nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒11‒21
119 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Household Debt, Financial Intermediation, and Monetary Policy By Yahong
  2. Monetary-Fiscal Policy Interaction and Fiscal Inflation: A Tale of Three Countries By Martin Kliem; Alexander Kriwoluzky; Samad Sarferaz
  3. Credit Conditions and Consumption, House Prices and Debt: What Makes Canada Different? By John Muellbauer; Pierre St-Amant; David Williams
  4. Do heterogeneous expectations constitute a challenge for policy interaction? By Emanuel Gasteiger
  5. Monetary-Fiscal Policy Interaction and Fiscal Inflation: A Tale of Three Countries By M. Kliem; Alexander Kriwoluzky; S. Sarferaz
  6. Have inflation targeting and EU labour immigration changed the system of wage formation in Norway? By Marit Linnea Gjelsvik; Ragnar Nymoen; Victoria Sparrman
  7. The principle of effective demand: Marx, Kalecki, Keynes and beyond By Hein, Eckhard
  8. Mixed Prospects: Consumption Leads Fragile Recovery in the CESEE Core – CIS Stumbles By Amat Adarov; Vasily Astrov; Serkan Çiçek; Rumen Dobrinsky; Vladimir Gligorov; Doris Hanzl-Weiss; Peter Havlik; Mario Holzner; Gabor Hunya; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Robert Stehrer; Hermine Vidovic
  9. Forward Guidance at the Effective Lower Bound: International Experience By Karyne B. Charbonneau; Lori Rennison
  10. A Comprehensive Evaluation of Measures of Core Inflation for Canada By Mikael Khan; Louis Morel; Patrick Sabourin
  11. Bank profitability and its determinants in Pakistan: A panel data analysis after financial crisis By Ali, Muhammad
  12. Transmisión del efecto cambiario a la economía de la frontera Colombo–Venezolana By Diego Hernán Rodríguez
  13. World Asset Markets and the Global Financial Cycle By Miranda-Agrippino, Silvia; Rey, Hélène
  14. Quantitative Easing as a Policy Tool Under the Effective Lower Bound By Abeer Reza; Eric Santor; Lena Suchanek
  15. The International Experience with Negative Policy Rates By Harriet Jackson
  16. Eliciting GDP Forecasts from the FOMC’s Minutes Around the Financial Crisis By Neil R. Ericsson
  17. Household Forming Inflation Expectations: Why Do They ‘Overreact’? By Easaw, Joshy
  18. Government Spending Composition, Aggregate Demand, Growth and Distribution By Luca Zamparelli; Daniele Tavani
  19. Business Cycle Synchronisation in EMU: Can Fiscal Policy Bring Member-Countries Closer? By Degiannakis, Stavros; Duffy, David; Filis, George; Livada, Alexandra
  20. Economic Uncertainty and Structural Reforms By Bonfiglioli, Alessandra; Gancia, Gino A
  21. Professionals’ Forecast of the Inflation Gap and its Persistence By Easaw, Joshy; Heravi, Saeed; Dixon, Huw David
  22. Unconventional monetary policy, spillovers, and liftoff: implications for Northeast Asia By Noland, Marcus
  23. Sticker shocks: using VAT changes to estimate upper-level elasticities of substitution By Hobijn, Bart; Nechio, Fernanda
  24.  National Financial Frictions and International Business Cycle Synchronization By Jean-François Rouillard
  25. In search for appropriate lower bound.Zero lower bound vs. positive lower bound under discretion and commitment By Piotr Ciżkowicz; Andrzej RzoÅ„ca; Andrzej Torój
  26. Wealth accumulation and aggregate demand stagnation in a two class economy with applications to the United States By Rishabh Kumar
  27.  International Risk Sharing and Financial Shocks By Jean-François Rouillard
  28. Inflation Expectations in Hungary By Péter Gábriel; Judit Rariga; Judit Várhegyi
  29. The U.S. economic outlook and monetary policy By Dudley, William
  30. FOMC members’ incentives to disagree: regional motives and background influences By Hamza Bennani; Etienne Farvaque; Piotr Stanek
  31. Asymmetric financial integration bank ownership and monetary policy in emerging economies By Piotr Denderski; Wojciech Paczos
  32. Modelling the time-variation in euro area lending spreads By Boris Blagov; Michael Funke; Richhild Moessner
