nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒11‒01
87 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Notes on the Underground: Monetary Policy in Resource-Rich Economies By Andrea Ferrero; Martin Seneca
  2. Are more severe recessions followed by stronger recoveries? Evidence from the Mexican states employment By Pablo Mejía-Reyes; Reyna Vergara-González
  3. The Role of Uncertain Government Preferences For Fiscal and Monetary Policy Interaction By Olga S. Kuznetsova; Sergey A. Merzlyakov
  4. Credit, Asset Prices and Business Cycles at the Global Level By Stephane Dees
  5. Government and private e-money-like systems: federal reserve notes and national bank notes By Weber, Warren E.
  6. Interest Rate Dynamics, Variable-Rate Loan Contracts, and the Business Cycle By Pintus, Patrick A.; Wen, Yi; Xing, Xiaochuan
  7. Monetary policy in Turkey after Central Bank independence By Gürkaynak, Refet S.; Kantur, Zeynep; Tas, M. Anil; Yildirim, Secil
  8. Real Money and Economic Growth By BLINOV, Sergey
  9. "Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935-75" By Josh Ryan-Collins
  10. Monetary Seigniorage in an Emerging Economy: Is there a scope for "free lunch" in financing public investment? By Chakraborty, Lekha S
  11. Central bank credibility and the expectations channel: Evidence based on a new credibility index By Grégory Levieuge; Yannick Lucotte; Sébastien Ringuedé
  12. "Money Creation under Full-reserve Banking: A Stock-flow Consistent Model" By Patrizio Laina
  13. Failure to Launch: Housing, Debt Overhang, and the In?ation Option During the Great Recession By Aaron Hedlund
  14. The Coming U.S. Interest Rate Tightening Cycle: Smooth Sailing or Stormy Waters? By Carlos Arteta; M. Ayhan Kose; Franziska Ohnsorge; Marc Stocke
  15. The Permanent Effects of Fiscal Consolidations By Fatás, Antonio; Summers, Lawrence
  16. Optimal Fiscal Policy with Uninsurable Idiosyncratic Shocks]{Optimal Fiscal Policy in a Model with Uninsurable Idiosyncratic Shocks By Sebastian Dyrda; Marcelo Pedroni
  17. Household debt and crises of confidence By Hintermaier, Thomas; Koeniger, Winfried
  18. Optimal Fiscal Policy in a Model with Uninsurable Idiosyncratic Shocks By Sebastian Dyrda; Marcelo Pedroni
  19. Macroeconomic Effects of Oil Price Fluctuations on Emerging and Developed Economies in a Model Incorporating Monetary Variables By Taghizadeh-Hesary, Farhad; Yoshino, Naoyuki
  20. The Pitfalls of External Dependence: Greece, 1829-2015 By Reinhart, Carmen M.; Trebesch, Christoph
  21. Detecting unemployment hysteresis : a simultaneous unobserved components model with Markov switching By Klinger, Sabine; Weber, Enzo
  22. Conceptual Bases of Effective Use of the Integration Potential of the CIS By Ulyukaev, Sergey; Sheryay, K. I.
  23. Global Economic Divergence and Portfolio Capital Flows to Emerging Markets By Zeyyad Mandalinci; Haroon Mumtaz
  24. News shocks in the data: Olympic Games and their macroeconomic effects – Reply By Viktoria C. E. Langer; Wolfgang Maennig; Felix J. Richter
  25. Tales of Transition Paths: Policy Uncertainty and Random Walks By Matthes, Christian; Hollmayr, Josef
  26. The Regional Effects of Macroeconomic Shocks in China By Anping Chen; Nicolaas Groenewold
  27. Lending-of-last-resort is as lending-of-last-resort does: Central bank liquidity provision and interbank market functioning in the euro area By Garcia de Andoain, Carlos; Heider, Florian; Hoerova, Marie; Manganelli, Simone
  28. Risk, Intermediate Input Prices and Missing Deflation During the Great Recession By Engin Kara; Ahmed Jamal Pirzaday
  29. Debt sustainability and economic convergence of euro-area Member States: Challenges and Solutions By P. Manasse
  30. Marginal Tax Rates and Income: New Time Series Evidence By Mertens, Karel
  31. Good news about news shocks By Viktoria C. E. Langer
  32. Implementing Loan-To-Value and Debt-To-Income ratios: Learning from country experiences. The case of Poland By Beata Bierut,; Tomasz Chmielewski; Adam Głogowski,; Sławomir Zajączkowski; Andrzej Stopczyński
  33. Environmental Macroeconomics: A critical literature review and future empirical research directions By Halkos, George; Paizanos, Epameinondas
  34. Does the Fisher Hypothesis Hold in Sweden? An Analysis of Long-Term Interest Rates under the Regime of Inflation Targeting By Takayasu Ito
  35. Estimating and explaining changes in potential growth in South Africa By Johannes Kemp; Ben Smit
  37. Assessing the macroeconomic impact of bank intermediation shocks: a structural approach By Chen, kaiji; Zha, Tao
  38. Income Inequality and Asset Prices under Redistributive Taxation By Pástor, Luboš; Veronesi, Pietro
  39. Distributional Consequences of Asset Price Inflation in the Euro Area By Adam, Klaus; Tzamourani, Panagiota
  40. Causal Relations between Knowledge-Intensive Business Services and Regional Employment Growth By Thomas Brenner; Marco Capasso; Matthias Duschl; Koen Frenken; Tania Treibich
  41. Effects of Monetary Policy Shocks on UK Regional Activity: A Constrained MFVAR Approach By Zeyyad Mandalinci
  42. Asymmetric credit growth and current account imbalances in the euro area By Unger, Robert
  43. Forecasting Revisions of German Industrial Production By Wohlrabe, Klaus; Bührig, Pascal
  44. Investment Hangover and the Great Recession By Andrei Shleifer; Alp Simsek; Matthew Rognlie
  45. Completing the unfinished house: Towards a genuine economic and monetary union? By Issing, Otmar
  46. Clustered Housing Cycles By Hernandez-Murillo, Ruben; Owyang, Michael T.; Rubio, Margarita
  47. An Urban Accounting for Geographic Concentration of Skills and Welfare Inequality By Yuming Fu; Yang Hao
  48. A New Model of Inflation, Trend Inflation, and Long-Run Inflation Expectations By Chan, Joshua C C; Clark, Todd E.; Koop, Gary
  49. Alternative measures of credit extension for countercyclical buffer decisions in South Africa By Raputsoane, Leroi
  51. Government spending and the exchange rate By Giorgio Di Giorgio; Salvatore Nisticò; Guido Traficante
  52. Measuring Economic Policy Uncertainty By Baker, Scott R.; Bloom, Nicholas; Davis, Steven J
  53. The Evolution of Manufacturing Employment in Canada: The Role of Outsourcing By Evan Capeluck
  54. The size and determinants of fiscal multipliers in Western Balkans: comparing Croatia, Slovenia and Serbia By Milan Deskar Škrbić; Hrvoje Šimović
  55. Central Bank Independence and Inflation in Transition Economies: A Comparative Meta-Analysis with Developed and Developing Economies By Iwasaki, Ichiro; Uegaki, Akira
  56. The making of inequality.Capital, labour and the distribution of income. By Maurizio Franzini; Mario Pianta
  57. Effect of Housing on Net Error Omissions: An Application to Turkey Case By Dilek ALTAS; Gulen Arikan
  58. The impact of oil price shocks on the U.S. stock market: a note on the roles of U.S. and non-U.S. oil production By Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L.
  59. Approximating Time Varying Structural Models With Time Invariant Structures By Canova, Fabio; Ferroni, Filippo; Matthes, Christian
  60. Interactions between financial markets and macroeconomic variables in EU: a nonlinear modeling approach By Lucian-Liviu Albu; Radu Lupu; Adrian Cantemir Calin
  61. Bank Leverage: Does Currency Diversification Really Matter? By Justine Pedrono; Aurélien Violon
  63. Estimating New Zealand’s neutral interest rate By Adam Richardson; Rebecca Williams
  64. Accounting for the Rise in College Tuition By Grey Gordon; Aaron Hedlund
  65. Granger Causality and Regime Inference in Bayesian Markov-Switching VARs By Matthieu Droumagueta; Anders Warneb; Tomasz Wozniakc
  66. Explanations of the Decline in Manufacturing Employment in Canada By Evan Capeluck
  67. Diagnosing Growth Constraints in Central Asia: The Case of the Kyrgyz Republic By Meerim Sydykova
  68. The impact of firm financing constraints on R&D over the business cycle By Kadri Männasoo; Jaanika Meriküll
  69. Bayesian Inference on Structural Impulse Response Functions By Mikkel Plagborg-Møller
  70. Capital humano: desafios para a Rússia By Vladimir Mau
  71. Preventing Self-Fulfilling Crises By Michal Szkup
  72. Provincial Public Expenditure in China: A Tale of Profligacy By Jean-Louis Combes; Mary-Françoise Renard; Sampawende Jules Tapsoba
  73. Immigration Policy and Macroeconomic Performance in France By Ekrame Boubtane; Dramane Coulibaly; Hippolyte D'Albis
  74. Interregional Differentiation of the Youth Unemployment Rate in Russia By Tatiana Blinova; Vladimir Markov; Victor Rusanovskiy
  75. Optimal Capital Requirements over the Business and Financial Cycles By Frederic Malherbe
  76. Youth Unemployment, Education and Political Instability: Evidence from Selected Developing Countries 1991-2009 By Therese F. Azeng; Thierry U. Yogo
  77. Budget cuts on investments : a brake on growth of WAEMU By Mamadou Diop
  78. Capital Controls as an Instrument of Monetary Policy By Ignacio Presno; Scott Davis
  79. Deconstructing the Fiscal Multiplier By Pontus Rendahl
  80. The Effects of Economic Growth on Earnings in Bolivia By Beatriz Muriel; Horacio Vera
  81. Ansatzpunkte zur Abschätzung der ökonomischen Folgen der Flüchtlingszahlen By Anja Sonnenburg; Britta Stöver; Dr. Marc Ingo Wolter
  82. A Spatial Production Economy Explains Gross Metropolitan Product By Hiroki Watanabe
  83. Methodenbericht zur Schnellschätzung des liechtensteinischen Bruttonationaleinkommens By Andreas Brunhart
  84. Nonparametric Euler equation identification and estimation By Juan Carlos Escanciano; Stefan Hoderlein; Arthur Lewbel; Oliver Linton; Sorawoot Srisuma
  85. The gap between potential entrepreneurship and actual entrepreneurship: an inter-continental comparative analysis By Óscar Rodil; Diana Morales
  86. A dynamic analysis of relevant variables in the Spanish economy using decomposition data series with Daubechies wavelets By Concepción González-Concepción; María Candelaria Gil-Fariña; Celina Pestano-Gabino
  87. Convergence in Spanish provinces By Antonio Montanes; Lorena Olmos; Marcelo Reyes

  1. By: Andrea Ferrero; Martin Seneca
    Abstract: How should monetary policy respond to a commodity price shock in a resource-rich economy? As in the baseline New Keynesian model, the central bank of a small oil-exporting economy faces a tradeoff, between the stabilization of domestic infl ation and an appropriately defined output gap. But in our framework the output gap depends on oil technology, and the weight on output gap stabilization is increasing in the importance of the oil sector. Given substantial spillovers to the rest of the economy, optimal policy calls for a reduction of the interest rate following a drop in the oil price. In contrast, a central bank with a mandate to stabilize consumer price infl ation would raise interest rates to limit the infl ationary impact of an exchange rate depreciation.
