that Israel faces are not unique to the country. Many are present in one form or another in other countries that may soon have to deal with some of the major policy issues that Israel needs to address today.
    Keywords: demographics; education; employment; growth; inequality; poverty
    JEL: E00 E6 H00 J11 J21 O2
    Date: 2015–10
  27. By: Marco A. F. H. Cavalcanti; Ajax R. B. Moreira
    Abstract: Este exercício contribui para literatura que relaciona ciclo macroeconômico com mercado de trabalho, estimando um modelo Favar para o Brasil com quatro variáveis – grau de utilização, taxa de inflação, taxa Selic e taxa de câmbio real – e uma variável latente que resume o estado do mercado de trabalho, que é representado com as probabilidades de estar empregado, permanecer empregado e permanecer desempregado de diferentes grupos demográficos. São identificados os choques de demanda, oferta, monetário, cambial e social, utilizando o sinal da resposta de um modelo macroeconômico estrutural − o modelo Dinâmico Estocástico de Equilíbrio Geral (Dynamic Stochastic General Equilibrium − DSGE). Os resultados confirmam que o mercado de trabalho é afetado pelo ciclo através das flutuações das contratações. This exercise contributes to the literature that relates macroeconomic cycle with the labor market, estimating an Favar model to Brazil with four variables − degree of utilization, inflation rate, Selic rate and real exchange rate − and a latent variable that summarizes the state of the labor market, which is represented with the odds of being employed, stay employed and remain unemployed in different demographic groups. The shocks – demand, supply, monetary, foreign exchange and social – are identified, using the signal response of a structural macroeconomic model, the Dynamic Stochastic General Equilibrium (DSGE). The results confirm that the labor market is affected by cycle through the fluctuations of contracts.
    Date: 2015–10
  28. By: Castillo, Paul (Banco Central de Reserva del Perú); Montoro, Carlos (Fondo Latinoamericano de Reservas)
    Abstract: In this paper we develop a monetary economy model where dollarisation emerges endogenously as an optimal decision of individuals and …rms in an environment where the exchange rate is uncertain and individuals are heterogenous in their asset holdings and in their consumption baskets. We show that in this environment income distribution plays a key role in explaining the pattern of price dollarisation and its links with asset dollarisation. The model shows that for economies with relatively high income inequality, price dollarisation is not important at the aggregate level, even when asset dollarisation is high. In this case, only luxury goods, those associated to the consumption basket of high-income customers, are endogenously priced in foreign currency, whilst necessity goods, those associated to the consumption basket of low-income customers, are priced in domestic currency. This result may explain why in countries with remarkably high levels of asset dollarisation, countries like Argentina, Bolivia and Peru, the levels of transaction and price dollarisation are relatively low. We also show that asset dollarisation causes price dollarisation and that the relationship depends on income distribution.
    Date: 2015–07
  29. By: Liu, Zhuoshi (China Investment Corporation); Vangelista, Elisabetta (UK Debt Management Office); Kaminska, Iryna (Bank of England); Relleen, Jon (Bank of England)
    Abstract: Market-based measures of inflation expectations can be derived either from the difference between yields on nominal and inflation-linked government bonds or from inflation swap rates. These measures are important indicators of the outlook for inflation and are monitored regularly by the United Kingdom’s Monetary Policy Committee (MPC), alongside other measures of inflation expectations such as those based on surveys. However, the market rates we observe are not perfect measures of expected future inflation. Moreover, in the United Kingdom inflation-linked market instruments reference RPI inflation, whereas the MPC’s target is CPI inflation of 2%. To better extract useful information about expectations for CPI inflation, we develop a no-arbitrage term structure model to decompose the forward inflation curve into: measures of CPI inflation expectations; the expected spread between expected RPI and CPI inflation (the RPI/CPI inflation ‘wedge’); and estimates of risk premia. We then further decompose risk premia estimates into inflation risk premia and liquidity risk premia. We show that long-horizon expectations of CPI inflation, as implied by our model, fell in the 1990s after the introduction of inflation targeting and the creation of the MPC and have since remained fairly stable at around 2%. Our model also suggests that the large falls in measures of implied inflation based on index-linked gilts after the financial crisis were to a large extent the result of changes in liquidity premia in inflation-linked gilt prices.
    Keywords: Affine arbitrage-free dynamic term structure model; breakeven inflation; inflation expectations; risk premia; funding liquidity; survey expectations
    JEL: C40 E31 E43 E52 G12
    Date: 2015–09–25
  30. By: Alan Gelb, Anna Diofasi
    Abstract: In an effort to provide a better understanding of the large variation in price levels between countries, we report on a cross-country analysis of national price levels, using Purchasing Power Parity (PPP) data on 168 economies from the most recent 2011 round of the International Comparison Program (ICP). PPPs are used for many purposes, including to set international poverty lines and allocate IMF quotas. The well-known Balassa-Samuelson income effect is not the only factor affecting PPPs, particularly for low- and middle income countries. Structural and policy factors make a difference. Small island states are relatively costly for their income level as are sparsely populated countries. Countries with large subsidy programs – as measured by fuel subsidies – tend to have lower price levels than predicted on the basis of income. More open labor policies – as measured by a higher share of migrants in the labor force – are associated with lower price levels in higher-income countries. The proposition that very poor governance is associated with both low income and high prices receives some modest support. Aid inflows and a negative current account balance are correlated with higher price levels (the latter less strongly), but FDI and remittances are not. We also observe a strong association between inequality and higher price levels, which provides some support for the proposition that the ICP may over-weight globally comparable goods. Our results confirm the tendency for African countries to be more expensive than countries with similar incomes in other parts of the world. We fail to fully explain this phenomenon but offer a number of explanations that together could account for it, including low agricultural productivity. Finally, we confirm the relationship between low PPP price levels and greater competitiveness in manufactures, especially for low and middle-income countries.
    Keywords: purchasing power parity, price level, competitiveness, International Comparison Program, sub-Saharan Africa
    JEL: E31 O47 R32
    Date: 2015–09
  31. By: Martín Ardanaz; Ana Corbacho; Alberto Gonzáles; Nuria Tolsa Caballero
    Abstract: Over the past decade, an increasing number of countries have began anchoring their fiscal policy frameworks in terms of rules that target the cyclically adjusted or structural (as opposed to actual) balance in an effort to overcome problems of procyclicality and fiscal volatility. The logic for doing so is in principle compelling: rule-based fiscal policies allow automatic stabilizers to work freely during the cycle and help accumulate fiscal surplus in good times. However, the estimation of structural balances is subject to a number of methodological challenges, including the degree of estimation uncertainty. This paper presents a range of estimates of the structural budget balance and uses them to analyze the cyclical behavior of fiscal policy in Latin America and the Caribbean. Based on an original dataset comprising detailed fiscal information from 20 countries across the region between 1990 and 2012, the paper finds that the range of estimates can be large for some countries, especially those that derive substantial fiscal revenue from commodity-related activities. In addition, the evidence shows that on average, the region has followed a procyclical policy pattern: a 1 percent increase in the output gap is associated with up to a 0.66 percentage point deterioration in the structural primary balance. This pattern hides substantial regional heterogeneity: procyclicality is more marked in countries that face large terms of trade shocks, but it can be counteracted by higher institutional quality.
    Keywords: Production & Business Cycles, Fiscal Policy, Taxation, structural fiscal balances, cyclicality, business cycle, commodity prices, institutions
    Date: 2015–06
  32. By: Ernesto Longobardi (University of Bari)
    Abstract: This paper deals with the origin and the evolution of the European system of fiscal rules and discusses the perspectives for future developments. The early debate about the design of establishing a monetary union in a not optimal currency area, with decentralized fiscal policies, is reconsidered. The main developments of the European rulesDbased fiscal governance are discussed, starting with the Maastricht Treaty and going through the institution and the evolution of the Stability and Growth Pact (SGP). After drawing a brief outline of the system of fiscal rules in force at present, the key issue of the estimation of potential output is considered. The shortcomings of the estimation practices are, to a large extent, responsible for the inadequate results produced by the shift from nominal to structural targets, which was the main aim of the SGP reforms. The paper concludes sketching the debate on the reform of the European economic governance.
    Keywords: Fiscal Rules, Fiscal policy, European Monetary Union
    JEL: E62 H60 H77
    Date: 2015–10
  33. By: Anton Korinek; Damiano Sandri
    Abstract: International capital flows can create significant financial instability in emerging economies because of pecuniary externalities associated with exchange rate movements. Does this make it optimal to impose capital controls or should policymakers rely on domestic macroprudential regulation? This paper presents a tractable model to show that it is desirable to employ both types of instruments: Macroprudential regulation reduces overborrowing, while capital controls increase the aggregate net worth of the economy as a whole by also stimulating savings. The two policy measures should be set higher the greater an economy's debt burden and the higher domestic inequality. In our baseline calibration based on the East Asian crisis countries, we find optimal capital controls and macroprudential regulation in the magnitude of 2 percent. In advanced countries where the risk of sharp exchange rate depreciations is more limited, the role for capital controls subsides. However, macroprudential regulation remains essential to mitigate booms and busts in asset prices.