  33. Credit policies before and during the financial crisis By Palle Sørensen
  34. An investment initiative for fiscally constrained EU member states: The role of synergetic financial instruments By Zeilbeck, Severin
  35. Tax, Regulation and Economic Growth: A Case Study of the UK By Minford, Lucy
  36. Creación y Destrucción de Empleos e Informalidad By Nikita Céspedes Reynaga
  37. On the Gains from Monetary Policy Commitment under Deep Habits By Givens, Gregory
  38. Coordination and Crisis in Monetary Unions By Manuel Amador; Gita Gopinath; Emmanuel Farhi; Mark Aguiar
  39. Forecasting with Instabilities: an Application to DSGE Models with Financial Frictions By Roberta Cardani; Alessia Paccagnini; Stefania Villa
  40. Can Monetary Policy Affect Economic Activity under Surplus Liquidity? Some Evidence from Macedonia. By Branimir Jovanovic; Aneta Krstevska; Neda Popovska-Kamnar
  41. Coordination and Unemployment By Mathieu Taschereau-Dumouchel; Edouard Schaal
  42. Maintaining Central-Bank Financial Stability under New-Style Central Banking By Robert E. Hall; Ricardo Reis
  43. Monetary Policy and Financial Stability: Cross-Country Evidence By Christian Friedrich; Kristina Hess; Rose Cunningham
  44. US Monetary Policy in a Globalized World By Jesus Crespo Cuaresma; Gernot Doppelhofer; Martin Feldkircher; Florian Huber
  45. Alternative Indicator of Monetary Policy Stance for Macedonia By Magdalena Petrovska; Ljupka Georgievska
  46. Exchange Rate Dynamics and its Effect on Macroeconomic Volatility in Selected CEE Countries By Volha Audzei; Frantisek Brazdik
  48. "Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1779" By Farley Grubb
  49. Correlating Social Mobility and Economic Outcomes By Maia Güell; Michele Pellizzari; Giovanni Pica; Josè V. Rodríguez Mora
  50. Post-Crisis Credit Slowdown in South-East Europe – Return to Normality? By Branimir Jovanovic; Egzona Hani; Ljupka Georgievska
  51. The Effect of ECB Monetary Policies on Interest Rates and Volumes By Paul Hubert; Jérôme Creel; Mathilde Viennot
  52. Educate or Adjudicate? Socio-Economic Heterogeneity and Welfare By Bilin Neyapti
  53. Good Policy or Good Firms? International Competition and Aggregate Growth in a Granular World By Jack Rossbach
  54. Ekonomske implikacije direktive o ugovorima o potrošačkom kreditiranju koji se odnose na stambene nekretnine By Josip Tica
  55. Transmission of External Shocks in Assessing Debt Sustainability, the Case of Macedonia By Danica Unevska-Andonova; Dijana Janevska-Stefanova
  56. An Appraisal of Floating Exchange Rate Regimes in Latin America By Roberto Frenkel
  57. Un índice coincidente para Medellín By Gerardo Alberto Villa Durán
  58. The Role of Credit in Predicting US Recessions By Harri Pönkä
  59. Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America By Ohanian, Lee E.; Restrepo-Echavarria, Paulina; Wright, Mark L. J.
  60. Dinner address for the Bank of England-Federal Reserve Bank of New York Conference on Money Markets and Monetary Policy Implementation By Potter, Simon M.
  61. On the long-run equilibrium value of Tobin's average Q By Franke, Rainer; Yanovski, Boyan
  62. Effects of US Quantitative Easing on Emerging Market Economies By Saroj Bhattarai; Arpita Chatterjee; Woong Yong Park
  63. On the Term Structure of South African Interest Rates: Cointegration and Threshold Adjustment By Bernard Njindan Iyke
  64. Sustentabilidade da dívida publica brasileira: Uma análise sob diversos conceitos de superávit primário e endividamento By Raí da Silva Chicoli; Siegfried Bender
  65. Betting on Exports: Trade and Endogenous Heterogeneity By Bonfiglioli, Alessandra; Crinò, Rosario; Gancia, Gino A
  66. Regulation and Reputation By Martin Kuncl; Kinda Hachem
  67. Is Neo-Walrasian Macroeconomics a Dead End? By Marchionatti, Roberto; Sella, Lisa
  68. Holding out for a better deal: Brinkmanship in the Greek bailout negotiations By Pitsoulis, Athanassios; Schwuchow, Sören C.