    Keywords: small open economy, oil export, monetary policy
    JEL: E52 E58 J11
    Date: 2015
  2. By: Pablo Mejía-Reyes; Reyna Vergara-González
    Abstract: On the basis of the suggestions of Friedman (1969, 1993) and Moore (1965) and considering the framework proposed by Balke and Wynne (1994, 1995), this paper evaluates whether recoveries growth depends on the characteristics of prior recessions (depth, steepness and duration) in the case of the Mexican states employment during the 2001-2003 and 2008-2009 recessions. The original models are extended to include the effects of external and fiscal shocks, as measured by the annual growth rates of the tradable goods production sector and the federal government expenditure of the year the recoveries start, trying to capture the initial impulses that may have taken the economy out the recession. The recession and recovery periods (turning points, namely peaks and troughs) are identified by using the classical business cycles methodology introduced by Artis, Kontolemis and Osborn (1998) that follows the spirit of Mitchel (1927) and Burns and Mitchel (1946). Recoveries growth is measured as the monthly average growth rate from the end of the prior recession up to 9, 12 and the number of months required to get the prior peak. Conventional linear regression models are estimated for total, permanent and temporary employment. To avoid possible problems of collinearity between depth and duration, on the one hand, and steepness, on the other, these variables were included in two different specification models for each type of employment. The corresponding tests indicate that the estimated models present acceptable specifications, in general. Our main results suggest that depth and steepness of prior recessions (as measured by the percentage accumulated drop and the monthly average growth rate of employment over the recession, respectively) have separated negative effects on subsequent growth recoveries, especially after the 2001 recession. Regarding the effects of other shocks pulling the economy out the recession, our results suggest that the fiscal policy followed by the federal government did not contribute to the recovery from the 2008 recession at state level since the coefficients are negative, which would imply the existence of a pro-cyclical policy at least at the end of the recession period. In turn, in the models of total and permanent employment, the tradable goods sector has robust positive and significant effects that reflect the important role of the external demand in the recovery from the Great Recession. These two variables had no significant effects of the recovery following the 2001 recession. In general, the evidence reported in this paper is consistent with the implications of different models that try to explain the ?bounce-back? effect and provides some support to the hypothesis that deeper or steeper recessions are followed by stronger recoveries in the Mexican states.
    Keywords: Employment; Regional business cycles; Recessions; Recoveries.
    JEL: E24 E32 R11 E39
    Date: 2015–10
  3. By: Olga S. Kuznetsova (National Research University Higher School of Economics); Sergey A. Merzlyakov (National Research University Higher School of Economics)
    Abstract: This paper explores the role of uncertain government preferences for fiscal and monetary policy interaction. Our analysis shows that the uncertainty about government preferences does not affect the macroeconomic equilibrium if the fiscal multiplier is known. In the case of multiplicative uncertainty, uncertain government preferences make fiscal policy more contractionary, while monetary policy becomes more expansionary. This leads to higher expected inflation and lower expected output, which means a stronger inflation bias
    Keywords: fiscal and monetary policy interaction, multiplicative uncertainty, uncertain preferences.
    JEL: E52 E58 E62 E63
    Date: 2015
  4. By: Stephane Dees
    Abstract: This paper assesses the role of financial variables in real economic fluctuations, in view of analysing the link between financial cycles and business cycles at the global level. A Global VAR modelling approach, which has been proved suitable for modelling country or regional linkages, is used to first assess the contribution of credit and asset price variables to real economic activity in a number of countries and regions. The GVAR model is based on 38 countries estimated over 1987-2013. An analysis on a sample excluding the post-financial crisis period is also provided to check whether financial variables have gained importance in explaining business cycle fluctuations over the recent past. In a second step, an attempt to identify broader financial shocks through sign restrictions is given in order to illustrate how financial and business cycles could be related. Overall, the paper shows that the importance of credit and asset price variables in explaining real economic fluctuations is relatively large, but has not significantly increased since the global financial crisis. The international transmission of financial shocks on business cycle fluctuations also tends to be large and persistent.
    Keywords: transmission of shocks; financial cycle; business cycle; GVAR model
    JEL: E32 E37 E44 E51 F47
    Date: 2015–10
  5. By: Weber, Warren E. (Bank of Canada, Federal Reserve Bank of Atlanta, University of South Carolina)
    Abstract: The period from 1914 to 1935 in the United States is unique in that it was the only time that both privately issued bank notes (national bank notes) and central-bank-issued bank notes (Federal Reserve notes) were simultaneously in circulation. This paper describes some lessons relevant to e-money from the U.S. experience during this period. It argues that Federal Reserve notes were not issued to be a superior currency to national bank notes. Rather, they were issued to enable the Federal Reserve System to act as a lender of last resort in times of financial stress. It also argues that the reason eventually to eliminate national bank notes was that they were potentially a source of bank reserves. As such, they could have threatened the Federal Reserve System's control of the reserves of the banking system and thereby the Fed's control of monetary policy.
    Keywords: Bank notes; e-money; financial services
    JEL: E41 E42 E58
    Date: 2015–08–01
  6. By: Pintus, Patrick A. (Banque de France); Wen, Yi (Federal Reserve Bank of St. Louis); Xing, Xiaochuan (Tsinghua University)
    Abstract: The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates forecast booms in GDP, consumption, investment, and employment. We show that a Kiyotaki-Moore model accounts for both properties when business-cycle movements are driven, in a significant way, by animal spirit shocks to credit-financed investment demand. The credit-based nature of such self-fulfilling equilibria is shown to be essential: the dynamic correlation between current loanable funds rate and future aggregate economic activity depends critically on the source of fluctuations and on the property that the loan contract has a variable-rate component. In addition, Bayesian estimation of our benchmark DSGE model on US data 1975-2010 shows that movements in investment driven by animal spirits are quantitatively important and result in a better fit to the data than both standard RBC models and Kiyotaki-Moore type models with unique equilibrium.
    Keywords: Endogenous Borrowing Constraints; Collateral; Variable-Rate Loans; Multiple Equilibria; Sunspot Shocks
    JEL: E21 E22 E32 E44 E63
    Date: 2015–10–20
  7. By: Gürkaynak, Refet S.; Kantur, Zeynep; Tas, M. Anil; Yildirim, Secil
    Abstract: We present an accessible narrative of the Turkish economy since its great 2001 crisis. We broadly survey economic developments and pay particular attention to monetary policy. The data suggests that the Central Bank of Turkey was a strong inflation targeter early in this period but began to pay less attention to inflation after 2009. Loss of the strong nominal anchor is visible in the break we estimate in Taylor-type rules as well as in asset prices. We also argue that recent discrete jumps in Turkish asset prices, especially the exchange value of the lira, are due more to domestic factors. In the post-2009 period the Central Bank was able to stabilize expectations and asset prices when it chose to do so, but this was the exception rather than the rule.
    Keywords: Turkey,CBRT,monetary policy,fiscal policy
    JEL: E52 E62 E31 E32 E02
    Date: 2015
  8. By: BLINOV, Sergey
    Abstract: People recognized the important role played by money in the economy a long time ago. However, it was only approximately 50 years ago that Milton Friedman convincingly proved that change in the quantity of money in the economy might have a very serious effect on the GDP. This paper reveals a most intimate non-linear linkage between growth of real GDP and growth of real money supply using the example of a number of countries and unions (Russia, Japan, Brazil and Eurozone). It is shown that exponential growth of real money supply corresponds to linear growth of real GDP. Hypotheses are advanced which explain such a nature of the inter-linkage. A number of practical recommendations are given which pertain, first of all, to monetary policy.
    Keywords: GDP, economic growth, money supply, monetary policy, Central Banks
    JEL: E41 E50 E51 E52 E58 O11 O23 O42
    Date: 2015–10–27
  9. By: Josh Ryan-Collins
    Abstract: Historically high levels of private and public debt coupled with already very low short-term interest rates appear to limit the options for stimulative monetary policy in many advanced economies today. One option that has not yet been considered is monetary financing by central banks to boost demand and/or relieve debt burdens. We find little empirical evidence to support the standard objection to such policies: that they will lead to uncontrollable inflation. Theoretical models of inflationary monetary financing rest upon inaccurate conceptions of the modern endogenous money creation process. This paper presents a counter-example in the activities of the Bank of Canada during the period 1935-75, when, working with the government, it engaged in significant direct or indirect monetary financing to support fiscal expansion, economic growth, and industrialization. An institutional case study of the period, complemented by a general-to-specific econometric analysis, finds no support for a relationship between monetary financing and inflation. The findings lend support to recent calls for explicit monetary financing to boost highly indebted economies and a more general rethink of the dominant New Macroeconomic Consensus policy framework that prohibits monetary financing.
    Keywords: Monetary Policy; Monetary Financing; Inflation; Central Bank Independence; Fiscal Policy; Debt; Credit Creation
    JEL: B22 B25 E02 E12 E31 E42 E51 E52 E58 E63 N12 N22 O43
    Date: 2015–10
  10. By: Chakraborty, Lekha S
    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 monetary 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 monetary Seigniorage Laffer curve.
    Keywords: Fiscal-Monetary Policy Co-ordination, Seigniorage, Fiscal Deficits, error correction mechanism, Seigniorage Laffer Curve
    JEL: E5 E52 E58 E62 E63 H62
    Date: 2014
  11. By: Grégory Levieuge; Yannick Lucotte; Sébastien Ringuedé
    Abstract: This article investigates the relationship between central bank credibility and the volatility of the key monetary policy instrument. Two main contributions are proposed. First, we propose a time-varying measure of central bank credibility based on the gap between inflation expectations and the official inflation target. While this new index addresses the main limitations of the existing indicators, it also appears particularly suited to assess the monetary experiences of a large sample of inflation-targeting emerging countries. Second, by means of EGARCH estimations, we formally prove the existence of a negative effect of credibility on the volatility of the short-term interest rate. Thus, in line with the expectations channel of monetary policy, the higher the credibility of the central bank, the lower the need to move its instruments to efficiently fulfill its objective.
    Keywords: Credibility, Inflation targeting, Emerging countries, EGARCH, Expectations
    JEL: E43 E52 E58
    Date: 2015
  12. By: Patrizio Laina
    Abstract: This paper presents a stock-flow consistent model+ of full-reserve banking. It is found that in a steady state, full-reserve banking can accommodate a zero-growth economy and provide both full employment and zero inflation. Furthermore, a money creation experiment is conducted with the model. An increase in central bank reserves translates into a two-thirds increase in demand deposits. Money creation through government spending leads to a temporary increase in real GDP and inflation. Surprisingly, it also leads to a permanent reduction in consolidated government debt. The claims that full-reserve banking would precipitate a credit crunch or excessively volatile interest rates are found to be baseless.
    Keywords: Full-reserve Banking; Stock-flow Consistency; Money Creation; Banking System
    JEL: E27 E42 E51
    Date: 2015–10
  13. By: Aaron Hedlund (University of Missouri)
    Abstract: Can in?ating away nominal mortgage liabilities cure debt overhang and combat a severe housing bust? With a focus on the Great Recession, I address this question using a structural macroeconomic model of illiquid housing, endogenous credit supply, and equilibrium default. First, I show that the model successfully replicates and provides insight into the dynamics of the U.S. economy since 2006. Second, I show that temporarily raising the in?ation target would have cut foreclosures by over 60% and led to a more robust recovery in real economic variables. Price-level targeting that promises to o?set this temporary in?ation with future disin?ation has more modest positive e?ects. In short, forward guidance matters. Higher in?ation loses its potency in the counterfactual where all homeowners have adjustable rate mortgages, which highlights the importance of nominal rigidities for the e?ectiveness of these policies. Lastly, in?ation proves e?ective even if wages exhibit substantial nominal stickiness.