    Keywords: Capital controls;Macroprudential policies and financial stability;Emerging markets;East Asia;Exchange rate depreciation;Borrowing;Domestic savings;Financial crises;Econometric models;Financial stability, pecuniary externalities, capital controls, macroprudential regulation, inequality.
    Date: 2015–10–01
  34. By: International Monetary Fund. African Dept.
    Abstract: The Gambia’s large balance of payments and fiscal imbalances, caused by policy slippages and persistent financial difficulties in public enterprises, were exacerbated by the impact of the regional Ebola outbreak on tourism and the delayed summer rains in 2014, which widened the imbalances further. The Fund supported The Gambia with an RCF disbursement in early April 2015 to meet the urgent balance of payments needs arising from these shocks. The authorities also embarked on an economic program with a strong 2015 budget and structural reforms to be monitored under a staff-monitored program (SMP), and efforts to secure donor support.
    Keywords: Article IV consultation reports;Economic conditions;External shocks;Balance of payments need;Fiscal policy;Exchange rate policy;Monetary policy;Bank supervision;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Gambia, The;
    Date: 2015–09–28
  35. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: October 2, 2015. In a speech to the Shadow Open Market Committee in New York, St. Louis Fed President James Bullard discussed the orthodox view of current monetary policy, which emphasizes that the FOMC's objectives are close to being met while monetary policy settings remain far from normal, along with three challenges to that view, which relate to strict inflation targeting, low real interest rates and globalization. He concluded that the U.S. economy will likely experience better outcomes if the monetary policy orthodoxy is preserved as the guiding principle.
    Date: 2015–10–02
  36. By: International Monetary Fund. African Dept.
    Abstract: KEY ISSUES Context. Namibia has achieved robust growth with price stability, though high unemployment and inequality persist. Its expansionary fiscal policy?while contributing to job creation?has increased pressures on external balances, lowering international reserves to 1½ months of imports. Risks. The near-term outlook is clouded with risks. Revenues from the Southern African Customs Union (SACU) are expected to decline in coming years, reflecting the slowdown in the South African economy. Rising house prices, combined with commercial banks’ high exposure to mortgages, raise macroprudential concerns. These risks, unless properly addressed, could weaken growth and increase the economy’s fragility. Strengthening international reserve buffer. A tighter fiscal policy stance—coupled with additional external financing—could strengthen international reserves over the medium term, while preserving critical social spending. Safeguarding financial stability. The rapid rise in real estate prices—combined with the high concentration of banks’ mortgage lending—poses risks to the financial sector and the economy. This risk should be promptly addressed through targeted macroprudential policies and improved supervision of links between the banking and nonbank financial sector.
    Keywords: Article IV consultation reports;Economic growth;Unemployment;Fiscal policy;Banking sector;Reserves adequacy;Exchange rate assessments;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Namibia;
    Date: 2015–10–01
  37. By: Michele Loberto (Bank of Italy); Chiara Perricone (LUISS Guido Carli)
    Abstract: Although the average inflation rate of developed countries in the postwar period has been greater than zero, much of the extensive literature on monetary policy has employed models that assume zero steady-state inflation. In comparing four estimated medium-scale NK DSGE models with real and nominal frictions, we seek to shed light on the quantitative implications of omitting trend inflation, that is, positive steady-state inflation. We compare certain population characteristics and the IRFs for the four models by applying two loss functions based on a point distance criterion and on a distribution distance criterion, respectively. Finally, we compare the RMSE forecasts. We repeat the analysis for three sub-periods: the Great Inflation, the Great Moderation and the union of the two periods. We do not find clear evidence for always preferring a model that uses trend inflation.
    Keywords: new Keynesian DSGE, trend inflation, loss function, entropy
    JEL: C1 C5 E4 E5
    Date: 2015–09
  38. By: Dwenger, Nadja; Fossen, Frank M.; Simmler, Martin
    Abstract: What began as a financial crisis in the United States in 2007-2008 quickly evolved into a massive crisis of the global real economy. We investigate the importance of the bank lending and firm borrowing channel in the international transmission of bank distress to the real economy - in particular, to real investment and labor employment by nonfinancial firms. We analyze whether and to what extent firms are able to compensate for the shortage in loan supply by switching banks and by using other types of financing. The analysis is based on a unique matched data set for Germany that contains firm-level financial statements for the 2004-2010 period together with the financial statements of each firm's relationship bank(s). We use instrumental variable estimations in first differences to eliminate firm- and bankspecific effects. The first stage results show that banks that suffered losses due to proprietary trading activities at the onset of the financial crisis reduced their lending more strongly than non-affected banks. In the second stage, we find that firms whose relationship banks reduce credit supply downsize their real investment and labor employment significantly. This effect is larger for firms that are unable to provide much collateral. We document that firms partially offset reduced credit supply by establishing new bank relationships, using internal funds, and issuing new equity.
    Keywords: financial crisis,contagion,credit rationing,relationship lending,investment
    JEL: D22 D92 E44 G01 G20 G31 H25 H32
    Date: 2015
  39. By: Mohajeryami, Saeed
    Abstract: Federal funds rate in the US is the interest rate that the banks pay each other for lending funds overnight. Fed funds rate is an important benchmark in the economy because of its significant impact on many other financial indices. The target rate is determined by Federal Open Market Committee (FOMC). Federal Reserve’s method of determining “reaction function” is subject to speculation for a long time. Taylor believed that the reaction function can be specified as a weighted average of deviations of inflation and unemployment from target values. But this model, even though worked for a long time, are under attack by new economists and like many old models are obsolete because of the various structural change in the society and economy. In this work, different models and different parameters are used to determine the reaction function. According to the results, VAR model gives the best FERMS (5.7%). Another interesting observation is that the inflation rate does not granger-cause Feds fund target rate which is not consistent with Taylor rule. On the other hand, the unemployment rate plays an important role in the Feds reaction function.
    Keywords: Federal Funds Rate (FFR), Taylor rule, Federal Reserve
    JEL: E5
    Date: 2015–05–01
  40. By: Zuzana Brixiová (African Development Bank, University of Cape Town and IZA); Qingwei Meng (African Development Bank); Mthuli Ncube (University of Oxford)
    Abstract: The global financial crisis and the subsequent uneven recovery have underscored the need for Africa's resilience to output and other shocks originated in the rest of the world. A comparison of two regional economic communities – the East African Community (EAC) and the Southern Africa Customs Union (SACU) – suggests that deeper intra-regional, and in particular intra-industry, trade ties have contributed to the EAC's resilience to external output shocks. More broadly, intra-regional and intra-African trade with fast-growing economies, together with geographically diversified trade links, can strengthen the capacity of African countries to absorb global output shocks. Besides helping shield countries from external shocks, intra-regional trade also supports economic diversification and participation in regional value chains.
    Keywords: Intra-regional trade, output co-movement, regional economic communities, Africa
    JEL: E32 F4 F15
    Date: 2015
  41. By: Michal Moszynski (Nicolaus Copernicus University, Poland)
    Abstract: The global economic crisis and the crisis in the euro zone exposed the deep differences of opinion between German economists and scientists from Anglo-Saxon countries. The German approach conceptually differs in the views on the strategies and tools of anti-crisis policy, especially fiscal stimulus in the Keynesian-style, quantitative easing monetary policy of the ECB, the question of financial assistance to Greece and restructuring its debt. The other areas of difference are the approach to the rules in macroeconomic policy, fiscal consolidation, and interpretation of current account surplus. Given the size and performance of the German economy it is important to understand the reasons for these opposites, which constitute the research goal of this article. Considerations are based on the thesis that ordoliberal thought still has a strong impact on the practice of macroeconomic policy in Germany and also at the European level. The analysis is built on the short overview of ideological foundations of the German social market economy and its most important postulates, which then will be applied for interpretation of intellectual distinctions between economists from Germany and other countries in the theoretical and practical dimensions of the economic policy observed in Europe. The methodology includes the critical literature studies and the comparative analysis of macroeconomic policy through the prism of economic thought.