  69. The impact of the euro on euro area GDP per capita By Cristina Fernández; Pilar García Perea
  70. Expectations and risk premia at 8:30am: Macroeconomic announcements and the yield curve By Peter Hördahl; Eli M Remolona; Giorgio Valente
  71. Financialisation of the commodity markets. Conclusions from the VARX DCC GARCH By Karol Szafranek
  72. The Interdependence between Commodity-Price and GDP Cycles: A Frequency Domain Approach By Jair N. Ojeda-Joya; Oscar Jaulin-Mendez; Juan C. Bustos-Peláez
  74. The Heterogeneous Responses of the World Commodity Prices to Exchange Rate Shocks By Hyeongwoo Kim; Jintaek Kim
  75. Financial Heterogeneity and Monetary Union By jae sim; Raphael Schoenle; Egon Zakrajsek; Simon Gilchrist
  76. Employment Polarization in Germany: Role of Technology, Trade and Human Capital By Ipsita Roy; Davide Consoli
  77. "The Roads Not Taken: Graph Theory and Macroeconomic Regimes in Stock-flow Consistent Modeling" By Miguel Carrion Alvarez; Dirk Ehnts
  78. Exchange Rate Pass-through in Russia By Ponomarev, Yuri; Trunin, Pavel V.; Uljukaev, Aleksej V.
  79. The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle? By Kurt Mitman; Iourii Manovskii; Marcus Hagedorn
  80. Reconciling Estimates of Earnings Processes in Growth Rates and Levels By Iourii Manovskii; Dmytro Hryshko; Moira Daly
  81. The economic outlook: live long and prosper By Williams, John C.
  82. Interactions between state pension and long-term care reforms: an overview By John Adams; Chris Curry; Ferran Espuny-Pujol; Ruth Hancock; Bo Hu; Derek King; Sarah Luheshi; Marcello Morciano; Timothy Pike; Shamill Popat; Raphael Wittenberg
  83. The economic outlook: live long and prosper By Williams, John C.
  84. Spatial Business Cycles By enoch hill; Fabrizio Perri; Alessandra Fogli
  85. Kalman Filter Estimation of the Unrecorded Economy in Macedonia By Branimir Jovanovic
  86. Taxation, credit constraints and the informal economy By Julia Passabom Araujo; Mauro Rodrigues
  87. Fiscal Policy in a Growing Economy with Financial Frictions and Firm Heterogeneity By Kazuo MIno
  88. Are we connected? By Zuidwijk, R.A.
  89. Time varying fiscal multipliers in an agent-based model with credit rationing By Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  90. Macroeconomics, climate change and 'recomposition' of consumption By Ian Gough
  91. The effects of government spending endogeneity on estimated multipliers in the US By Moura, Alban
  92. Анализ динамики развития сферы централизованных финансов финансовой системы РФ в условиях перехода к рыночной экономике By Tapchieva, Tatiana
  93. Quarterly estimates of regional GDP in Poland – application of statistical inference of functions of parameters By Mateusz Pipień; Sylwia Roszkowska
  94. The Interdependence between Commodity-Price and GDP Cycles: A Frequency Domain Approach By Jair N. Ojeda-Joya; Oscar Jaulin-Mendez; Juan C. Bustos-Peláez
  95. La tasa de actividad en España: resistencia cíclica, determinantes y perspectivas futuras. By José Manuel Montero; Ana Regil
  96. Endogenous confidence cycles By Pavel Krivenko; Martin Schneider; Cosmin Ilut
  97. When Is Foreign Exchange Intervention Effective? Evidence from 33 Countries By Marcel Fratzscher; Oliver Goede; Lukas Menkhoff; Lucio Sarno; Tobias Stöhr
  98. Do regulations and supervision shape the capital crunch effect of large banks in the EU? By Malgorzata Olszak; Mateusz Pipien; Iwona Kowalska; Sylwia Roszkowska
  99. Estimating Non-Linear DSGEs with the Approximate Bayesian Computation: an application to the Zero Lower Bound By Valerio Scalone
  100. When Does Introducing a Value-Added Tax Increase Economic Efficiency? Evidence from Synthetic Control Methods By Bibek Adhikari
  101. Centralized trading of corporate bonds By Samuel Huber; Jaehong Kim
  102. Long-term unemployment and labor force participation : a decomposition of unemployment to test for the discouragement and added worker hypotheses By Fuchs, Johann; Weber, Enzo
  103. Persistent Monetary Non-neutrality in an Estimated Model with Menu Costs and Partially Costly Information By Vivian Malta; Rene Garcia; Carlos Carvalho; Marco Bonomo
  104. Interdependence among Agricultural Commodity Markets, Macroeconomic Factors, Crude Oil and Commodity Index By José Fernández
  106. Emerging Markets Sovereign Bond Spreads, Credit Ratings and Global Financial Crisis By Erdal Özmen; Özge Doğanay Yaşar
  107. Labour market reform for more and better quality jobs in Italy By Yosuke Jin; Patrick Lenain