    Keywords: Housing, Liquidity, Mortgage Debt, Foreclosure, In?ation
    JEL: D31 D83 E21 E22 G11 G12 G21 R21 R31
    Date: 2015–10–16
  14. By: Carlos Arteta (World Bank, Development Prospects Group); M. Ayhan Kose (World Bank, Development Prospects Group); Franziska Ohnsorge (World Bank, Development Prospects Group); Marc Stocke (World Bank, Development Prospects Group)
    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: 2015–11
  15. By: Fatás, Antonio; Summers, Lawrence
    Abstract: The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Using data seven years after the beginning of the crisis as well as estimates on potential output our analysis suggests that attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their negative impact on output. Our results provide support for the possibility of self-defeating fiscal consolidations in depressed economies as developed by DeLong and Summers (2012).
    Keywords: austerity; fiscal policy; Great Recession; hysteresis; persistence
    JEL: E32 E62 O40
    Date: 2015–10
  16. By: Sebastian Dyrda; Marcelo Pedroni
    Abstract: This paper studies optimal taxation in an environment where heterogeneous households face uninsurable idiosyncratic risk. To do this, we formulate a Ramsey problem in a standard infinite horizon incomplete markets model. We solve numerically for the optimal path of proportional capital and labor income taxes, (possibly negative) lump-sum transfers, and government debt. The solution maximizes welfare along the transition between an initial steady state, calibrated to replicate key features of the US economy, and an endogenously determined final steady state. We find that in the optimal (utilitarian) policy: (i) capital income taxes are front-loaded hitting the imposed upper bound of 100 percent for 33 years before decreasing to 45 percent in the long-run; (ii) labor income taxes are reduced to less than half of their initial level, from 28 percent to about 13 percent in the long-run; and (iii) the government accumulates assets over time reducing the debt-to-output ratio from 63 percent to -17 percent in the long-run. Relative to keeping fiscal instruments at their initial levels, this leads to an average welfare gain equivalent to a permanent 4.9 percent increase in consumption. Even though non-distortive lump-sum taxes are available, the optimal plan has positive capital and labor taxes. Such taxes reduce the proportions of uncertain and unequal labor and capital incomes in total income, increasing welfare by providing insurance and redistribution. We quantify these welfare effects. We also show that calculating the entire transition path (as opposed to considering steady states only) is quantitatively important. Implementing the policy that maximizes welfare in steady state leads to a welfare loss of 6.4 percent once transitory effects are accounted for.
    Keywords: Optimal Taxation; Heterogenous Agents; Incomplete markets
    JEL: E2 E6 H2 H3 D52
    Date: 2015–10–27
  17. 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: Household debt,Consumer confidence,Collateral constraints,Multiple equilibria
    JEL: E21 E32 D91
    Date: 2015
  18. By: Sebastian Dyrda; Marcelo Pedroni
    Abstract: This paper studies optimal taxation in an environment where heterogeneous households face uninsurable idiosyncratic risk. To do this, we formulate a Ramsey problem in a standard infinite horizon incomplete markets model. We solve numerically for the optimal path of proportional capital and labor income taxes, (possibly negative) lump-sum transfers, and government debt. The solution maximizes welfare along the transition between an initial steady state, calibrated to replicate key features of the US economy, and an endogenously determined final steady state. We find that in the optimal (utilitarian) policy: (i) capital income taxes are front-loaded hitting the imposed upper bound of 100 percent for 33 years before decreasing to 45 percent in the long-run; (ii) labor income taxes are reduced to less than half of their initial level, from 28 percent to about 13 percent in the long-run; and (iii) the government accumulates assets over time reducing the debt-to-output ratio from 63 percent to -17 percent in the long-run. Relative to keeping fiscal instruments at their initial levels, this leads to an average welfare gain equivalent to a permanent 4.9 percent increase in consumption. Even though non-distortive lump-sum taxes are available, the optimal plan has positive capital and labor taxes. Such taxes reduce the proportions of uncertain and unequal labor and capital incomes in total income, increasing welfare by providing insurance and redistribution. We quantify these welfare effects. We also show that calculating the entire transition path (as opposed to considering steady states only) is quantitatively important. Implementing the policy that maximizes welfare in steady state leads to a welfare loss of 6.4 percent once transitory effects are accounted for.
    Keywords: Optimal Taxation; Heterogenous Agents; Incomplete markets
    JEL: E2 E6 H2 H3 D52
    Date: 2015–10–27
  19. By: Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute)
    Abstract: The goal of this paper is to examine the impact of crude oil price movements on two macro variables, the gross domestic product (GDP) growth rate and the consumer price index (CPI) inflation rate, in three countries, the People’s Republic of China (an emerging economy), Japan, and the United States (developed economies), in a model incorporating monetary variables (money supply and exchange rate). The main objective of this research is to investigate whether these economies are still reactive to oil price movements and compare their reactions. Monetary variables are included in this survey because our earlier research showed that they have a significant role in oil price determination. To assess the relationship between crude oil prices and macro variables we adopt an N-variable structural vector autoregression (SVAR) model. The results suggest that the impact of oil price fluctuations on developed oil importers’ GDP growth is much milder than on the GDP growth of an emerging economy. On the other hand, however, the impact of oil price fluctuations on the People’s Republic of China’s inflation rate was found to be milder than in the two developed countries that were examined.
    Keywords: Oil; GDP growth rate; CPI inflation; developed economies; emerging economies
    JEL: E31 O57 Q43
    Date: 2015–10–27
  20. By: Reinhart, Carmen M.; Trebesch, Christoph
    Abstract: Two centuries of Greek debt crises highlight the pitfalls of relying on external financing. Since its independence in 1829, the Greek government has defaulted four times on its external creditors – with striking historical parallels. Each crisis is preceded by a period of heavy borrowing from foreign private creditors. As repayment difficulties arise, foreign governments step in, help to repay the private creditors, and demand budget cuts and adjustment programs as a condition for the official bailout loans. Political interference from abroad mounts and a prolonged episode of debt overhang and financial autarky follows. We conclude that these cycles of external debt and dependence are a perennial theme of Greek history, as well as in other countries that have been “addicted” to foreign savings.
    Keywords: Bailouts; Crisis Resolution; External Debt; Sovereign Default
    JEL: E6 F3 H6 N0
    Date: 2015–10
  21. By: Klinger, Sabine (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "We construct a new Markov-switching unobserved components framework for the analysis of hysteresis effects. Our model unifies the ingredients of trend-cycle decomposition, identification of spillovers between the components and asymmetry over the business cycle. Employing the model for Germany and the U.S. over 55 years, we find that the decades-long upward trend in German unemployment is fully explained by hysteresis. The Great Recession was well absorbed because both hysteresis effects and structural unemployment were substantially reduced after institutional reforms. In contrast, U.S. unemployment did not evolve according to hysteresis, not even during the Great Recession." (Author's abstract, IAB-Doku) ((en))
    JEL: E24 E32 J64 C32
    Date: 2015–10–21
  22. By: Ulyukaev, Sergey (Russian presidental academy of national economy and public administration (RANEPA)); Sheryay, K. I. (Russian presidental academy of national economy and public administration (RANEPA))
    Abstract: Under the current Russian Foreign Policy Concept «the task of forming a Eurasian Economic Union, designed to not only maximize the use of mutually beneficial economic relations within the CIS, but also to become a defining model for the future of the Commonwealth states» is a priority for Russia. The reflections of the stated role of the regional economic integration are observed in recent years in the form ofRussia’snumerous attempts to strengthen cooperation between the CIS countries and, above all, with the countries most open to those attempts, such as Belarus and Kazakhstan. The result of those actions is the creation of the Customs Union and Common Economic Space (CES) of Russia, Kazakhstan and Belarus. Russia is actively trying to engage Ukraine in these processes and there are objective economic grounds for that (for example, Ukraine is a major recipient of Russian direct investment in CIS). Long-term effects (up to 2030) of the «quartet»’s (consisting of Russia, Belarus, Kazakhstan andUkraine) integration are expressed as annual average GDP growth rates’ addition from 2% for Russia up to 14% for Belarus. Moreover a qualitative leap into the change of the GDP’s structure could also be achieved as a result of the integration. For the «quartet» in general the share of mining sector in the GDP is expected to decline and the share of value added by processingis expected to increase. The growth of competitiveness through the implementation of the accumulated integration potential and interstate technological cooperation is possible first of all in the following sectors: energy engineering, production of conventional weapons, rocket-space industry, aircraft and helicopter engineering, metallurgy, energy, nuclear industry, transport infrastructure and telecom. The future economic development of Russia and other CES countries and Ukraine is impossible without modernization of existing and launching new high-tech industries. In this regard, technological cooperation on the basis of Soviet relationship, but with application of the new market principles is coming to the forefront. Unified banking system and a unified Eurasian currency is planned to be developed on the base of the Eurasian Economic Union in which CES is going to be transformed. While the transition to a unified regional currency is a matter of the distant future, which requires considerable study, an important task of today is the «quartet»’s financial integration, i.e. through the creation of large regional financial institutions, banks, currency and stock exchanges. Unified monetary and fiscal policy is also an important component of financial integration. The Agreement on coordinated macroeconomic policy provides the CES member countries with quantitative macroeconomic parameters, including the limit of the annual budget deficit no higher than 3 % of GDP and public debt not exceeding 50 % of GDP and the inflation rate no more than 5% above the inflation of a CES state with the smallest prices increase. One of the most important preconditions for the «quartet»’s financial integrationis the increase of ruble’s role as a settlement currency in the region. In 2012 payments in Russianrubles prevailed in the EurAsEC region both in number and in volume: 79.0 and 55.4%, respectively. It is noteworthy that ruble is used as the settlement currency between the countries of the region besides the Russian Federation. The use of ruble as a regional currency is of great importance for the creation of regional and further international financial center in Russia. If CES countries and Ukraine don’t form a regional financial center in the near future, the countries of the region will remain the global financial peripherals, dependent on foreign capital, subject to undue influence of global economic processes, will continue to be weak, have illiquid currency and on the whole the problems of economic integration and a successful transition to investment-based growth model will not be executed.
    Keywords: Russian Foreign Policy, Eurasian Economic Union, integration, CIS, Belarus, Kazakhstan, Ukraine
    Date: 2014–08–11
  23. By: Zeyyad Mandalinci (Queen Mary University of London); Haroon Mumtaz (Queen Mary University of London)
    Abstract: This paper studies the role of global and regional variations in economic activity and policy in developed world in driving portfolio capital flows (PCF) to emerging markets (EMs) in a Factor Augmented Vector Autoregressive (FAVAR) framework. Results suggest that PCFs to EMs depend mainly on economic activity at the global level and monetary policy in America, positively on the former and negatively on the latter. In contrast, economic activity and policy shocks in Europe and Asia contribute significantly less to variations in PCFs to EMs. Hence, PCFs are driven by not only common shocks across all developed countries, but also variations in specific regions. This implies that economic divergence in the developed world can have significant effects on EMs via PCFs.
    Keywords: Portfolio capital flows; Bayesian analysis, Factor model, VAR, Emerging markets
    JEL: C11 C32 E30 E52 E58 F32
    Date: 2015–10
  24. By: Viktoria C. E. Langer (Chair for Economic Policy, University of Hamburg); Wolfgang Maennig (Chair for Economic Policy, University of Hamburg); Felix J. Richter (Chair for Economic Policy, University of Hamburg)
    Abstract: Recent analyses relate increases in the growth rate of countries to anticipation effects caused by bidding for the Olympic Games, so called news shocks. We argue that these findings should be interpreted cautiously. First, these analyses may suffer from an omitted variable bias because they neglect key determinants of economic growth. Second, these analyses compare the bidders for the Olympic Games to all other countries in the world, which constitutes a comparison between groups that show large differences in their structural characteristics. We show that including established determinants of economic growth and comparing the bidders to a suitable control group may lead to a complete disappearance of the anticipated economic effects of Olympic Games.