    Keywords: Germany, macroeconomic policy, ordoliberalism, rules, economic order
    JEL: B25 E61 H12
    Date: 2015–10
  42. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Zusammenfassung Aufwind im Westen der MOSOEL In den mittel-, ost- und südosteuropäischen Ländern (MOSOEL) klafft der Ausblick für das Wirtschaftswachstum auch weiterhin auseinander für die meisten der neuen EU-Mitgliedstaaten (NMS) wird eine langsame Beschleunigung des BIP-Wachstums beginnend mit diesem Jahr erwartet. Für 2015 soll das Wachstum durchschnittlich auf 3% ansteigen, um 0,2 Prozentpunkte mehr als im Vorjahr. Die Erholung erfolgt um ein Jahr früher als erwartet. Wesentlicher Faktor ist die bessere Entwicklung in der Eurozone. Auch am Westbalkan wird eine (wenn auch weniger dynamische) Verbesserung der Wachstumsaussichten für die gesamte Prognoseperiode 2015-2017 erwartet. Die wirtschaftliche Entwicklung 2015 in Weißrussland, Kasachstan, Russland und der Ukraine wird düster ausfallen und zum Teil noch schlechter sein als bisher erwartet. Für diese Länder sind die mittelfristigen Wirtschaftsaussichten auch mit substantiellen Risiken behaftet. Insgesamt sollte aber das verstärkte Wachstum in den MOSOEL für die österreichische Wirtschaft als Nachfrageimpuls dienen. Insbesondere die NMS sind für Österreich von zunehmender Bedeutung.   English Summary Western CESEE countries in the ascendant The outlook for GDP growth in the Central, East and Southeast Europe (CESEE) region remains divergent we expect a gradual acceleration of GDP growth for most of the EU’s new Member States (NMS) starting this year. For 2015 growth is expected to increase to 3% on average, by 0.2 pp more as compared to last year. The recovery comes a year earlier than expected mainly based on favourable developments in the euro area. In the Western Balkans growth prospects will also improve over the whole forecast period 2015-2017, though slightly less dynamically. Growth performance in Belarus, Kazakhstan, Russia and Ukraine in 2015, however, will be dismal and partly worse than expected; the medium-term outlook for these countries is also fairly uncertain with considerable downside risks. Overall though, we should expect stronger CESEE growth to act as a demand stimulus for the Austrian economy. The NMS in particular are of increasing importance for Austria.
    Keywords: macroeconomic analysis, international trade, competitiveness, consumption, investment, savings, global financial crisis
    JEL: E20 F34 G01 O52 O57 P24 P27 P33 P52
    Date: 2015–07
  43. By: Michal Horváth; Matúš Senaj; Zuzana Siebertová; Norbert Švarda
    Abstract: The paper provides a quantitative assessment of the consequences of departing from a flat-tax system in the context of Slovakia. A behavioural microsimulation model of the labour supply is embedded into a general equilibrium framework with search and matching frictions. Some recently implemented changes in the tax system leave aggregate labour market indicators as well as inequality measures virtually unaffected. We also examine hypothetical revenue-neutral reforms that would significantly increase the progressivity of the system through graduated marginal tax rates. We find that there are narrow limits to what policy makers could accomplish through such reforms in terms of employment and equality of income. Hence, an income tax reform should at best be seen as a complementary tool to other initiatives promoting such objectives. Moreover, we highlight an important trade-off: income tax reforms that promote employment may harm growth.
    Keywords: flat tax, microsimulation, general equilibrium, search and matching, labour supply elasticity
    JEL: E24 H24 H31 J22
    Date: 2015–10–05
  44. By: Derek Anderson; Jorge Iván Canales Kriljenko; Paulo Drummond; Pedro Espaillat; Dirk Muir
    Abstract: What is the impact of economic spillovers from China on sub-Saharan Africa (SSA)? This is an increasingly important question because of China’s growing economic role as a partner of SSA countriesfor both trade and the buildup of infrastructure in the region. The impact of spillovers from China has been an open question because of the challenge to use an internally consistent framework with solid economic foundations that accounts for both the direct impact China may have on individual countries in SSA through a variety of channels (trade, investment, financial) as well as the impact on the region through the global economy (economic activity and commodity prices). This paper explores those channels of transmission and provides illustrative order of magnitude for the short- and medium-term economic impact by using AFRMOD, a module of the Flexible System of Global Models (FSGM), a multicountry general equilibrium model developed at the IMF. Three alternative scenarios are considered: first, lower potential output in China that is originally misperceived as a temporary cyclical slowdown; second, structural reforms in China that aim to increase potential output; and third, a relocation of low-end manufacturing to sub-Saharan Africa.
    Keywords: Spillovers;China;Sub-Saharan Africa;Potential output;Fiscal reforms;Spillovers; monetary policy; general equilibrium models; macroeconomic interdepedence; China; Africa
    Date: 2015–10–06
  45. By: Waldenström, Daniel (Department of Economics, Uppsala University)
    Abstract: This study presents a new database, the Swedish National Wealth Database (SNWD), which contains annual data on private, public and national wealth and sectoral saving rates in Sweden over the past two centuries. The paper reviews previous investigations of national wealth, compares their estimates with the new ones and discusses method approaches and measurement problems. Then the main data series are presented for assets and liabilities and their subcomponents, for the private and public domestic and foreign sectors. Complementing the traditional focus on economic flow variables in the past literature on long-run economic developments, this new database offers potentially new perspectives of a number of important issues in the modern economic history of Sweden.
    Keywords: National wealth; Household portfolios; Saving; Pension wealth; Economic history
    JEL: E21 H31 N33 N34
    Date: 2015–10–07
  46. By: Nasha Ananchotikul; Dulani Seneviratne
    Abstract: Given the heavy reliance on bank lending as the main source of financing in most Asian economies, banks could potentially play a pivotal role in monetary policy transmission. However, we find that Asia’s bank lending channel or, more broadly, credit channel of domestic monetary policy is not very strong at the aggregate level. Using bank-level data for nine Asian economies during 2000–2013, we show that heterogeneity of bank characteristics (e.g., ownership type, financial position), degree of foreign bank penetration of the domestic banking sector, and global financial conditions all have a bearing on the response of domestic credit to changes in domestic monetary policy, and may account for the apparently weak credit channel at aggregate level.
    Keywords: Monetary transmission mechanism;Asia;Emerging markets;Banks;Loans;Financial systems;Banking sector;Globalization;Monetary policy;Monetary policy transmission; bank lending channel; financial globalization
    Date: 2015–09–28
  47. By: Julian T. S. Chow
    Abstract: In recent years, firms in emerging market countries have increased borrowing, particularly in foreign currency, owing to easy access to global capital markets, prolonged low interest rates and good investment opportunities. This paper discusses the trends in emerging market corporate debt and leverage, and illustrates how those firms are vulnerable to interest rate, exchange rate and earnings shocks. The results of a stress test show that while corporate sector risk remains moderate in most emerging economies, a combination of macroeconomic and financial shocks could significantly erode firms’ ability to service debt and lead to higher debt at risk, especially in countries with high shares of foreign currency debt and low natural hedges.
    Keywords: Stress testing;Corporate sector;Debt;External shocks;Exchange rates;Interest rates;Emerging markets;Cross country analysis;Emerging market corporate debt, leverage, debt at risk
    Date: 2015–09–30
  48. By: Francesco Sergi (Centre d'Economie de la Sorbonne)
    Abstract: The purpose of the article is to analyze and criticize the way how DSGE macroeconomists working in policy-making institutions think about the history of their own modeling practice. Our contribution is, first of all, historiographical: it investigates an original literature, emphasizing in the history of DSGE as it is told by its own practitioners. The results of this analysis is what we will call a “naïve history” of DSGE modeling. Modellers working from this perspective present their models as the achievement of a “scientific progress”, which is linear and cumulative both in macroeconomic theorizing and in the application of formalized methods and econometric techniques to the theory. This article also proposes a critical perspective about the naïve history of the DSGE models, which drawns, by contrast, the main lines of an alternative, “non-naïve” history. of the DSGE models is incomplete and imprecise. It mainly ignores controversies, failures and blind alleys in previous research; as a consequence, the major theoretical and empirical turning points are made invisible. The naïve history also provides an ahistorical account of assessment criteria for modeling (especially for evaluating empirical consistency), which hides the underlying methodological and epistemological debates. Finally, we will claim that the naïve history plays an active and rhetoric role in legitimizing the DSGE models as a dominant tool for policy expertise
    Keywords: DSGE; new neoclassical synthesis, history of macroeconomics, modelling methodology, central banks, rhetoric of economics
    JEL: B22 B41 E60
    Date: 2015–09
  49. By: Péter Bauer (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: The study analyses the relationship between real economy convergence and the convergence of relative prices. Similar to its peers in the CEE region, a significant part of Hungary’s price convergence with developed Western European countries can be attributed to the convergence of the real economy. The crisis, however, impeded catching-up in the entire region, leaving relative prices largely unchanged in the subsequent periods. In addition to decelerating real convergence, this may also have resulted from depreciating nominal exchange rates. The relationship between relative price levels and economic development is often explained by the Balassa-Samuelson effect; according to the findings, however, this effect accounts for only a part of the real appreciation observed in the region over the past one-and-a-half decades. This may have resulted primarily from problems concerning the data required for the estimation of the Balassa-Samuelson effect. Thus, in interpreting the findings, the main focus is a direct estimation of the relationship between relative price levels and economic development. The rate of expected price convergence in Hungary can be calculated from assumptions about future economic growth, relying on estimates pertaining to the relationship between relative price levels and economic development. According to our estimates, real convergence may be accompanied by price convergence of 0.5–1 per cent per annum. This calculation, however, involves significant uncertainty. The lower growth rate of regulated prices may lead to lower convergence rates, while higher economic growth compared to the euro area may drive faster price convergence.