  108. Fiscal Policy and Trade Margins: An Educational Channel By Roberto Guadarrama-Baena, Povilas Lastauskas
  109. Effects of Increases in Value Added Tax: A Dynamic CGE Approach By Jean Luc Erero
  111. Monthly Report No. 11/2015 - Special Issue in Memoriam Kazimierz Laski By Michael Landesmann; Kazimierz Laski; Jerzy Osiatynski; Leon Podkaminer; M. Riese; Herbert Walther
  112. Higher-order statistics for DSGE models By Willi Mutschler
  113. Cost of Living Inequality during the Great Recession By Munseob Lee; David Argente
  114. Common-property, public infrastructure and rent dissipation in the long-run By Ramón José Torregrosa Montaner
  115. È la fine dell’Europa? By Paolo Becchi
  116. Optimal public information dissemination: Introducing observational learning into a generalized beauty contest By Hüning, Hendrik; Meub, Lukas
  117. Job history, work attitude, and employability By Alain Cohn; Michel André Maréchal; Frédéric Schneider; Roberto A. Weber
  118. Credit Scarcity in Developing Countries: an Empirical Investigation using Brazilian Firm-Level Data By André Albuquerque de Sant’Anna; Antônio Marcos Hoelz Pinto Ambrozio; Filipe Lage de Sousa; João Paulo Martin Faleiros
  119. Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis By Quamrul Ashraf; Boris Gershman; Peter Howitt

  1. By: Yahong (Department of Economics, University of Windsor)
    Abstract: The collapse of the housing prices in the U.S. during the Great Recession not only eroded housing wealth held by households, but also the values of the assets in the banking sector. As a result, during the Great Recession mortgage risk premium increases signi?cantly. I introduce a micro-founded banking sector to a standard DSGE model with household debt to study the interaction between housing prices, household debt and banks’ balance sheet positions. I estimate the model using the US data from 1991Q1 to 2014Q1. I ?nd that the model accounts well the negative relationship between housing prices and mortgage risk premium. In the model, a weakened households’ demand for housing leads to a decline in housing prices, which worsens the banks’ balance sheet positions, and as a result, risk premium rises. The results show that housing demand shocks as well as shocks that increases the riskiness of the banking sector contribute signi?cantly to the decline in output during the Great Recession. I also ?nd that the unconventional monetary policy implemented by the Federal Reserve mitigates the decline in output.
    Keywords: household debt, risk premium, banking, unconventional monetary policy
    JEL: E32 E44 E52
    Date: 2015–11
  2. By: Martin Kliem (Deutsche Bundesbank, Frankfurt am Main, Germany); Alexander Kriwoluzky (Martin-Luther-Universit¨at Halle-Wittenberg and Halle Institute for Economic Research (IWH) Halle, Germany); Samad Sarferaz (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary-fiscal narrative for Germany, the U.S. and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of high fiscal budget deficits and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary-fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
    Keywords: Time-Varying VAR, Inflation, Public Deficits
    JEL: E42 E58 E61
    Date: 2015–10
  3. By: John Muellbauer; Pierre St-Amant; David Williams
    Abstract: There is widespread agreement that, in the United States, higher house prices raise consumption via collateral or possibly wealth effects. The presence of similar channels in Canada would have important implications for monetary policy transmission. We trace the impact of shifts in non-price household credit conditions through joint estimation of a system of error-correction equations for Canadian aggregate consumption, house prices and mortgage debt. We find strong evidence that, after controlling for income and household portfolios, easier credit conditions raise house prices, debt and consumption. However, unlike in the United States, housing collateral effects on consumption are absent. Given credit conditions, rising house prices increase the mortgage down-payment requirement and reduce consumption, although there is evidence for some attenuation of this effect over the 2000s. We also find that high and rising levels of both house prices and debt since the late-1990s can be mostly explained by movements in incomes, housing supply, mortgage interest rates and credit conditions, suggesting that the outlook for house prices and debt could depend mainly on the future paths of these variables.