    Keywords: Anticipated shock, Olympic Games, GDP growth, matching, mega event
    JEL: E62 E65 F1 L83
    Date: 2015–10–22
  25. By: Matthes, Christian (Federal Reserve Bank of Richmond); Hollmayr, Josef (Deutsche Bundesbank)
    Abstract: What happens when fiscal and/or monetary policy changes systematically? We construct a DSGE model in which agents have to estimate fiscal and monetary policy rules and assess how uncertainty surrounding the conduct of policymakers influences transition paths after policy changes. We find that policy changes of the magnitude often considered in the literature can lead private agents to hold substantially different views about the nature of equilibrium than would be predicted by a full information analysis. In particular, random walk-like behavior can be observed for a large number of periods in equilibrium, even though the models we use admit stationary dynamics under full-information rational expectations.
    JEL: D83 E32 E62
    Date: 2015–10–23
  26. By: Anping Chen; Nicolaas Groenewold
    Abstract: The extent and persistence of the inequality of regional output is an important policy issue in China and its sources have been the subject of considerable empirical research. Yet we have relatively little empirical knowledge of the effects on the regional distribution of output of shocks to national macroeconomic variables such as GDP and investment. This is an important gap in the empirical literature since much government macroeconomic policy seeks to influence GDP using instruments such as investment expenditure. It is likely that such national shocks will have differential regional impacts and so affect the regional output distribution. Policy-makers need to know the sign, size and timing of such effects before making policy decisions at the national level. We simulate the effects of aggregate shocks on individual provinces¡¯ GDP within the framework of a vector autoregressive (VAR) model restricted in a manner following Lastrapes (Economics Letters, 2005). We use annual data from 1953 to 2012 to estimate the model which includes 28 of China¡¯s provinces and simulate the effects on provincial outputs of shocks to aggregate output and investment. We find great diversity of effects across the provinces with discernible geographic patterns. There is evidence that output shocks benefit coastal provinces with developed industrial structure, export-exposure and less reliance on SOEs; the opposite is found for the effects of an investment shock and we conjecture that this is likely to have been the result of the strong bias in central government investment policy in favour of the interior provinces during a substantial part of our sample period.
    Keywords: regional output distribution; regional disparities; economic growth; China
    JEL: E61 R50 O53
    Date: 2015–10
  27. By: Garcia de Andoain, Carlos; Heider, Florian; Hoerova, Marie; Manganelli, Simone
    Abstract: This paper investigates the impact of ample liquidity provision by the European Central Bank on the functioning of the overnight unsecured interbank market from 2008 to 2014. We use novel data on interbank transactions derived from TARGET2, the main euro area payment system. To identify exogenous shocks to central bank liquidity, we exploit the timing of ECB liquidity operations and use a simple structural vector auto-regression framework. We argue that the ECB acted as a de-facto lender-of-last-resort to the euro area banking system and identify two main effects of central bank liquidity provision on interbank markets. First, central bank liquidity replaces the demand for liquidity in the interbank market, especially during the financial crisis (2008-2010). Second, it increases the supply of liquidity in the interbank market in stressed countries (Greece, Italy and Spain) during the sovereign debt crisis (2011-2013).
    Keywords: central bank policy; financial crisis; interbank markets; lender-of-last-resort; sovereign debt crisis
    JEL: E58 F36 G01 G21
    Date: 2015–10
  28. By: Engin Kara (Department of Economics, Ozyegin University); Ahmed Jamal Pirzaday
    Abstract: During the Great Recession, despite the large fall in output, inflation did not fall much. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian Dynamic Stochastic General Equilibrium model to provide an explanation for the puzzle. The new model allows for time-varying volatility in cross-sectional idiosyncratic uncertainty and accounts for the changes in intermediate goods prices. Our model can forecast the large fall in output and stable inflation during the Great Recession. We show that inflation did not fall much because intermediate goods prices were increasing during the Great Recession.
    Keywords: Price Mark-up Shocks; Great Recession; Inflation; DSGE; Intermediate Inputs.
    JEL: E52 E58
    Date: 2015–11
  29. By: P. Manasse
    Abstract: This paper argues that fiscal convergence in the Euro area has been achieved at the expenses of real divergence in unemployment, investment and at, at least temporarily, growth. Statistical and econometric analysis support the view that the current fiscal framework has addressed debt sustainability concerns, but has imparted a pro-cyclical bias, which has contributed to economic divergence. The recent flexibility guidelines are a step in the right direction, but they are unlikely to have sizable effects. A reform of the fiscal framework and a mechanism for an intra-European unemployment insurance scheme is proposed.
    JEL: E02 E61 E62 H6
    Date: 2015–10
  30. By: Mertens, Karel
    Abstract: Using new narrative measures of exogenous variation in marginal tax rates associated with postwar tax reforms in the US, this study estimates short run elasticities of taxable income of around 1.2 based on time series from 1946 to 2012. Elasticities are larger in the top 1% of the income distribution but are also positive and statistically significant for other income groups. Previous time series studies of tax returns data have found little evidence for income responses to taxes outside the top of the income distribution. The different results in this study arise because of additional efforts to account for dynamics, expectations and especially the endogeneity of tax policy decisions. Marginal rate cuts lead to increases in real GDP and declines in unemployment. This study also presents evidence that the responses are to marginal rather than average tax rates. Counterfactual tax cuts targeting the top 1% alone have positive effects on economic activity and incomes outside of the top 1% but increase inequality in pre-tax incomes. The data and methodology in this study do not permit any conclusions about the impact of tax rate changes targeting lower income taxpayers alone.
    Keywords: Fiscal Policy; Income; Income Distribution; Marginal Tax Rates; Tax Changes
    JEL: E62 H24 H3
    Date: 2015–10
  31. By: Viktoria C. E. Langer (Chair for Economic Policy, University of Hamburg)
    Abstract: Extending and modifying the canonical New Keynesian (NK) model, this study provides a novel approach to examine the impact of anticipated shocks called “news shocks” on business cycles. The analysis shows that news shocks are less stressful for an economy than commonly assumed. The main results are as follows: (1) triggering lower economic fluctuations than unanticipated shocks of equal size news shocks behave in a welfare-enhancing manner, and (2) purely history-dependent monetary policy rules do not constitute an effective monetary instrument to keep welfare losses to a minimum.
    Keywords: Anticipated shock, welfare, business cycle, monetary policy
    JEL: E32 E52
    Date: 2015–10–26
  32. By: Beata Bierut,; Tomasz Chmielewski; Adam Głogowski,; Sławomir Zajączkowski; Andrzej Stopczyński
    Abstract: Starting from the mid-2000s, Poland experienced a period of rapid growth in mortgage lending, with banks offering foreign-currency, high-LTV housing loans, which exposed the sector to rising credit risk and funding challenges. Later, a surge in consumer lending led to a threat of rising credit risk in this segment. These supervisory challenges were addressed through three main instruments: guidelines related to the assessment of a borrower’s creditworthiness as well as LTV and DTI limits. The regulation has been successful from both microprudential and financial stability perspectives, as it has contributed to better risk management by banks and to the reduction of FX mortgage lending.
    Keywords: financial stability, macroprudential policy, loan-to-value ratios, debt-service-to -income ratios, house prices, credit growth.
    JEL: E44 E58 G21 G28
    Date: 2015
  33. By: Halkos, George; Paizanos, Epameinondas
    Abstract: In the existing literature much attention has been given to the toolbox of regulatory policy instruments at the disposal of policy makers for addressing environmental concerns. Microeconomic treatment of environmental policy considers the optimal allocation of a given scale of resource flow within the economy, but neglects the scale and composition of economic activity relative to the ecosystem that supports it. An ecological approach to macroeconomics requires the appreciation of physical constraints to economic growth. This paper presents the theoretical underpinnings and the empirical findings of the literature on the link between economic growth and environmental quality, as well as of the relationship between fiscal policy and environmental degradation, by reviewing the relevant literature. The empirical findings on both relationships are not robust and are therefore inconclusive. The paper provides conclusions and directions for future research which may assist to solve this ambiguity on the examined relationships.
    Keywords: Environmental Macroeconomics; Economic growth; Natural resources; Fiscal policy.
    JEL: E62 P28 Q01 Q28 Q32 Q56
    Date: 2015–10
  34. By: Takayasu Ito (Meiji University)
    Abstract: This paper examines the validity of the Fisher hypothesis in Sweden by analyzing inflation expectations and long-term interest rates from January 1993 to February 2015 under a regime of inflation targeting. The Fisher hypothesis holds for the maturities of 2, 3, 4, 5, and 7 but not 10 years. The results show that changes in inflation expectations move in the same direction and degree as nominal long-term interest rates for the maturities of 2, 3, 4, 5, and 7 years. This can primarily be attributed to the credibility of the inflation-targeting framework in Sweden for the last 20 years and the success it has achieved in locking inflation expectations into the target range within these maturities. In the maturity of 10 years, this credibility has never been as certain.
    Keywords: Fisher Hypothesis, Inflation Targeting, Long Term Interest Rates
    JEL: E43 G19
  35. By: Johannes Kemp (Bureau for Economic Research, University of Stellenbosch); Ben Smit (Bureau for Economic Research, University of Stellenbosch)
    Abstract: Estimates of potential output growth in SA have declined from over 3% prior to the Global Financial Crisis (GFC) to just over 2% currently (Ehlers et al, 2013; Anvari et al, 2014; IMF, 2014; SARB MPC statement, March 2015; Kemp, 2015). A similar slowdown has been experienced in several other countries, including most members of the G20 (IMF, 2015). The purpose of this paper is to (i) estimate SA’s level of potential output growth both before and after the GFC using a multi-variate filter technique based on Blagrave et al (2015) and (ii) attempt to explain the apparent decline in the growth potential by investigating the underlying drivers of potential GDP growth using a Cobb-Douglas-type production function (similar to IMF, 2015). It is found that potential growth has declined to around 2.2% post-GFC. It is also determined that the biggest driver of the post-crisis decline in potential growth has been lower productivity growth.
    Keywords: Macroeconomic modelling, Potential output, Multivariate filter, Cobb-Douglas
    JEL: C51 E31 E52
    Date: 2015
  36. By: Kemal Cebeci (Marmara University)
    Abstract: The public debt problems in Greece, Ireland, Portugal, Spain and other countries in last decade underline the fiscal risks and importance of fiscal discipline in Europe. Effects of euro, (independent monetary policy) have been discussed in the literature and accepted as one of the trigger factor of debt crisis. Becoming a member of monetary union creates a pressure and less elasticity over montary authorities of european countries. At this reseacrh we try to observe the budget performance of european countries after monetary union. In addition we comparatively examine the differences in budget performances between member and non-member countries of monetary union.
    Keywords: monetary union, fiscal crisis, budget deficit, monetary policy
    JEL: E52 E62 H00
  37. By: Chen, kaiji (Emory University); Zha, Tao (Federal Reserve Bank of Atlanta)
    Abstract: We take a structural approach to assessing the empirical importance of shocks to the supply of bank-intermediated credit in affecting macroeconomic fluctuations. First, we develop a theoretical model to show how credit supply shocks can be transmitted into disruptions in the production economy. Second, we use the unique micro-banking data to identify and support the model's key mechanism. Third, we find that the output effect of credit supply shocks is not only economically and statistically significant but also consistent with the vector autogression evidence. Our mode estimation indicates that a negative one-standard-deviation shock to credit supply generates a loss of output by 1 percent.