    Keywords: price convergence, Balassa-Samuelson effect, real appreciation
    JEL: E31
    Date: 2015
  50. By: Carolina Osorio Buitron; Esteban Vesperoni
    Abstract: Given the prospects of asynchronous monetary conditions in the United States and the euro area, this paper analyzes spillovers among these two economies, as well as the implications of asynchronicity for spillovers to other advanced economies and emerging markets. Through a structural vector autoregression analysis, country-specific shocks to economic activity and monetary conditions since the early 1990s are identified, and are used to draw implications about spillovers. The empirical findings suggest that real and monetary conditions in the United States and the euro area have oftentimes been asynchronous. The results also point to significant spillovers among them, in particular since early 2014—with spillovers from the euro area to the United States being particularly large. Against the backdrop of asynchronous conditions in these two economies, spillovers from real and money shocks to emerging markets and non-systemic advanced economies could be dampened.
    Keywords: Spillovers;United States;Euro Area;Monetary policy;External shocks;Exchange rates;Economic conditions;Developed countries;Emerging markets;Vector autoregression;Panel analysis;Spillovers, Monetary Policy, Economic News, Emerging Economies
    Date: 2015–09–30
  51. By: Jin Cheng; Meixing Dai; Frédéric Dufourt
    Abstract: This paper studies banking crises characterized by interbank market freeze, fire sale and contagion in a model with collateralized interbank loans. We examine the role of interbank market in spreading and amplifying crises by distinguishing three sources of liquidity risks, i.e., panic-induced run, foreign sovereign debt crisis and gambling behavior. Our results underline that ex-post insufficient bank capital and/or liquidity reserves could lead the interbank market to malfunction. However, implementing more restrictive regulations to reinforce banks' resilience to shocks could hamper their role as financial intermediary and may have perverse effects on their gambling behaviors. Therefore, the crisis management by a government even without monetary sovereignty is crucial in ensuring the well-functioning of the interbank market and hence the stability of the banking system, and it is effective as long as the scale of bailout is credible in the sense of not compromising the government's solvency.
    Keywords: Banking crisis, interbank market, market discipline, capital ratio, multiple equilibria, bank run, gambling asset, asymmetric information, and sovereign debt crisis.
    JEL: E43 G01 G11 G12 G18 G02 G28
    Date: 2015
  52. By: Filip, Bogdan Florin
    Abstract: The paper starts from the premise of the organic integration of the financialmonetary components, with their corresponding interrelations, within the macroeconomic system and from their role in ensuring the normal operation of the entire system. In this respect, it is invoked the impact of some financial-monetary components' functioning, with possible malfunctions reflected on the economic stability, and specific factors that determine financialmonetary instability. The development of research focuses on the analysis of some relevant manifestations of financial-monetary instability, marked by major imbalances expressed themselves, synthetically, through high variations of some specific indicators: inflation rate, bank loans interest rate, foreign exchange rate, etc. In this framework, most of the paper consists in econometric analysis, made through the prism of relations of determining that involve main factors generating financial-monetary instability, on the background of the conditions in Romania, in 2008-2013. There are taken so into calculations data for the previously mentioned indicators, considered as dependent variables, on the one hand, respectively those representing GDP, the NPLs volume, M2 monetary aggregate etc., considered as determinant factors and variables, on the other hand. On this basis, there are outlined conclusions and suggested some possibilities to counteract the financial-monetary instability.
    Keywords: Financial Monetary Imbalances; Inflation Rate; Exchange Rate, Interest Rate On Bank Loans; Non-Performing LoansLength: 49 pages
    JEL: C23 E63 G01
    Date: 2014–12
  53. By: Yunus Aksoy (University of London); Ron P. Smith (University of London); Tobias Grasl (University of London); Henrique S. Basso (Banco de España)
    Abstract: The effect of changes in demographic structure on medium-run trends of key macroeconomic variables is estimated using a panel VAR of 21 OECD economies. The panel data variability assists the identication of direct effects of demographics, while the dynamic structure uncovers long-term effects. Young and old dependants are found to have a negative impact while workers contribute positively. We propose a theoretical model, highlighting the relationship between demographics, innovation and growth, whose simulations match our empirical findings. The current trend of population aging and reduced fertility is found to reduce output growth and real interest rates across OECD countries
    Keywords: population age profile, medium-term, output growth, innovation, lifecycle
    JEL: E32 J11
    Date: 2015–10
  54. By: Eerola , Essi (Bank of Finland Research); Määttänen , Niku (Research Institute of the Finnish Economy, Aalto University and HECER)
    Abstract: We study the interaction of matching and credit frictions in the housing market. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. We analyze how borrowing constraints influence house price determination in the presence of matching frictions. We also show that credit frictions greatly magnify the effects of matching frictions. For instance, in the presence of matching frictions, a moderate tightening of the borrowing constraint increases idiosyncratic price dispersion and the average time-on-the-market substantially.
    Keywords: housing; borrowing constraint; matching
    JEL: C78 E21 R21
    Date: 2015–10–05
  55. By: Javier García-Cicco; Enrique Kawamura
    Abstract: This paper evaluates from a welfare perspective three policy alternatives for dealing with Dutch disease problems originating from cyclical movements in commodity prices: fiscal rules for government expenditures, capital controls, and taxes on domestic lending. A DSGE model of a small open economy is developed, with a sectoral decomposition that features three distinctive characteristics: financial frictions, a learning-by-doing externality in the industrial sector, and a fraction of households being non-Ricardian (credit constrained). The model is calibrated using Chilean data. For each policy tool, optimal simple rules are analyzed from a welfare (Ramsey) perspective, describing how different households rank the several policy alternatives, and studying how each of the models features shapes the optimal policy design. A general conclusion of the analysis is that the included Dutch disease inefficiencies are of quantitatively limited relevance in analyzing the desirability of these policies from a welfare perspective.
    Keywords: Fiscal management, Policy evaluation, Fiscal Policy, Taxation, Government budget, Dutch Disease, Fiscal procyclicality, Fiscal rules, Capital controls, Macro-prudential policies
    Date: 2015–07
  56. By: Fernando Avalos; Ramon Moreno; Tania Romero
    Abstract: This paper investigates the microeconomic determinants of leverage decisions by asset managers. Investment funds (the "buy side") have significantly increased their share of global capital flows in recent years. Unconventional monetary policies in advanced economies have squeezed returns while reducing borrowing costs, which in principle creates an incentive for asset managers to use more leverage. We start by studying the recent behaviour of fund leverage in different asset categories at an aggregate level. Leverage appears to have increased significantly in funds focused on the fixed income markets of emerging economies. Then we analyse the microeconomic factors that shape the leverage decision. In line with theory, we find that leverage rises with expected returns, and falls with market risk and borrowing costs. Transaction costs are also mentioned in the literature as another factor that should inhibit leverage. Lacking the requisite data, we introduce as proxies changes in capital controls and macroprudential policies, because they tend to affect expected returns in comparable ways. We find that tighter capital controls on inflows increase leverage rather than decrease it, but that macroprudential measures have no discernible effect. Finally, we discuss these results and their policy implications.
    Keywords: leverage, hedge funds/mutual funds, portfolio management, capital structure, capital controls, macroprudential measures
    Date: 2015–10
  57. By: de Bruijn, B.; Franses, Ph.H.B.F.
    Abstract: We introduce a new time series model that can capture the properties of data as is typically exemplified by monthly US unemployment data. These data show the familiar nonlinear features, with steeper increases in unem- ployment during economic downswings than the decreases during economic prosperity. At the same time, the levels of unemployment in each of the two states do not seem fixed, nor are the transition periods abrupt. Finally, our model should generate out-of-sample forecasts that mimic the in-sample properties. We demonstrate that our new and flexible model covers all those features, and our illustration to monthly US unemployment data shows its merits, both in and out of sample.
    Keywords: Markov switching, duration dependence, Gibbs sampling, unemployment, stochastic levels
    JEL: C11 C22 C24 C53 E24
    Date: 2015–09–23
  58. By: Nuguer Victoria
    Abstract: I develop a two-country DSGE model with global banks (financial intermediaries in one country lend to banks in the other country). Banks are financially constrained on how much they can borrow from households. The main goal is to obtain a framework that captures the international transmission of a financial crisis through the balance sheet of the global banks, as well as to explain the insurance mechanism of the international asset market. A negative shock to the value of the capital in one country generates a global financial crisis through the international interbank market. In this model, unconventional credit policies help to mitigate the effects of a financial disruption. The policies are carried out by the policy maker of the country directly hit by the shock. Consumers of that country are better off with policy than without it, while consumers from the other country are worse off.
    Keywords: Global financial crisis; global banking; asset prices; financial frictions
    JEL: G01 E44 F40 G21
    Date: 2015–03
  59. By: Elías Albagli; Alberto Naudon; Rodrigo Vergara
    Date: 2015–08
  60. By: Pedro Carneiro; Italo Lopez Garcia; Kjell G. Salvanes; Emma Tominey
    Abstract: We extend the standard intergenerational mobility literature by modelling individual outcomes as a function of the whole history of parental income, using data from Norway. We find that, conditional on permanent income, education is maximized when income is balanced between the early childhood and middle childhood years. In addition, there is an advantage to having income occur in late adolescence rather than in early childhood. These result are consistent with a model of parental investments in children with multiple periods of childhood, income shocks, imperfect insurance, dynamic complementarity, and uncertainty about the production function and the ability of the child.
    Keywords: Child human capital; intergenerational mobility; parental income timing; semiparametric estimation.
    JEL: J24 E24
    Date: 2015–10
  61. By: Mihály Hajnal (Magyar Nemzeti Bank (Central Bank of Hungary)); György Molnár (Magyar Nemzeti Bank (Central Bank of Hungary)); Judit Várhegyi (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: Exchange rate movements influence prices through numerous channels. In this paper we provide empirical evidence on pass-through of exchange rate movements into consumer prices. The pass-through depends on a number of factors, and its size may vary over time. In recent years, prices have responded less to a depreciation of the exchange rate than would have been warranted by estimates conducted before the crisis. Before the crisis a 1 per cent change in the exchange rate resulted in a 0.3 per cent change in price level after two years. Currently, the pass-through is estimated to be in the range of 0.1–0.2 per cent over a two-year horizon. Both cyclical (subdued demand) and structural (decline in level of inflation) factors have contributed to the weakening of the relationship.
    Keywords: exchange rate pass-through, inflation, time series models
    JEL: C32 E31 F31
    Date: 2015
  62. By: International Monetary Fund. African Dept.
    Abstract: Context: The authorities have demonstrated their commitment to the program by taking important steps towards advancing their macroeconomic and structural reforms, despite increasing economic and financial difficulties. The policy reform agenda for the remainder of the Staff-Monitored Program (SMP) consists of: (a) mitigating the impact of this year’s adverse shocks on the external position and growth; (b) improving the investment climate; (c) restoring confidence in the financial sector; and (d) garnering support for a strategy to clear arrears to the international financial institutions (IFIs). Recent developments, outlook, and risks: Zimbabwe's economic and financial conditions remain difficult because of inadequate external inflows given the arrears situation, low commodity prices which have kept liquidity conditions tight, and an appreciating U.S. dollar. Growth has slowed, unemployment is rising and increasingly there is a shift in economic activity to the informal sector. The external position remains precarious with very low levels of international reserves, and the country is in debt distress. Risks to the outlook stem mainly from fiscal challenges, weak global commodity prices, adverse weather conditions, and policy implementation in a difficult political environment. However, further advancing the reforms and reengaging with creditors could reopen Zimbabwe’s access to financial support that could reverse the adverse economic trend and lift the economic outlook. Program performance: The program is on track. Four of the five quantitative targets for end-June 2015, and all the structural benchmarks for the second review were met. Although a recently contracted $200 million nonconcessional loan breached the quantitative target on nonconcessional borrowing, it avoided the accumulation of additional external arrears. The authorities have made significant progress in implementing their reform agenda, particularly in financial sector and labor-market reforms. They are starting to take steps to rationalize public expenditure and reduce public sector employment costs. The authorities continue to see the SMP as a crucial tool in building a track record toward normalizing relations with creditors and addressing Zimbabwe’s deep seated structural issues. Reengagement with creditors: The authorities have intensified their reengagement with the international community, with the immediate objective of resolving arrears with the IFIs, and eventually seeking debt rescheduling under the umbrella of the Paris Club. To this end, they have developed a strategy for clearing Zimbabwe’s external arrears to IFIs, for which they intend to seek the support of creditors and development partners at a meeting on the sidelines of the 2015 annual meetings in Lima, Peru. Strong support from the Lima meeting, successful completion of the SMP and continued commitment by the authorities would set the stage for advancing the reengagement process with the IFIs and bilateral creditors.
    Keywords: Staff-monitored programs;Fiscal policy;External payments arrears;Fiscal reforms;Public enterprises;Banking sector;Bank supervision;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Zimbabwe;
    Date: 2015–10–08
  63. By: Cyntia Freitas Azevedo; Angelo Marsiglia Fasolo
    Abstract: This paper estimates time series of effective tax rates for consumption and factor incomes for Brazil, following the spirit of Mendoza et al (1994). The procedure to generate quarterly estimates of the tax base, using microdata from populational surveys, and the tax revenues seems to be appropriate, despite its simplicity, as the time series of the tax burden and the effective tax rates are in line with the historical Brazilian experience on fiscal policy. The estimated tax burden identifies a positive trend over time, despite the partial interruption after the international crisis in 2008. The paper also provides preliminary evidence on the properties of the computed effective tax rates and their relation with the business cycles
    Date: 2015–09
  64. By: Pancrazi, Roberto (Department of Economics University of Warwick); Seoane, Hernan D (Department of Economics, Universidad Carlos III de Madrid,); Vukotic, Marija (Department of Economics University of Warwick)
    Abstract: In this paper we examine the impact of bailout policies in small open economies that are subject to financial frictions. We extend standard endogenous default models in two ways. First, we augment the government’s choice set with a bailout option. In addition to the standard choice of defaulting or repaying the debt, a government can also choose to ask for a third-party bailout, which comes at a cost of an imposed borrowing limit. Second, we introduce financial frictions and a financial intermediation channel, which tie conditions on the private credit market to the conditions on the sovereign credit market. This link has been very strong in European countries during the recent sovereign crisis. We find that the existence of a bailout option reduces sovereign spreads and, through the described link, private credit rates as well. The implementation of a rescue program reduces output losses and increases welfare, measured in consumption equivalent terms. Moreover, bailout benefits emerge even when a government only has the option of asking for a bailout, but does not take advantage of it.
    Keywords: Default ; Sovereign Spread ; Private Spread ; Bailouts
    JEL: E44 F32 F34
    Date: 2015
  65. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Context: Outperformance fading - Australia has enjoyed exceptionally strong income growth for the past two decades. But the waning resource investment boom and sharp fall in the terms of trade have brought this to a halt. A cyclical recovery is likely in the near term, but over the medium term, income growth is likely to slow to a rate in line with other advanced economies. Policy agenda: Re-energizing growth by sustaining demand through the resource boom transition - Monetary policy should remain accommodative given the sizeable output gap and subdued inflation, and stand ready to ease further should the recovery fall short of expectations and provided financial stability risks remain contained.A small surplus should remain a longer-term anchor of fiscal policy. But the planned consolidation is somewhat more frontloaded than desirable. Increasing public investment would support demand and insure against downside growth risks.
    Keywords: Article IV consultation reports;Economic conditions;Economic growth;Demand;Fiscal policy;Productivity;Housing;Monetary policy;Economic indicators;Staff Reports;Press releases;Australia;
    Date: 2015–09–30
  66. By: Santiago Justel; Andrés Sansone
    Abstract: This paper investigates the exchange rate pass-through (ERPT) to different price indices in Chile. The analysis is carried out with a vector autoregressive (VAR) model with block exogeneity restrictions. Models were estimated using monthly data for Chile from January 1987 to December 2013. Average pass-through ratio to total CPI is estimated to be between 0.1 and 0.2 in the medium term. These results indicate a lower ERPT after the adoption of inflation targeting. Moreover, from 2002 onwards the effect of an exchange rate movement takes around four quarters to pass-through completely, compared to one to two years for the full sample.
    Date: 2015–02
  67. By: Azeem, Muhammad Mehtab; Ozari, Assit.Prof. Dr.Cidgem; Marsap, Prof.Dr.Akin; Arhab, Prof. Dr.Said; Jilani, Abdul Haseeb
    Abstract: In the recent years, E-banking is one of the most important revolutions in the banking sector of Pakistan. This study measures the impact of e commerce (B2B, B2C, C2C) on organization performance (Business operation, Job performance, Customer satisfaction).The sample of this research is collected from the banking sector of Pakistan from the period of 6 to 8 months by using 50 samples filling online from the period 2012 to 2013. Results show that there is positive relationship between e-commerce and organization performance and by implementing e commerce; organizations improve its performance in terms of business operations, job performance and customer satisfaction. Major research has been withdrawn from MBA thesis subject Impact of foreign banks on domestic banks businesses.
    Keywords: Electronic commerce, organization performance, business to business, business to customer, customer to customer.
    JEL: E5
    Date: 2015–06
  68. By: Stefano Bosi (EPEE - Université d'Evry); Cuong Le Van (Centre d'Economie de la Sorbonne - Paris School of Economics, IPAG Business School and VCREME); Ngoc-Sang Pham (Centre d'Economie de la Sorbonne and EPEE - Université d'Evry)
    Abstract: We build dynamic general equilibrium models with heterogeneous producers and financial market imperfections. First, we prove the existence of equilibrium. Second, we investigate the role of financial market imperfection in growth and land prices. Third, we introduce land dividends, then define and study land bubbles as well as individual land bubbles
    Keywords: Infinite horizon, general equilibrium, financial market imperfection, land bubbles
    JEL: C62 D53 D9 E44 G10
    Date: 2015–09
  69. By: Chu, Angus C.; Liao, Chih-Hsing; Liu, Xiangbo; Zhang, Mengbo
    Abstract: This study explores the effects of inflation on economic growth in a monetary search-and-matching model with productive government expenditure. Our results can be summarized as follows. When labor intensity in the production function is below a threshold value, the economy features a unique balanced growth equilibrium in which inflation reduces economic growth. When labor intensity in the production function is above a threshold value, the economy may feature multiple balanced growth paths. Multiple equilibria (i.e., global indeterminacy) arise when the matching probability in the decentralized market is sufficiently large. In this case, the high-growth equilibrium features a negative effect of inflation on economic growth whereas the low-growth equilibrium features a U-shaped effect of inflation on growth. Furthermore, under a sufficiently large matching probability in the decentralized market, both equilibria are locally determinate, and hence, either equilibrium may emerge in the economy.