    Keywords: intermediation cost; credit supply channel; micro bank-level data; call report; senior loan officers; identification; supply and demand; intermediation costs; endogenous monitoring activities
    JEL: C51 C81 C82 E32 E44 G21
    Date: 2015–08–01
  38. By: Pástor, Luboš; Veronesi, Pietro
    Abstract: We develop a simple general equilibrium model with heterogeneous agents, incomplete financial markets, and redistributive taxation. Agents differ in both skill and risk aversion. In equilibrium, agents become entrepreneurs if their skill is sufficiently high or risk aversion sufficiently low. Under heavier taxation, entrepreneurs are more skilled and less risk-averse, on average. Through these selection effects, the tax rate is positively related to aggregate productivity and negatively related to the expected stock market return. Both income inequality and the level of stock prices initially increase but eventually decrease with the tax rate. Investment risk, stock market participation, and skill heterogeneity all contribute to inequality. Cross-country empirical evidence largely supports the model's predictions.
    Keywords: asset pricing; entrepreneurship; inequality; redistribution; taxation
    JEL: E24 G12 G18 H23 J24 J31 J38
    Date: 2015–10
  39. By: Adam, Klaus; Tzamourani, Panagiota
    Abstract: We study the distributional consequences of housing price, bond price and equity price increases for Euro Area households using data from the Household Finance and Consumption Survey (HFCS). The capital gains from bond price and equity price increases turn out to be concentrated among relatively few households, while the median household strongly benefits from housing price increases. The capital gains from bond price increases (relative to household net wealth) do not correlate with household net wealth (or income). Bond price increases thus leave net wealth inequality largely unchanged. In contrast, equity price increases largely benefit the top end of the net wealth (and income) distribution, thus amplify net wealth inequality. Housing price increases display a hump shaped pattern over the net wealth distribution, with the poorest and richest households benefitting least. With regard to the latter finding there exists considerable heterogeneity across Euro Area countries.
    Keywords: asset price inflation; wealth redistribution
    JEL: D31 E21 E52 E58
    Date: 2015–10
  40. By: Thomas Brenner; Marco Capasso; Matthias Duschl; Koen Frenken; Tania Treibich
    Abstract: This paper studies the causal relations between regional employment growth in Knowledge-Intensive Business Services (KIBS) and overall regional employment growth using German labour-market data for the period 1999-2012. Adopting a recently developed technique, we are able to estimate a structural vector autoregressive model in which the causal directions between KIBS and other sectors are examined including various time lags. One main finding holds that although regional growth has a negative short-term effect on KIBS, KIBS growth has a long-term positive effect on the whole regional economy. This result confirms the claim that KIBS can play a key role in regional policies. Distinguishing between financial and non-financial KIBS, we find that financial KIBS have a procyclical effect on regional growth underlining the potential de-stabilizing effect of a large financial sector.
    Keywords: Employment growth, growth spillovers, KIBS, industrial dynamics, financial geography
    Date: 2015–10
  41. By: Zeyyad Mandalinci (Queen Mary University of London)
    Abstract: This paper examines the effects of monetary policy shocks on UK regional economic growth and dispersion in a novel Constrained Mixed Frequency Vector Autoregressive framework. Compared to a standard MFVAR, the model partially accounts for missing quarterly observations for regional growth by exploiting national growth data. Results suggest significant heterogeneity in the importance of monetary policy shocks across regions. Mortgage indebtedness is highly related to regional sensitivity to monetary policy shocks. Also, there is some evidence suggesting that regions with larger share of manufacturing output and small and medium sized firms in employ ment are more sensitive to monetary policy shocks.
    Keywords: Regional growth, Monetary policy, Bayesian analysis, VAR, Mixed frequency data
    JEL: E01 E3 E52 C11 C32 C5
    Date: 2015–10
  42. By: Unger, Robert
    Abstract: The euro area crisis is often linked to the emergence of current account imbalances. As most of the deficit countries experienced pronounced credit booms at the same time that these imbalances were building up, this paper investigates the link between domestic credit developments and the current account balance, distinguishing between a credit pull and a credit push factor. The pull factor captures flows of bank loans to the domestic non-financial private sector. An increase in these flows is expected to lead to higher domestic demand and a deterioration of the current account. The push factor measures flows of claims of domestic banks on debtors in other euro-area countries, and an increase is expected to lead to higher external demand and an improvement in the current account. Using a panel error correction specification, the estimation results confirm that the pull factor is a significant determinant of the current account, whereas the results for the push factor are less clear-cut. The paper also shows that variations in the flows of bank loans to the non-financial private sector (i.e. the pull factor) - together with changes in competitiveness - constituted the most important factor driving the build-up of current account imbalances in the deficit countries. Accordingly, impeding an increase in private sector indebtedness seems to be a promising way to dampen the formation of unsustainable current account imbalances.
    Keywords: banks,credit growth,current account imbalances,euro area
    JEL: E5 F32
    Date: 2015
  43. By: Wohlrabe, Klaus; Bührig, Pascal
    Abstract: Macroeconomic variables, such as industrial production or GDP, are regularly and sometimes substantially revised by the official statistical offices. Nevertheless, there are only few attempts in the previous literature to investigate whether it is possible to forecast these revisions systematically. In this paper it is illustrated how revisions of German industrial production can be forecasted with respect both to the direction as well as to the level of the revision. We are the first that use a large data for this purpose.
    Keywords: industrial production, revisions, forecasting, large data sets, forecast combination
    JEL: C53 E37 E66
    Date: 2015–10–29
  44. By: Andrei Shleifer (Harvard University); Alp Simsek (Massachusetts Institute of Technology); Matthew Rognlie (Massachusetts Institute of Technology)
    Abstract: We present a model of investment hangover motivated by the Great Recession. In our model, overbuilding of residential capital requires a reallocation of productive resources to nonresidential sectors, which is facilitated by a reduction in the real interest rate. If the interest rate is bounded from below due to nominal rigidities, then the economy enters a liquidity trap with limited reallocation and low output. The drop in output also reduces nonresidential investment through a mechanism similar to the acceleration principle of investment. The burst in nonresidential investment is followed by an even greater boom due to low interest rates during the liquidity trap. The boom in nonresidential investment induces a partial and asymmetric recovery in which the residential sector is left behind, consistent with the broad trends of the Great Recession.
    Date: 2015
  45. By: Issing, Otmar
    Abstract: [I. EMU, a Unique Experiment] The European Monetary Union (EMU) represents an unprecedented institutional arrangement. Never before in history have states, while maintaining their individual sovereignties, voluntarily renounced their national currencies in favour of a new common currency and ceded their authority over monetary policy to a supranational central bank. It can therefore be said that on January 1, 1999, when this new currency - the euro - was adopted, a bold experiment began, the outcome of which is still under debate 16 years later. This experiment has three dimensions - political, economic and monetary integration - which form the legs of a new and difficult “triangle” (Issing 2004). While the establishment of the European Central Bank (ECB) solved the monetary challenge on the institutional level, the problem of conducting a “one-size-fits-all” monetary policy continues to be a tremendous task due to economic divergences across the eurozone countries. [...]
    Date: 2015
  46. By: Hernandez-Murillo, Ruben (Federal Reserve Bank of Cleveland); Owyang, Michael T. (Federal Reserve Bank of St. Louis); Rubio, Margarita (University of Nottingham)
    Abstract: Using a panel of U.S. city-level building permits data, we estimate a Markov-switching model of housing cycles that allows for idiosyncratic departures from a national housing cycle. These departures occur for clusters of cities that experience simultaneous housing contractions. We find that cities do not form housing regions in the traditional geographic sense. Instead, similarities in factors affecting the demand for housing (such as average winter temperature and the unemployment rate) appear to be more important determinants of cyclical comovements than similarities in factors affecting the supply for housing (such as housing density and the availability of developable land).
    Keywords: clustered Markov switching; business cycles; building permits; comovements
    JEL: C11 C32 E32 R31
    Date: 2015–10–22
  47. By: Yuming Fu; Yang Hao
    Abstract: Using Jones (2014) generalized human capital accounting, we extend the urban accounting model of Desmet and Rossi-Hansberg (2013) to account for the geographic distribution of skills across US metropolitan areas. The methodology allows the productivity of high-skill workers to depend on location advantage and local skill mix; the latter also determines the productivity of low-skill workers. Urban friction, rising with population size, reduces worker consumption relative to their wage income. Amenities for high-skill and low-skill workers in each city are calibrated so that the utility for each skill type is equalized across cities. We examine counterfactual skill-mix distribution across cities and welfare gap between the skill groups by shutting down spatial heterogeneity in location advantage, amenity and excess friction respectively. We show that skill mix becomes more even across cities absent heterogeneity in location advantages or in excess friction but it becomes more dispersed absent amenity heterogeneity. The welfare gap widens when heterogeneity in any of the three factors is eliminated. The generalized urban accounting model can shed light on the causes of increased concentration of skilled workers in large cities in US highlighted by E. Moretti (2008) and Diamond (2012) and the implications for welfare gap between the skill groups.
    Keywords: urban accounting; generalized human capital accounting; skill distribution; welf
    JEL: E24 J24 R11 R13
    Date: 2015–10
  48. By: Chan, Joshua C C (Australian National University); Clark, Todd E. (Federal Reserve Bank of Cleveland); Koop, Gary (University of Strathclyde)
    Abstract: A knowledge of the level of trend inflation is key to many current policy decisions, and several methods of estimating trend inflation exist. This paper adds to the growing literature which uses survey-based long-run forecasts of inflation to estimate trend inflation. We develop a bivariate model of inflation and long-run forecasts of inflation which allows for the estimation of the link between trend inflation and the long-run forecast. Thus, our model allows for the possibilities that long-run forecasts taken from surveys can be equated with trend inflation, that the two are completely unrelated, or anything in between. By including stochastic volatility and time-variation in coefficients, it extends existing methods in empirically important ways. We use our model with a variety of inflation measures and survey-based forecasts. We find that long-run forecasts can provide substantial help in refining estimates of trend inflation over popular alternatives. But simply equating trend inflation with the long-run forecasts is not appropriate.
    Keywords: trend inflation; inflation expectations; state space model; stochastic volatility
    JEL: C11 C32 E31
    Date: 2015–10–21
  49. By: Raputsoane, Leroi
    Abstract: This paper analyses the behaviour of alternative measures of credit extension for countercyclical buffer decisions in South Africa. The cyclical properties of alternative measures of credit extension are examined over the economic and the financial cycles. The results show that the deviation of the ratio of private sector credit extension to gross domestic product from its long term trend is countercyclical with the economic cycle. The results also show that the deviation of the logarithm of private sector credit extension from its long term trend is procyclical with both the economic and the financial cycle. The annual percent change in private sector credit extension generally performs poorly in cyclical terms with both the economic and the financial cycle. Consequently, of the three alternative measures of private sector credit extension considered, the deviation of the logarithm of private sector credit extension from its long term trend could be used as a common reference guide for implementing the countercyclical capital buffers for financial institutions in South Africa.
    Keywords: Credit extension, Countercyclical capital buffers
    JEL: C32 E44 E51 G21
    Date: 2015–10–27
  50. By: Muhammed Veysel Kaya (Kirikkale University)
    Abstract: Generally, if the labor markets are accepted as two polarized blocks, surveying the economic and social dimensions of wages will be pertinent. It has become a confliction between employers and employes, shuttered in this distinction, a fair regulation of wages for many economists were forced to detect new formulas. Clearly, in order to provide optimum data of macro-economic balance, both sides should be satisfied. However, in the labor economics literature as secondary actors employes and employers need to accept the existence of public and unions. These secondary actors acquirement from labor markets seat the economic balance on a quartet trivet. So far, in observance of the doctrinal explanation that it can be obtained is a multi-dimensional and multi-functional wage model on the basis of four basic actors in the labor market can be reached will contribute to the balance.
    Keywords: Wage theories, elements of wage, efficiency wage models, wage determinants, wage differentials, labor peace, an optimum wage formula.