    Keywords: Economic growth; inflation; money; random matching ; indeterminacy
    JEL: E3 E4 O42
    Date: 2015–10
  70. By: International Monetary Fund. African Dept.
    Abstract: he final review of the 2010-2014 program under the Policy Support Instrument (PSI) was completed in December 2014. The authorities have requested a successor PSI for 2015-2017. Performance under the two previous PSIs was mixed. Fiscal and debt sustainability were broadly achieved, but growth and poverty reduction outcomes were less favorable than initially programmed due to delays in implementing structural reforms.
    Keywords: Policy Support Instrument;Economic growth;Fiscal policy;Government expenditures;Fiscal reforms;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Letters of Intent;Extended arrangement requests;Press releases;Senegal;
    Date: 2015–09–29
  71. By: Michel Fliess (LIX - Laboratoire d'informatique de l'école polytechnique [Palaiseau] - Polytechnique - X - CNRS, ALIEN); Cédric Join (INRIA Lille - Nord Europe - INRIA, CRAN - Centre de Recherche en Automatique de Nancy - CNRS - UL - Université de Lorraine, ALIEN)
    Abstract: Recent advances in the understanding of time series permit to clarify seasonalities and cycles, which might be rather obscure in today's literature. A theorem due to P. Cartier and Y. Perrin, which was published only recently, in 1995, and several time scales yield, perhaps for the first time, a clear-cut definition of seasonalities and cycles. Their detection and their extraction, moreover, become easy to implement. Several computer experiments with concrete data from various fields are presented and discussed. The conclusion suggests the application of this approach to the debatable Kondriatev waves.
    Keywords: time scales, nonstandard analysis, deseasonalization, Kondriatev waves,time series, seasonalities, cycles, decomposition, detection, extraction, trend
    Date: 2015–12–14
  72. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: I thank President Rosengren and the Boston Fed for the opportunity to participate in this year’s economic conference. This conference series has been a source of valuable discussions and insights over many years, and I’m happy to note that this year’s conference marks number 59 in the series, a remarkable track record. I’m even happier to say that I, myself, haven’t yet reached that milestone – although it does remain a goal of mine!
    Date: 2015–10–07
  73. By: International Department (Bank of Japan)
    Abstract: Until last year, the International Department of the Bank published two separate annual reports on developments in Japan's balance of payments (BOP) and international investment position (IIP) under the BOJ Reports & Research Papers series. From this year onward, however, developments in Japan's BOP and IIP -- for the preceding calendar year and at year-end of the preceding calendar year, respectively -- will be presented collectively in a single annual report. This reflects the switch to the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) as the basis for the compilation of Japan's BOP related statistics for data from January 2014 onward. Published by the International Monetary Fund (IMF), the Balance of Payments Manual provides the international standard for compiling the BOP and IIP. In the revision of the manual for the sixth edition, balance sheet items were expanded, allowing analyses that more organically connect transactions in the current and financial accounts as well as the IIP. This was the result of a series of discussions among a group of statistical experts organized by the IMF, reflecting the growing international interest in balance sheet vulnerabilities after currency crises. Against this background, this report aims to present the BOP and IIP in a more unified manner. In addition, this report presents, in several boxes, analyses of new data series that became available with the switch to the BPM6-based statistics. First, Box 1 outlines the switch to the BPM6-based statistics in Japan while briefly explaining the background to the revision of the Balance of Payments Manual for the sixth edition. Then, using data series newly released with the switch to the BPM6-based statistics, Boxes 3 and 7 respectively examine developments in direct investment income by region and industry, and in the composition of yen-denominated assets and foreign currency-denominated liabilities.
    Date: 2015–09–30
  74. By: Gerardo Alberto Villa Durán
    Abstract: En este artículo se estudia la actividad económica de Medellín entre 1984 y 2007 a través de un indicador sintético, un índice coincidente, que resume la evolución de la actividad en forma agregada. El indicador mensual compuesto se construye siguiendo la metodología propuesta por Stock y Watson, y en ese sentido no registra ninguna innovación. Siguiendo el mismo procedimiento utilizado en el caso de Medellín se construye un índice para Colombia y se compara con el de Medellín. Se utilizan como variables el número total de trabajadores, un indicador del comercio al por menor, el ingreso mediano de los trabajadores y el consumo de energía eléctrica en Medellín. Para Colombia, la masa salarial, el consumo de energía eléctrica en el sistema interconectado nacional; el índice de comercio al por menor y, finalmente, los ingresos medianos. El estudio constituye una interpretación de la economía de la ciudad construida en el contexto de indicadores cíclicos, sobre la base de un modelo estadístico.
    Keywords: Indicadores económicos de Medellín, ciclo económico Medellín, indicador sintético, índice coincidente.
    JEL: R15 R3 E32
    Date: 2014–01–23
  75. By: Noriega Antonio E.; Ramos Francia Manuel; Rodríguez-Pérez Cid Alonso
    Abstract: This paper presents an econometric analysis of the demand for the monetary aggregate M1 in Mexico. Using cointegration techniques, we identify both a stable long-run relationship between M1 and its determinants, and a statistically sound single-equation error-correction model. Results are used to carry out the following simple applications: (1) empirical determination of the value and stability of dual inflationary equilibria, given the observed seigniorage levels; (2) calculation of the seigniorage maximizing inflation rate, and (3) analysis of the potential relationship between a measure of excess money and inflation. Results indicate that the low inflation equilibrium is stable, and that the excess money indicator shows, in retrospective, some capacity in predicting inflationary pressures.
    Keywords: Demand for money; seigniorage; inflation; dual inflationary equilibria; cointegration; general to specific; money gap.
    JEL: C22 C32 E31 E41 H62
    Date: 2015–07
  76. By: Xiongzhi Chen
    Abstract: This article gives the explicit solution to a general vector time series model that describes interacting, heterogeneous agents that operate under uncertainties but according to Keynesian principles, from which a model for business cycle is induced by a weighted average of the growth rates of the agents in the model. The explicit solution enables a direct simulation of the time series defined by the model and better understanding of the joint behavior of the growth rates. In addition, the induced model for business cycles and its solutions are explicitly given and analyzed. The explicit solutions provide a better understanding of the mathematics of these models and the econometric properties they try to incorporate.
    Date: 2015–10
  77. By: Pancrazi, Roberto (Department of Economics University of Warwick); Mengus , Eric (HEC Paris)
    Abstract: We show that the transition from an economy characterized by idiosyncratic income shocks and incomplete markets a la Aiyagari (1994) to markets where statecontingent assets are available but costly (in order to purchase a contingent asset, households have to pay a xed participation cost) leads to a large increase of wealth inequality. Using a standard calibration our model can match a Gini of 0.93 close to the level of wealth inequality observed in the US. In addition, under this level of participation costs, wealth inequality is particularly sensitive to income inequality. We label this phenomenon as the Inequality Accelerator. We demonstrate how costly access to contingent asset-markets generates these eects. The key insight stems from the non-monotonic relationship between wealth and desired degree of insurance, in an economy with participation costs. Poor borrowing constrained households remain uninsured, middle-class households are almost perfectly insured, while rich households decide to self-insure by purchasing risk-free assets. This feature of households' risk management has crucial eects in asset prices, wealth inequality, and social mobility.
    Keywords: Wealth Inequality ; Participation costs ; Insurancecreation-date: 2015
    JEL: D31 E21 G11
  78. By: Tatiana Cesaroni (Bank of Italy)
    Abstract: This paper evaluates the characteristics of a Point in Time (PiT) rating approach for the estimation of firms’ credit risk in terms of procyclicality. To this end I first estimate a logit model for the probability default (PD) of a set of Italian non-financial firms during the period 2006-2012, then, in order to address the issue of rating stability (hedging against rating changes) during the financial crisis, I study the effectiveness of ex post smoothing of PDs in terms of obligors’ migration among rating risk grades. As a by-product I further discuss and analyse the role played by the choice of rating scale in producing ratings stability. The results show that ex post PD smoothing is able to remove business cycle effects on the credit risk estimates and to produce a mitigation of obligors’ migration among risk grades over time. The rating scale choice also has a significant impact on rating stability. These findings have important policy implications in banking sector practices in terms of the stability of the financial system.
    Keywords: procyclicality, business cycle, financial stability, PiT rating system, long run probability default
    JEL: C32 E32 G24 G32
    Date: 2015–09
  79. By: Carrillo Julio A.; Elizondo Rocío
    Abstract: We study the ability of exclusion and sign restrictions to measure monetary policy shocks in small open economies. Our Monte Carlo experiments show that sign restrictions systematically overshoot inflation responses to the said shock, so we propose to add prior information to limit the number of economically implausible responses. This modified procedure robustly recovers the transmission of the shock, whereas exclusion restrictions show large sensitivity to the assumed monetary transmission mechanism of the model and the set of foreign variables included in the VAR. An application with Mexican data supports our findings.
    Keywords: Exclusion Restrictions; Sign Restrictions; Small Open Economy; Monetary Policy Shock.
    JEL: C32 E52
    Date: 2015–09
  80. By: Domagoj RaÄić (Independent Expert); Jadranka Å varc (Independent Expert)
    Abstract: In the frame of the Stairway to Excellence project, complex country analysis was performed for the EU MS that joined the EU since 2004, with the objective to assess and corroborate all the qualitative and quantitative data in drawing national/regional FP7 participation patterns, understand the push–pull factors for FP7/H2020 participation and the factors affecting the capacity to absorb cohesion policy funds. This report articulates analysis on selected aspects and country-tailored policy suggestions aiming to tackle the weaknesses identified in the analysis. The report complements the complex qualitative/ quantitative analysis performed by the IPTS/KfG/S2E team. In order to avoid duplication and cover all the elements required for a sound analysis, the report builds on analytical framework developed by IPTS.
    Keywords: Research and Innovation, EU Framework Programme for Research and Innovation, Horizon 2020, Cohesion policy, Structural Funds, SF, ERDF, European Regional Development Fund, European Structural & Investment Funds, ESIF, quality of governance, evaluation and monitoring mechanisms.
    Date: 2015–10
  81. By: Philip Abbott; Finn Tarp; Ce Wu
    Abstract: Employment in Vietnam and elsewhere in Asia has grown more slowly than GDP over the last several decades. This means GDP per capita is rising. Vietnamese policymakers, however, are concerned that ongoing structural transformation is creating too few jobs. We use data for seven aggregated sectors and the overall Vietnamese economy to examine the roles played by structural transformation, technical change, and institutional bias toward capital intensive development to evaluate the Vietnamese development experience. We find that while some of the difference between GDP and employment growth can be attributed to capital intensive investment by the state, the majority of the difference is due to technical change. A positive rather than a pessimistic overall assessment is warranted based on the available evidence
    Keywords: employment, labour demand, structural transformation, biased technological change, minimum wage, state investment, Leontief production function, Vietnam
    Date: 2015
  82. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: Macroeconomic indicators are improving, but growth remains sluggish. Growth has been revised down to 1.4 percent for FY2015/16 as drought continues to impede agricultural growth for a second year in a row. Inflation is projected to be 4½ percent this fiscal year, tempered by low global oil prices. The government’s proactive liability management operation to buyback the debt owed to Venezuela’s PDVSA has lowered debt; the ongoing fiscal effort should ensure it remains firmly on a downward trajectory.
    Keywords: Extended Fund Facility;Fiscal policy;Fiscal reforms;Monetary policy;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Letters of Intent;Performance criteria modifications;Jamaica;
    Date: 2015–09–24
  83. By: Carrera, Cesar (Banco Central de Reserva del Perú); Ledesma, Alan (UC Santa Cruz)
    Abstract: We forecast 18 groups of individual components of the Consumer Price Index (CPI) using a large Bayesian vector autoregressive model (BVAR) and then aggregate those forecasts in order to obtain a headline inflation forecast (bottom-up approach). De Mol et al. (2006) and Banbura et al. (2010) show that BVAR's forecasts can be significantly improved by the appropriate selection of the shrinkage hyperparameter. We follow Banbura et al. (2010)'s strategy of "mixed priors," estimate the shrinkage parameter, and forecast inflation. Our findings suggest that this strategy for modeling outperform the benchmark random walk as well as other strategies for forecasting inflation.
    Date: 2015–07
  84. By: Nagler P. (UNU-MERIT)
    Abstract: The introduction of unemployment insurance savings accounts UISA in Chile in October 2002 led to more comprehensive unemployment protection while decreasing the opportunity cost of job change. Using a difference-in-differences approach this paper examines whether the introduction of UISA had an impact on the dierences in subsequent wages and contract types of i workers changing into a new employment, and ii workers experiencing a period of unemployment before re-entering the labour market. The analysis uses longitudinal social protection data and is the first to empirically investigate the effect of UISA on subsequent employment quality. The findings suggest that the introduction of the UISA scheme had a small negative effect on the wage difference of formal private sector workers, but no effect on contract types. Using informal private sector workers as a control group, only workers of the treatment group experiencing a period of unemployment show statistically different and positive results in wage growth. The robustness analysis, using an alternative as if introductory date and a different control group, largely supports these findings. The paper therefore concludes that the effect of UISA affiliation on wage growth is slightly negative, but positive compared to a control group for workers experiencing a period of unemployment, leading to a marginally higher employment quality for this latter group.
    Keywords: Single Equation Models; Single Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Multiple or Simultaneous Equation Models: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Unemployment: Models, Duration, Incidence, and Job Search; Unemployment Insurance; Severance Pay; Plant Closings; Mobility, Unemployment, and Vacancies: Public Policy; Economywide Country Studies: Latin America; Caribbean;
    JEL: C21 C31 E24 J64 J65 J68 O54
    Date: 2015
  85. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary Although a certain amount of catching-up in the Western Balkans has been recorded in the construction of transport infrastructure in recent years, the railway density remains low and the motorway density is even lower. Also, the deficiency in energy infrastructure is substantial. The current initiative of the ‘Core Network and Priority Projects’ in the context of the ‘Berlin Process’ should secure growth and employment in the region over the short and medium term and contribute to a substantial improvement of competitiveness of the Western Balkans in the long term. It is shown in the analysis that a comprehensive transport infrastructure investment package of EUR 7.7 billion over a period of 15 years could lead to an additional growth spurt of up to one percentage point per annum for the six Western Balkan countries. Some 200,000 new jobs could be created in the region.
    Keywords: infrastructure, public investment, economic development, simulation model, Berlin Process, Western Balkans
    JEL: E27 H54 O18
    Date: 2015–09
  86. By: Martin Ravallion
    Abstract: While much progress has been made over the last 25 years in measuring global poverty, there are a number of challenges ahead. The paper discusses three sets of problems: (i) how to allow for social effects on welfare, recognizing the identification issues involved; (ii) the need to monitor progress in raising the consumption floor above its biological level, in addition to counting the number of people living near the floor; and (iii) addressing the longstanding concerns about prevailing approaches to making inter-country comparisons of price levels facing poor people. Some suggestions are offered for operational solutions, building on past research.
    Keywords: Absolute poverty, relative poverty, consumption floor, Purchasing Power Parity, International Comparison Program.
    JEL: I32 E31 O10
    Date: 2015–09
  87. By: Rabah Arezki; Valerie A Ramey; Liugang Sheng
    Abstract: This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.
    Keywords: Oil sector;External shocks;Oil production;Current account;Open economies;oil, news shocks, current account and business cycles
    Date: 2015–09–29
  88. By: Asatryan, Zareh; Foremny, Dirk; Heinemann, Friedrich; Solé-Ollé, Albert; Stratmann, Thomas; Yeter, Mustafa
    Abstract: Over the past five years, the euro area's fiscal rules have been reformed and extended. It is not clear, however, whether these changes have been effective at boosting fiscal prudence, and whether they go far enough. This policy paper summarises recent research findings from a Spanish-German-American team led by ZEW. The study considers the general effectiveness of fiscal rules in the past and the interactions between rules, political factors and fiscal equalization. One key recommendation is that fiscal governance should pay more attention to budgetary developments in the seemingly good times, explicitly addressing the use of windfall revenues and the build-up of large bureaucracies.
    Date: 2015
  89. By: Miura, Shinji
    Abstract: The equation of exchange is well-known as a quantitative expression of money circulation, but it has a defect in that the relation between the velocity of money and the situation of economic agents is not clear. This paper attempts to found the velocity which pays attention to movement of money. For that purpose, this paper shows a money circulation equation in which agents of the whole society are unified. If this equation has a unique solution, the velocity of money is reduced to the expenditure rate of the whole society. Thereby, the defect of the equation of exchange can be remedied. Our attempt can be interpreted as connecting the velocity of money with the multiplier analysis. Success or failure of the trial depends on its solvability. This solvability problem of the money circulation equation is closely related to the missing problems of the monetary budget constraint. This paper also attempts to explain the missing problems in the case of the budget constraint of the whole society. This paper explains that a time irreversible disposal solves those problems by using an analogy.
    Keywords: Equation of Exchange; Money Circulation; Budget Constraint
    JEL: C2 E4
    Date: 2015–10–10
  90. By: Timothy Irwin
    Abstract: Fiscal reporting is intended to warn of fiscal crises while there is still time to prevent them. The recent crisis thus seems to reveal a failure of fiscal reporting: before the crisis, even reports on fiscal risk typically did not mention banks as a possible source of fiscal problems. One reason for silence was that the risk arose partly from implicit guarantees, and governments may have feared that disclosure would increase moral hazard. The crisis cast doubt, however, on the effectiveness of silence in mitigating risks. This paper discusses how fiscal risks from the financial sector could be discussed in reports on fiscal risk, with a view to encouraging their mitigation.