    JEL: E24 J31 O15
  51. By: Giorgio Di Giorgio (LUISS Guido Carli, Department of Economics and Finance, Rome (Italy)); Salvatore Nisticò (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome); Guido Traficante (European University of Rome)
    Abstract: Contrary to widespread empirical evidence, standard NOEM models imply that the real exchange rate appreciates following an increase in public spending. This paper uses a two-country \perpetual youth" DSGE model with productive government purchases to show to what extent the real exchange rate can instead depreciate after a positive spending shock, thus reconciling the theoretical model with the empirical evidence. In particular, the model is able to imply a depreciation both on impact and in the transition, displaying the hump-shaped response documented by most empirical studies. The transmission mechanism of fiscal shocks works through an increase in domestic private sector productivity and, in turn, lower real marginal costs at Home.
    Keywords: Exchange Rate, Fiscal Shocks, Endogenous Monetary and Fiscal Policy.
    JEL: E52 E62 F41 F42
    Date: 2015–10
  52. By: Baker, Scott R.; Bloom, Nicholas; Davis, Steven J
    Abstract: We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence – including human readings of 12,000 newspaper articles – indicate that our index proxies for movements in policy-related economic uncertainty. Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction. At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies. Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s.
    Keywords: business cycles; economic uncertainty; fluctuations; policy uncertainty
    JEL: D80 E22 E66 G18 L50
    Date: 2015–10
  53. By: Evan Capeluck
    Abstract: The objective of this report is to examine the impact of outsourcing on manufacturing’s employment share in Canada. The report shows that outsourcing accounts for a small but significant part of the decline in the manufacturing employment share over the 1976-2008 period. Two approaches are used to determine the contribution of outsourcing to the evolution in manufacturing’s employment share in the report. The first approach uses input-output (I-O) analysis to estimate the impact of changes in the I-O structure of the economy on employment shares by industry. The second approach uses aggregate industry-by-occupation employment data to decompose changes in employment shares by industry in various ways.
    Keywords: Manufacturing, Outsouring, Employment, Canada, Input-Output
    JEL: M55 E24 L60 N32 N22 N62
    Date: 2015–11
  54. By: Milan Deskar Škrbić (Erste & Steiermarkische bank); Hrvoje Šimović (Faculty of Economics and Business, University of Zagreb)
    Abstract: When estimating the size of fiscal multipliers one has to take into consideration various structural characteristics of economies which, directly or indirectly, affect the transmission from government stimuli to economic activity. Thus, in this paper we use a ‘bucket approach’ to determination of the size of fiscal multipliers, which enables us to make presumptions on the size of fiscal multipliers, given the structural characteristics of selected Western Balkan economies – Croatia, Slovenia and Serbia. After this ‘non-empirical’ approach we use structural VAR framework to test our hypothesis derived from the ‘bucket approach’. Our results confirmed the hypotheses on the relative size of the multipliers between these three peer countries, with Croatia having the highest spending multiplier and Slovenia the lowest one.
    Keywords: fiscal multipliers, Western Balkans, bucket approach, structural VAR
    JEL: E62 C32 H20 H30 H50
    Date: 2015–10–29
  55. By: Iwasaki, Ichiro; Uegaki, Akira
    Abstract: This paper aims to evaluate the central bank reforms in Central and Eastern Europe and the former Soviet countries through a comparative meta-analysis between studies of transition economies and those of other developed and developing economies that empirically examined the effect of central bank independence (CBI) on inflation. The results of a meta-synthesis using a total of 282 estimates collected from existing literature indicates that both transition and non-transition studies have successfully identified a negative relationship between CBI and inflation. Moreover, our meta-regression analysis suggested that the choice of estimator, inflation variable type, degree of freedom, and quality level of the study strongly affected the empirical results concerning transition economies. We also found that no significant difference exists between the two types of studies in terms of both effect size and statistical significance so long as we control for the degree of freedom and quality level of the study, implying that the socioeconomic setting of the society has so substantially developed in transition economies that the relation between CBI and its disinflation effect is observed in the same way as in non-transition economies.
    Keywords: central bank independence, inflation, transition economies, Central and Eastern Europe, former Soviet Union, meta-analysis, publication selection bias
    JEL: E31 E58 G18 P24 P34
    Date: 2015–08
  56. By: Maurizio Franzini (Department of Economics and Law, Sapienza University of Rome); Mario Pianta (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")
    Abstract: Inequality is a major problem of today’s capitalism. The rise of disparities in income and wealth has been documented by many studies, and this paper provides a concise and updated documentation of facts and trends in advanced countries, contributing to an interpretation of the sources and dynamics of inequality. First, the evolution of relations between capital and labour is investigated, providing empirical evidence on the distribution of income between profits and wages. Second, the market processes that shape disparities of income – of individuals and households, before and after taxes, redistribution and public services – are addressed, showing the complexity of current trends. Third, disparities in wealth are examined, showing a much starker picture than that resulting from income inequality. The explanation of these developments points to four ‘engines of inequality’ – the power of capital over labour, the rise of ‘oligarchs capitalism’, the individualisation of economic conditions, the retreat of politics – that are at the source of today’s inequalities. A full analysis of the dynamics of inequality, an interpretation of its mechanisms and a set of policy proposals to reverse it are developed in our book “Explaining inequality” (Franzini and Pianta, 2015).
    Keywords: Inequality, Income distribution, Profits, Wages
    JEL: D31 D33 E24 I38
    Date: 2015
  57. By: Dilek ALTAS (Marmara University); Gulen Arikan (Marmara University)
    Abstract: Net error and omission item, which covers the difference in balance of payment, occurs because of some statistical differences. Besides, net error and omission item represents unregistered income, in other words untaxed income in country budget. In this study, by using quarterly data for years 2000 to 2014, the effect of housing industry on money laundering will be investigated. By using quarterly data for housing licence permissions and with the help of coefficient of relations, changes in housing industry will be observed whether net error and omission item has a relation with it. Moreover, a regression model with one independent variable was created and the expressiveness of housing industry on money laundering will be also investigated. The objective is to present a brief information about data, with some statistical methods. At last, Granger Causality Test will be applied and it will be investigated whether the data affect each other.
    Keywords: Net Error, Housing Industry, Unregistered Economy, Correlation Coefficient, Granger Causality Test
    JEL: C58 E26 C10
  58. By: Kang, Wensheng (Kent State University); Ratti, Ronald A. (University of Western Sydney); Vespignani, Joaquin L. (University of Tasmania)
    Abstract: Kilian and Park (IER 50 (2009), 1267–1287) find shocks to oil supply are relatively unimportant to understanding changes in U.S. stock returns. We examine the impact of both U.S. and non-U.S. oil supply shocks on stock returns in light of the unprecedented expansion in U.S. oil production since 2009. Our results underscore the importance of the disaggregation of world oil supply and of the recent extraordinary surge in the U.S. oil production for analysing impact on U.S. stock prices. We also show that stock returns respond very differently at the industrial level to non-U.S. and U.S. oil supply shocks.
    JEL: E44 G12 Q43
    Date: 2015–09–01
  59. By: Canova, Fabio (BI Norwegian Business School and CEPR); Ferroni, Filippo (Banque de France and University of Surrey); Matthes, Christian (Federal Reserve Bank of Richmond)
    Abstract: The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identifi cation and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of Gertler and Karadi's (2010) model are studied.
    JEL: C10 E27 E32
    Date: 2015–10–23
  60. By: Lucian-Liviu Albu; Radu Lupu; Adrian Cantemir Calin
    Abstract: There is a general acceptance of the fact that a significant direct relationship between financial markets and macroeconomic variables exists, especially by considering the assertion that developed financial markets correspond to high GDP levels. This paper provides an investigation of the correlation between the market capitalization and stock market dynamics on one hand and GDP per capita on the other hand, for two groups of regions in EU (western countries, EU15, and central and eastern countries, EU11). Based on data for a number of EU countries (both western and eastern) and using some special modelling techniques, we provide an analysis of the convergence phenomenon for both the macroeconomic variables and the financial ones. Using a deep time resolution and some spline functions we generated high frequency time series (the so-called virtual monthly GDP) to investigate the correlations with financial markets. In spite of ECB?s carefull monitoring of the financial integration within the euro zone, a possible financial integration process within the non-euro zone continues to be ignored. It seems that due to the weak development of financial markets, the economies outside of the euro zone are relatively more protected against crisis when compared to those inside the euro zone. Therefore, the so-called contagion effect is weaker in the Central and Eastern region of European Union.
    Keywords: macroeconomic variables; financial crisis; convergence; non-linear modeling
    JEL: G01 G15 E44 E47 O47
    Date: 2015–10
  61. By: Justine Pedrono (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Aurélien Violon (Banque de France - ACPR)
    Abstract: Theoretically, as currency diversification affects directly the total composition of banks collateral, it changes their debt capacity and their resilience to economic shocks. Thus, currency diversification should be relevant to the leverage and the leverage procyclicality. However, empirical investigations on this subject are still missing. Using very confidential data on credit institutions located in France between 1999 and 2014, we examine whether currency diversification is pertinent for both the leverage procyclicality and the determination of leverage. Our results confirm previous analysis on leverage procyclicality and capital structure decision. Regarding currency diversification, our results suggest that the currency dimension is relevant: higher currency diversification implies lower leverage. Finally, including the currency mismatch dimension in our analysis supports the theoretical conclusion. Currency mismatch is mostly irrelevant for the definition of the leverage.
    Keywords: procyclical leverage,capital structure,currency diversification,currency mismatch
    Date: 2015–10
    Abstract: The main objective of this paper is to ascertain empirically the impact of government expenditure on economic development in Nigeria. The time series data for this study spans from 1981 through 2013. The study adopts the Cointegration analysis. The Error Correction model shows that the various functional government expenditures were statistically significant and have positive relationship with gross domestic product. However, government expenditures on education and health have no significant impact on economic development in the short term. The coefficient of the Error correction model showed that the deviation of gross domestic product from its long-run equilibrium value will be reconciled quickly. On the whole, our study reveals that public spending enhances economic development in the long term and that a long run relationship exists between government expenditure and economic development in Nigeria.
    Keywords: Public Spending, Gross Domestic Product, Cointegration, Error Correction Model and Nigeria.
    JEL: C22 E62 H52
  63. By: Adam Richardson; Rebecca Williams (Reserve Bank of New Zealand)
    Abstract: The neutral interest rate is an important concept in monetary policy decision making, helping the Reserve Bank understand the extent to which current policy settings are either contractionary or expansionary with respect to the macroeconomy. This note outlines the range of technical approaches the Reserve Bank uses to estimate the nominal neutral 90-day bank bill rate. These approaches help inform the monetary policy judgements of the Bank’s committees.
    Date: 2015–09
  64. By: Grey Gordon (Indiana University); Aaron Hedlund (University of Missouri)
    Abstract: We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. The framework extends the quality maximizing college paradigm of Epple, Romano, Sarpca, and Sieg (2013) and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in underlying costs, reforms to the Federal Student Loan Program (FSLP), and changes in the college earnings premium have caused tuition to increase. All these changes combined generate a 106% rise in net tuition between 1987 and 2010, which more than accounts for the 78% increase seen in the data. Changes in the FSLP alone generate a 102% tuition increase, and changes in the college premium generate a 24% increase. Our ?ndings cast doubt on Baumol’s cost disease as a driver of higher tuition.
    Keywords: Higher Education, College Costs, Tuition, Student Loans
    JEL: E21 G11 D40 D58
    Date: 2015–09–28
  65. By: Matthieu Droumagueta (Department of Economics, European University Institute); Anders Warneb (Directorate General Research, European Central Bank); Tomasz Wozniakc (Department of Economics, University of Melbourne)
    Abstract: We derive restrictions for Granger noncausality in Markov-switching vector autoregressive models and also show under which conditions a variable does not affect the forecast of the hidden Markov process. Based on Bayesian approach to evaluating the hypotheses, the computational tools for posterior inference include a novel block Metropolis-Hastings sampling algorithm for the estimation of the restricted models. We analyze a system of monthly US data on money and income. The results of testing in MS-VARs contradict those in linear VARs: the money aggregate M1 is useful for forecasting income and for predicting the next period’s state.
    Keywords: Technical Efficiency, Penalised Splines, Gibbs Sampling
    JEL: C11 C12 C32 C53 E32
    Date: 2015–05
  66. By: Evan Capeluck
    Abstract: The objective of this report is to examine the reasons for the decline in manufacturing’s employment share in Canada, with particular attention paid to the roles of labour productivity growth, demand-side factors, and outsourcing. The results of the report suggest that above average labour productivity growth explains most of the decline in the manufacturing employment share before 2000, while below-average real output growth explains most of the decline after 2000. The slowdown in real output growth after 2000 reflects the sector’s poor export performance which is related to many factors, including: a loss in cost competitiveness linked to an appreciation of the Canadian dollar; increased competition in the U.S. import market; and a slowdown in domestic demand growth in the United States. However, the story becomes more complicated when manufacturing employment is broken down into its various components. In particular, the evolution of manufacturing employment was, in different periods, largely driven by the fortunes of specific industries.
    Keywords: Manufacturing, Employment, Productivity, Canada, Demand Growth, Competition
    JEL: M55 E24 L60 N32 N22 N62
    Date: 2015–11
  67. By: Meerim Sydykova
    Abstract: The Kyrgyz Republic is a country with transition economy. Its growth performance is constantly one of the lowest compared to other CIS countries. Growth rates reduce due to strong political instability and high corruption level in the country. Despite being leading reformer in the region, the Kyrgyz Republic has not done enough to solve the key problems. The main objective of this paper is to identify the most problematic and binding constraints for economic growth in the Kyrgyz Republic. Growth Diagnostic approach proposed by Hausmann et al. (2005) is applied in order to identify the most binding constraints. The analysis is based on qualitative and quantitative data on economic indicators at national and international levels. The CIS countries such as Armenia, Azerbaijan, Georgia, Belarus, Kazakhstan, Moldova, Russia, Tajikistan, Turkmenistan and Uzbekistan were chosen as comparator group of countries. Data for this study were collected from the research, publications, reports of the National Bank of the Kyrgyz Republic, the National Statistical Committee of the Kyrgyz Republic as well as statistical data published by the World Bank, IMF?s World Economic Outlook, UNDATA, Economic Freedom network, Global economic Forum, the Heritage Foundation and etc.. Time period is from 2004 till 2013 years. The results of the study were used to identify the most problematic factors for economic growth of the country. The study indicates that the most binding constraints for economic growth in the Kyrgyz Republic are (a) widespread corruption, (b) weak property rights, (c) inefficient energy sector and (d) low quality of education system. The same results were confirmed by ADB studies that found corruption level is the highest compared to other CIS countries and it is the strongest obstacle for growth. Despite the fact that the Kyrgyz Republic is the second richest country in water resources, it faces number of problems such as low productivity, outdated equipment from Soviet Union era, shortage of qualified workers and low efficiency. Lack of qualified labor force and low quality of education system is also binding constraint for growth for The Kyrgyz Republic. The Kyrgyz Republic ranked the lowest in comparison with comparator countries on all indicators assessing the quality and quantity of educational system. This paper is organized as follows: section 2 provides literature review on Growth Diagnostic methodology, section 3 gives an overview of economic development of the Kyrgyz Republic, section 4 is an analytical part which provides analysis of the Kyrgyz Republic?s economy. The final part gives concluding remarks.
    Keywords: development economics; economic growth; growth diagnostic
    Date: 2015–10
  68. By: Kadri Männasoo; Jaanika Meriküll
    Abstract: The paper studies financing constraints for R&D over the latest boom and bust episode in Central and Eastern Europe (CEE). Given that financial and venture capital markets in CEE are thin in comparison to those in high-income economies and that many of CEE countries experienced a credit crunch during the last recession, it is proposed that financing constraints have a significant adverse effect on R&D activity in these countries. The paper uses two complementary firm-level data-sources from ten CEE countries. The results suggest that the role of financing constraints for R&D expenditures in CEE countries is substantial, as the probability of credit constrained firms undertaking R&D activities is around 70% lower and firms’ R&D expenditure cash flow sensitivity is very high. Despite the severity of the crisis, the adverse effect of financing constraints for R&D did not increase in the financial crisis. It is also confirmed that, conditional on credit constraints, firms’ R&D activity is higher in a recession.
    Keywords: R&D financing constraints, credit constraints, business cycle, Central and Eastern Europe
    JEL: O16 O32 O52 E32 P23
    Date: 2015–07
  69. By: Mikkel Plagborg-Møller
    Abstract: I propose to estimate structural impulse responses from macroeconomic time series by doing Bayesian inference on the Structural Vector Moving Average representation of the data. This approach has two advantages over Structural Vector Autoregressions. First, it imposes prior information directly on the impulse responses in a flexible and transparent manner. Second, it can handle noninvertible impulse response functions, which are often encountered in applications. To rapidly simulate from the posterior of the impulse responses, I develop an algorithm that exploits the Whittle likelihood. The impulse responses are partially identified, and I derive the frequentist asymptotics of the Bayesian procedure to show which features of the prior information are updated by the data. I demonstrate the usefulness of my method in a simulation study and in an empirical application that estimates the effects of technological news shocks on the U.S. business cycle.
    Date: 2015–10
  70. By: Vladimir Mau (RANEPA)
    Abstract: O capital humano é reconhecidamente o fator mais importante no crescimento econômico nos tempos modernos. Isto deveria ser prioridade em nossa política sócio econômica. No entanto, simples reconhecimento desse fato não é suficiente para um salto qualitativo no desenvolvimento de educação, saúde e previdência social. Transformações profundas desses setores são necessárias, baseando-se nos princípios que correspondem aos desafios modernos da era pós-industrial. Estes desafios incluem individualização dos serviços prestados e seu caráter contínuo (demanda ao longo da vida), privatização (o reforço do papel do financiamento privado), internacionalização da concorrência, surgimento de soluções tecnológicas inovadoras na prestação desses serviços.
    Keywords: capital humano, educação, sistema de saúde pública, sistema de previdência social, políticas sociais e econômicas
    JEL: E24 G23 H75 I15 I18 I25 I28
    Date: 2015
  71. By: Michal Szkup (University of British Columbia)
    Abstract: This paper develops a model of self-fulfilling debt crises and uses it to study the effectiveness of various government policies in preventing such crises. In the model, a crisis is a result of the interaction between bad fundamentals and self-fulfilling expectations of domestic firms and lenders. I solve the model using the global games approach and analyze policy proposals directed at preventing debt crises, such as, an increase in taxes, spending cuts and fiscal stimulus. I explain the costs and benefits associated with each policy, provide conditions under which these policies decrease or increase probability of default, and investigate their welfare implications. I find that tax increase or spending cuts tend to decrease the likelihood of crisis but may result in lower welfare. On the other hand, a well-timed fiscal stimulus can improve welfare, but it tends to increase the probability of a crisis. The above conclusions depend crucially on the timing and credibility of the government's policies, as well as on the initial state of the economy.
    Date: 2015
  72. By: Jean-Louis Combes (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Mary-Françoise Renard (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Sampawende Jules Tapsoba (FMI - Fonds monétaire international - FMI [FMI])
    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
    Date: 2015–10–19
  73. By: Ekrame Boubtane (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Dramane Coulibaly (EconomiX - EconomiX - UP10 - Université Paris 10, Paris Ouest Nanterre La Défense); Hippolyte D'Albis (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: This paper quantitatively assesses the interaction between permanent immigration into France and France's macroeconomic performance as seen through its GDP per capita and its unemployment rate. It takes advantage of a new database where immigration is measured by the flow of newly- issued long-term residence permits, categorized by both the nationality of the immigrant and the reason of permit issuance. Using a VAR model estimation of monthly data over the period 1994-2008, we find that immigration flow significantly responds to France's macroeconomic performance: positively to the country's GDP per capita and negatively to its unemployment rate. At the same time, we find that immigration itself increases France's GDP per capita, particularly in the case of family immigration. This family immigration also reduces the country's unemployment rate, especially when the families come from developing countries.
    Keywords: VAR Models,Unemployment,growth,Female and Family Migration,immigration
    Date: 2015–03–25
  74. By: Tatiana Blinova; Vladimir Markov; Victor Rusanovskiy
    Abstract: The Russian labor market is not homogenous, representing a diversity of regional segments. The paper presents a statistical assessment of interregional differences in youth unemployment in Russia. The unemployment rate was decomposed into fundamental and cyclical components, which was essential for deeper understanding of the specificity of the youth labour market. We made a typology of the regions of RF according to similar trends of youth unemployment and an empirical analysis of the rates, dynamics and factors of unemployment among the young people aged 15-19 and 20-29 years for 77 regions of Russia between 2005 and 2013. We also analysed the response of the regional rates of youth unemployment to crises. For analysing the regional parameters of youth unemployment we employed economical-statistical methods. We identified the interregional differences in the youth labor market and the nature of their changes in the time of economic crisis. The statistical database for this study was the Rosstat data posted on the official website of the Federal State Statistics Service. We found that in the time of crisis the interregional differences in unemployment rates decreased and in the period of recovery growth they increased. For the 20-29-age group, the convergence was only observed between 2007 and 2009, while the other years of the period saw a divergence, which, according to the rates (the curve?s angle), was noticeably higher than that for the 15-19-age group. This can be a token of a higher economic activity of the young people aged 20-29 years. The convergence in the crisis years meant that the regions were converging to a higher unemployment rate. The divergence of the regional youth unemployment rates depicts the different rates of the recovery growth in the regions of Russia, as well as the unequal efficiency of the employment policies. The study was conducted at the Institute of Agrarian Problems of RAS with the financial support from the Russian Scientific Foundation (RSF), project # 14-18-02801.
    Keywords: Russian regions; youth unemployment; modeling; interregional differences
    JEL: C51 E24 J64
    Date: 2015–10
  75. By: Frederic Malherbe (London Business School)
    Abstract: I propose a simple theory of intertwined business and financial cycles, where financial regulation both optimally responds to and influences the cycles. In this model, banks do not internalize the effect of their credit expansion on other banks' expected bankruptcy costs, which leads to excessive aggregate lending. In response, the regulator sets a capital requirement to trade off expected output against financial stability. The capital requirement that ensures investment efficiency depends on the state of the economy and, because of a general equilibrium effect, its stringency increases with aggregate banking capital. A regulation that fails to take this effect into account would exacerbate economic fluctuations and result in excessive aggregate lending during a boom. It would also allow for an excessive build-up of risk in the financial sector, which implies that, at the peak of a boom, even a small adverse shock could trigger a banking sector collapse, followed by an excessively severe credit crunch.
    Date: 2015
  76. By: Therese F. Azeng (University of Yaoundé 2 (Cameroon)); Thierry U. Yogo (Centre d'Etudes et de Recherches sur le Développement International (CERDI) University of Auvergne)
    Abstract: This paper investigates the effects of youth unemployment on political instability in developing countries through three hypotheses. Firstly, youth unemployment has significant effects on risk of political instability. Secondly, we consider that the relationship between unemployment rate and political instability is conditional upon education levels. Finally, we examine whether youth unemployment can lead to anti-government demonstrations rather than global instability. Using a sample covering 40 developing countries over the period 1991-2009, we confirm the positive effect of youth unemployment on political violence. However the level of education lowers the magnitude of the effect. The effect of youth unemployment on coups d’état is significant but not robust. Finally, the results suggest that the relationship between youth unemployment and political instability is not robust. A possible explanation is that the main predictors of political instability are also determinants of unemployment. Therefore, youth unemployment can be a symptom rather than the illness and cannot alone explain political instability.