    Keywords: Financial sector;Moral hazard;Fiscal risk;Contingent liabilities;Financial crises;Financial crises;Risk management;Implicit guarantees, fiscal risks, financial crisis, budget reports, guarantees, debt, liabilities, Forecasts of Budgets, Deficits, and Debt,
    Date: 2015–09–28
  91. By: Inoue,Tomoo; Kaya,Demet; Ohshige,Hitoshi
    Abstract: An export-oriented development strategy fostered the Asia Paci?c region?s economic success, making it the fastest growing region in the world. In recent years, despite waning demand from the crisis-hit Western economies, the accelerating demand from China boosted intraregional trade in Asia. Although China?s Asian trading partners bene?t from increasing exports to China, this stronger linkage with China has made them more vulnerable to the risk of a Chinese slowdown. This paper examines the impact of a negative Chinese gross domestic product (GDP) shock on Asian economies by employing the Global Vector Autoregressive (GVAR) model, using the dataset through the third quarter of 2014 for 33 countries. The analysis finds that a negative Chinese GDP shock impacts commodity exporters, such as Indonesia, to the greatest extent, re?ecting both demand and terms of trade shocks. Export-dependent countries in the East Asian production cycle, such as Japan, Malaysia, Singapore and Thailand, are also severely a?ected. The analysis also finds that a negative shock to China?s real GDP would not only have an adverse e?ect on the price of crude oil, as some previous studies have also shown, but also on the prices of metals and agricultural products. The study also investigates the impact of a potential negative shock to the real GDP of the United States on Asian countries, and determines that although the U.S. economy has a larger in?uence on Asian economies than China?s economy, the Asian countries are more exposed to China than ever through increased economic ties.
    Keywords: Economic Theory&Research,Debt Markets,Emerging Markets,Currencies and Exchange Rates,Markets and Market Access
    Date: 2015–10–14
  92. By: Matthias Morys (Department of Economics, University of York)
    Abstract: We add a historical and regional dimension to the debate on the Greek debt crisis. Analysing the 1841-1939 exchange-rate experience of Greece, Bulgaria, Romania and Serbia/Yugoslavia, we find surprising parallels to the present: repeated cycles of entry to and exit from gold, government debt build-up and default, and financial supervision by West European countries. Periods of stable exchange-rates were more short-lived than in any other part of Europe as a result of “fiscal dominance”, i.e., a monetary policy subjugated to the treasury’s needs. Granger causality tests show that patterns of fiscal dominance were only broken under financial supervision, when strict conditionality scaled back the influence of treasury; only then were central banks able to pursue a rule-bound monetary policy and, in turn, stabilize their exchange-rates. Fiscal institutions have remained weak in the case of Greece and are at the heart of the current crisis. A lesson for today might be that the EU-IMF programmes – with their focus on improving fiscal capacity and made effective by conditionality similar to the earlier South-East European experience – remain the best guarantor of continued Greek EMU membership. Understandable public resentment against “foreign intrusion” needs to be weighed against their potential to secure the long-term political and economic objective of exchange-rate stabilisation.
    Keywords: fiscal dominance, gold standard, financial supervision, South-East Europe
    JEL: N13 N14 N23 N24 E63 F34
    Date: 2015–09
  93. By: Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Susan W. Parker (Center for Research and Teaching in Economics, Centro de Investigación y Docencia Económicas (CIDE)); Ana Cristina PeÌrez-Gea (Instituto Tecnológico Autónomo de México (ITAM)); Rodimiro Rodrigo (SecretariÌa de Hacienda y CreÌdito PuÌblico, MeÌxico)
    Abstract: We use a database generated by a policy intervention that incentivized learning as measured by standardized exams to investigate empirically the relationship between cheating by students and cash incentives to students and teachers. We adapt methods from the education measurement literature to calculate the extent of cheating, and show that cheating is more prevalent under treatments that provide monetary incentives to students (versus no incentives, or incentives only to teachers), both in the sense of a larger number of cheating students per classroom and in the sense of more cheating relations per classroom. We also provide evidence of learning to cheat, with both the number of cheating students per classroom and the average number of cheating relations increasing over the years under treatments that provide monetary incentives to students.
    Date: 2015–10
  94. By: Gottlieb, Charles
    Abstract: This paper undertakes a quantitative investigation of the effects of anticipated inflation on the distribution of household wealth and welfare. Consumer Finance Data on household financial wealth suggests that about a third of the US population holds all its financial assets in transaction accounts. The remaining two-third of the US population holds most of their financial assets outside transaction accounts. To account for this evidence, I introduce a portfolio choice in a standard incomplete markets model with heterogeneous agents. I calibrate the model economy to SCF 2010 US data and use this environment to study the distributive effects of changes in anticipated inflation. An increase in anticipated inflation leads households to reshuffle their portfolio towards real assets. This crowding-in of supply for real assets lowers equilibrium interest rates and thereby redistributes wealth from creditors to borrowers. Because borrowers have a higher marginal utility, this redistribution improves aggregate welfare. First, this paper shows that inflation acts not only a regressive consumption tax as in Erosa and Ventura (2002), but also as a progressive tax. Second, this paper shows that the welfare cost of inflation are even lower than the estimates computed by Lucas (2000) and Ireland (2009). Finally, this paper offers insights into why deflationary environments should be avoided.
    Keywords: Anticipated Inflation,Monetary Policy,Incomplete markets,Heterogeneous agents,Endogenous Asset Market Participation
    Date: 2015
  95. By: Marianna Riggi (Bank of Italy); Fabrizio Venditti (Bank of Italy)
    Abstract: In this paper we provide novel evidence on changes in the relationship between the real price of oil and real exports in the euro area. By combining robust predictions on the sign of the impulse responses obtained from a theoretical model with restrictions on the slope of the oil demand and oil supply curves, we identify oil supply and foreign productivity shocks in a time varying VAR with stochastic volatility. We find that from the 1980s onwards the relationship between oil prices and euro area exports has become less negative conditional on oil supply shortfalls and more positive conditional on foreign productivity shocks. Using the theoretical model we show that our empirical findings can be accounted for by (i) stronger trade relationship between the euro area and emerging economies (ii) a decrease in the share of oil in production and (iii) increased competitive pressures in the product market.
    Keywords: oil prices, VAR, time-varying parameters, exports
    JEL: C32 E3 F14
    Date: 2015–09
  96. By: Harashima, Taiji
    Abstract: Under floating exchange rates, there is a mechanism that generates persistent current account imbalances at a competitively achieved steady state. Even if preferences are heterogeneous, sustainable heterogeneity in which all optimality conditions of all heterogeneous households are satisfied can be achieved if relatively advantaged households do not behave unilaterally. Even if households of a relatively advantaged country behave unilaterally, households in less advantaged countries can counter the unilateral behavior under floating exchange rates and achieve optimality even with persistent current account surpluses or deficits. The observed persistent current account imbalances in many countries in recent decades are shown to be basically consistent with the predictions of this model.
    Keywords: Current account imbalance; Floating exchange rate; Heterogeneity
    JEL: E10 F30 F31
    Date: 2015–10–11
  97. By: KUROSE, Kazuhiro
    Abstract: Although structural analysis was one of the central subjects in economics, its importance fell by the wayside, especially after aggregate macroeconomic growth models became popular in the 20th century. However, structural analysis has been revived recently and a new research agenda has emerged: to examine whether structural change can be reconciled with Kaldor's facts. This is an interesting agenda from both the theoretical and empirical point of view. Since Kaldor's facts are thought of as a sort of balanced growth path, this concept is extended so as to reconcile structural change with Kaldor's facts. In this study, we review the multi-sectoral models in which structural change can be reconciled with Kaldor's facts. We demonstrate that the common feature of all reviewed multi-sectoral models of structural change is that they are regarded as natural extensions of the one-sector model of growth and then somehow transformed into the one-sector model. However, we assert that it is not an adequate treatment of multi-sectoral models when structural change is focused. The transformation of multi-sectoral models into the one-sector model assumes a homogeneous capital but capital consists of heterogeneous commodities in modern capitalist economies. It reminds us of the lessen of the Cambridge capital controversies that the properties obtained by the one-sector model do not necessarily hold in multi-sectoral models when capital consists of heterogeneous commodities and the choice of techniques is allowed. From the empirical point of view, it is one of the important characteristics that the change in the composition of physical capital is systematically related to income growth. However, the models in which only homogeneous capital is included cannot focus on the characteristic. Whether or not structural change can be reconciled with Kaldor's facts in the models with heterogeneous capital is still an open question.
    Keywords: structural change, Kaldor's facts, balanced growth path, Cambridge capital controversies, heterogeneous capital
    JEL: B24 E12 O14 O41
    Date: 2015–10–05

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