    Keywords: Unemployment, Political Instability, Coup d’état, Youth
    JEL: E24 F52 J64 O11 O43
    Date: 2015–10
  77. By: Mamadou Diop (Chercheur associé au CREM, UMR CNRS 6211, University of Rennes 1, France)
    Abstract: The Millennium World Summit defined the attainment of a 7 to 8% growth rate in 2015 by countries members of the WAEMU as one of the main priority for the authorities of the union. For that matter, governments decided to include fiscal policy in a long term dynamic perspective and to consider large development programs. This article estimates long term effects of fiscal policy on economic growth in the Union with the use of panel data. It also identifies the possible substitution effect between investment in the public and in the private sector. This study shows that there are limitations to the use of the IMF’s methodology for the computation of growth contributions in the analysis of fiscal policy effects on the long term process of wealth generation. It proposes a methodology for estimating panel data using moving averages and taking into account the average duration of the GDP of the area.
    Keywords: Politique budgétaire – Croissance économique – Coupes budgétaires – Données de Panel – Moyenne mobile
    JEL: E6 C5
    Date: 2015–10
  78. By: Ignacio Presno (Universidad de Montevideo); Scott Davis (Federal Reserve Bank of Dallas)
    Abstract: Large swings in capital flows into and out of emerging markets can potentially lead to excessive volatility in asset prices and credit supply. In order to lessen the impact of capital flows on financial instability, a number of researchers and policy makers have recently proposed the use of capital controls. This paper considers the benefit of adding capital controls as a potential instrument of monetary policy in a small open economy. In a DSGE framework, we find that when domestic agents are subject to collateral constraints and the value of collateral is subject to fluctuations driven by foreign capital inflows and outflows, the adoption of temporary capital controls can lead to a significant welfare improvement. The benefits of capital controls are present even when monetary policy is determined optimally, implying that there may be a role for capital controls to exist side-by-side with conventional monetary tools as an instrument of monetary policy.
    Date: 2015
  79. By: Pontus Rendahl (University of Cambridge)
    Abstract: Using expectation data from the Survey of Professional Forecasters (SPF) we decompose the impact of government spending on output into three distinct and theoretically grounded channels: the Keynesian channel, linking current income to current private expenditures; the expected-inflation channel which stresses the need to engineer an inflationary spiral in order to reduces real interest rates; and the expected-output channel in which the persistence of output propagates the effect of current spending by altering expectations of future economic activity. Our findings reveal that the expected-output channel accounts for about 35% of the total impact of government spending on output, while the expected output channel is statistically insignificant with a point estimate of around 7%. While the expected-inflation channel seemingly gain some support by the data, the associated theoretical transmission mechanism is heavily put into question: The effect of expected future inflation on output is negative, and a rise in government spending is associated with a decrease in inflation. This contrasts sharply to the theoretical literature in which expected inflation affect output positively, and a rise in government spending is associated with an increase in inflation.
    Date: 2015
  80. By: Beatriz Muriel (Institute for Advanced Development Studies); Horacio Vera (Institute for Advanced Development Studies)
    Abstract: This paper analyzes the effects of economic growth on labor earnings in Bolivia during 1999-2012. More precisely, we develop a labor market model to capture both cycle and trend effects of prices, and production on earnings, which is estimated econometrically using pseudo-panel data methods. The results show that labor earnings have had a pro-cyclical behavior. In particular, we find that, in the short run, an increase of 1% in prices or production explains an earnings rise of around 0.5%, while, in the long run, a production increase of 1% is associated with an earnings variation of 0.4%. Furthermore, we find that labor earnings growth by sector follows, to some extent, the economic performance of its corresponding sector, which responds to the sector segmentation characteristics in the Bolivian labor market.
    Keywords: Bolivia, earnings, wages, economic growth, business cycle, pseudo-panel
    JEL: E29 E32 J29 J39 J42
  81. By: Anja Sonnenburg (GWS - Institute of Economic Structures Research); Britta Stöver (GWS - Institute of Economic Structures Research); Dr. Marc Ingo Wolter (GWS - Institute of Economic Structures Research)
    Abstract: Die Einschätzung hinsichtlich der Zuwanderung nach Deutschland hat sich auch wegen der Beobachtungen der Jahre nach 2009 deutlich geändert: Deutschland erwartet zumindest vorübergehend wieder eine steigende Bevölkerung. Schwierig abzuschätzen bleibt neben der europäischen Arbeitsmigration die zusätzliche Zuwanderung aus der Flüchtlingsbewegung. Dies betrifft Fragen über die tatsächliche Höhe, Dauer, Familienstruktur, Familiennachzug und Zukunftspläne. Die Beantwortung dieser Fragen ist umso wichtiger, als Änderungen in der Bevölkerungshöhe und -zusammensetzung weitreichende Wirkungen auf die ökonomische Entwicklung haben. Betroffen sind vor allem die Bauinvestitionen, die Konsumnachfrage des Staates und der privaten Haushalte, die Exportnachfrage und der Arbeitsmarkt. Das Discussion Paper möchte einen ersten Beitrag zur Beantwortung der Fragestellung geben und widmet sich der Identifizierung von Anknüpfungspunkten bzw. Parametern, die einen Zusammenhang zwischen der Flüchtlingsbewegung und der ökonomischen Entwicklung ergeben.
    Keywords: Demografischer Wandel, Zuwanderung, Flüchtlingswelle, ökonomische Folgen, Parameter
    JEL: J1 E2 O1
    Date: 2015
  82. By: Hiroki Watanabe
    Abstract: It has long been known that the city-size distributions are fat tailed, drawing the interest of urban economists. In contrast, not much is known about the distribution of GDP at city level (henceforth referred to as gross metropolitan product, GMP). We build a model of the spatial economy that includes production and confirm the following empirical facts about the GMP counterpart of the city-size distribution. First, both Zipf's and Gibrat's law hold for the distribution of GMP as well. In particular the GMP distribution is well-traced by a lognormal distribution. Second, citywide aggregate production exhibits increasing returns to scale with respect to employment. In particular a 1% increase in employment leads to a 1.117% (or 1.180% in theory) increase in GMP. Agglomeration economies are explained as a result of an endogenous trade-off between externalities and land consumption of consumers.
    Keywords: Zipf's Law; Gibrat's Law; GDP by City; Production Economy
    JEL: D51 E2 R12
    Date: 2015–10
  83. By: Andreas Brunhart (Liechtenstein-Institut)
    Abstract: Das Ziel des Projektes, dessen Methodik hier dargestellt wird, ist die Einführung einer jährlichen Schnellschätzung des liechtensteinischen Bruttonationaleinkommens, welche analog zur bereits existierenden BIP-Schnellschätzung bereits im Frühjahr und somit mehr als ein halbes Jahr vor Veröffentlichung der kompletten Volkswirtschaftlichen Gesamtrechnung Liechtensteins (Anfang Dezember) vorliegen soll. Damit würde sich die Publikationsverzögerung des BNE von 23 auf 15 Monate verringern. Die Schnellschätzung wird im Wesentlichen anhand eines multiplen Regressionsmodells unter Verwendung von Indikator-Variablen durchgeführt, welche eine starke Korrelation mit dem Bruttonationaleinkommen aufweisen. Die ermittelten Modelle verfügen über eine hohe Prognosegenauigkeit, sind mit überschaubarem Aufwand anwendbar und können als deutlich besser bezeichnet werden als die bis anhin angewandte Daumenregel, in der einfach die Wachstumsrate der BIP-Schnellschätzung auf das Bruttonationaleinkommen übertragen wird. The aim of the project, whose methodological characteristics are outlined in this paper, is the introduction of an annual flash estimate of Liechtenstein’s gross national income. This GNI flash estimate shall be published in spring analogously to the existent GDP flash estimate around half a year before the entire national accounts is released by the beginning of December. This would reduce the GNI’s publication lag from 23 to 15 months. The flash estimate procedure consists of a multiple regression model that contains indicator variables with a high correlation to the GNI. The obtained models exhibit a high forecast accuracy, are applicable with relatively low effort and clearly outperform the rule of thumb used so far of applying the GDP flash estimated growth rates to GNI.
    Keywords: Volkswirtschaftliche Gesamtrechnung; Schnellschätzung; Nowcasting; Bruttonationaleinkommen; ARDL-Modell; Liechtenstein
    JEL: C22 E01
    Date: 2014
  84. By: Juan Carlos Escanciano (Institute for Fiscal Studies); Stefan Hoderlein (Institute for Fiscal Studies and Boston College); Arthur Lewbel (Institute for Fiscal Studies and Boston College); Oliver Linton (Institute for Fiscal Studies and University of Cambridge); Sorawoot Srisuma (Institute for Fiscal Studies)
    Abstract: We consider nonparametric identification and estimation of pricing kernels, or equivalently of marginal utility functions up to scale, in consumption based asset pricing Euler equations. Ours is the first paper to prove nonparametric identification of Euler equations under low level conditions (without imposing functional restrictions or just assuming completeness). We also propose a novel nonparametric estimator based on our identification analysis, which combines standard kernel estimation with the computation of a matrix eigenvector problem. Our estimator avoids the ill-posed inverse issues associated with existing nonparametric instrumental variables based Euler equation estimators. We derive limiting distributions for our estimator and for relevant associated functionals. We provide a Monte Carlo analysis and an empirical application to US household-level consumption data.
    Keywords: Euler equations; marginal utility; pricing kernel; Fredholm equations; integral equations; nonparametric identification; asset pricing
    JEL: C14 D91 E21 G12
    Date: 2015–10
  85. By: Óscar Rodil; Diana Morales
    Abstract: The aim of this paper is to analyze the difference between the rates of potential entrepreneurship and actual entrepreneurship in European and American context, trying to identify some of the explanatory factors. For this purpose an institutional approach is used, which includes the role of various formal and informal factors related with the potential and emerging entrepreneurial activity. From an empirical point of view, the paper takes into account twenty countries from the European and American continent, covering the last decade. The results show, in general, the influence of the institutional framework on the gap between the nascent entrepreneurship and potential entrepreneurship, through formal and informal factors. We use data from the Global Entrepreneurship Monitor (GEM), which measures the entrepreneurial intention and nascent entrepreneurial activity, the World Bank and the Index of Economic Freedom (The Heritage Foundation).
    Keywords: Entrepreneurship; Gap; New Institutional Economics; Europe; America
    JEL: L26 E02 O52
    Date: 2015–10
  86. By: Concepción González-Concepción (University of La Laguna); María Candelaria Gil-Fariña (University of La Laguna); Celina Pestano-Gabino (University of La Laguna)
    Abstract: We illustrate some aspects of the economic situation in Spain following the dynamic of data series of six relevant economic and financial variables: A financial index (IBEX35), a row material (Crude Oil Price in euros, COP), a foreign exchange index (EUR/USD), a bonus (Spain 10-Years, S10YB), the total state debt (Spain State Debt, SSD) and Consumer Price Index (CPI) variables (from,, and We analyse the decomposition of non
    Keywords: Spanish Economy, Dynamic Analysis, Wavelets
    JEL: C02 C89 E30
  87. By: Antonio Montanes; Lorena Olmos; Marcelo Reyes
    Abstract: This paper analyses to what extent the Spanish provinces have shown a convergence process since 1980 to nowadays. The application of the Phillips-Sul methodology to the HDI recently developped by IVIE lead us to show that we cannot admit the exitence of a unique convergence process between them. Rather, we can observe the exis- tence of di¤erentiated clubs up to 2007. Higher school education and creativity plays determinant roles in explaining the evolution of these clubs. Im- provements in these variables are vital for the provinces to move to the clubs with highest HDI values.
    Keywords: convergence; clubs; education; Human development Index
    JEL: C22 E43
    Date: 2015–10

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