    Keywords: Credit and credit aggregates, Domestic demand and components, Economic models, Financial Institutions, Financial stability, Financial system regulation and policies, Housing, Transmission of monetary policy
    JEL: E02 E21 E44 G21 R21 R31
    Date: 2015
  4. By: Emanuel Gasteiger
    Abstract: Yes, indeed; at least for macroeconomic policy interaction. We examine a Neo- Classical economy and provide the conditions for policy arrangements to successfully stabilize the economy when agents have either rational or adaptive expectations. For a contemporaneous-data monetary policy rule, the monetarist solution is unique and stationary under a passive fiscal/active monetary policy regime if monetary policy appropriately incorporates expectational heterogeneity. In contrast, the active fiscal/passive monetary policy regime’s fiscalist solution is prone to explosiveness due to empirically plausible expectational heterogeneity. Nevertheless, this can be a well-defined, rather orthodox equilibrium. For operational monetary policy rules, only the results for the fiscalist solution prevail. Moreover, our results are plausible from an adaptive learning viewpoint and, conditional on stationarity, both regimes yield promising business cycle dynamics.
    Keywords: Inflation, Heterogeneous Expectations, Fiscal and Monetary Policy Interaction
    JEL: E31 D84 E52 E62
    Date: 2015
  5. By: M. Kliem; Alexander Kriwoluzky; S. Sarferaz
    Abstract: We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary-fiscal narrative for Germany, the U.S. and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of high fiscal budget deficits and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary-fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
    Keywords: time-varying VAR, inflation, public deficits
    JEL: E42 E58 E61
    Date: 2015–11
  6. By: Marit Linnea Gjelsvik; Ragnar Nymoen; Victoria Sparrman (Statistics Norway)
    Abstract: Collective agreements have played a central role in the system of wage formation in Norway for more than fifty years. Although the degree of coordination achieved has been variable, pattern wage bargaining has been a mainstay of the system. We investigate the degree of invariance in wage formation in Norway with respect to two recent structural changes: the transition towards inflation targeting in monetary policy and an unprecedented surge in labour supply due to higher immigration rates. We report empirical results that support the view that a semi-permanent high immigration may affect wages negatively in a significant way. However, we do not find evidence that the stability of the arbitration system, and in particular the wage-bargaining pattern, has been changed by labour immigration or by inflation targeting monetary policy. An explanation of why we do not find evidence of structural changing effects of the transition of monetary policy, can be found in the fact that the wage arbitration system itself has syncronized the inflation expectations of the social partners. In that analysis, inflation targeting became a new layer of nominal stabilization, on top of the existing one.
    Keywords: IInflation modelling; pattern wage bargaining; inflation targeting; dynamic econometrics; cointegration; small open economy.
    JEL: C52 E24 E31 E37 J31
    Date: 2015–10
  7. By: Hein, Eckhard
    Abstract: The principle of effective demand, and the claim of its validity for a monetary production economy in the short and in the long run, is the core of heterodox macroeconomics, as currently found in all the different strands of post-Keynesian economics (Fundamentalists, Kaleckians, Sraffians, Kaldorians, Institutionalists) and also in some strands of neo-Marxian economics, particularly in the monopoly capitalism and underconsumptionist school In this contribution, we will therefore outline the foundations of the principle of effective demand and its relationship with the respective notion of a capitalist or a monetary production economy in the works of Marx, Kalecki and Keynes. Then we will deal with heterodox short-run macroeconomics and it will provide a simple short-run model which is built on the principle of effective demand, as well as on distribution conflict between different social groups (or classes): rentiers, managers and workers. Finally, we will move to the long run and we will review the integration of the principle of effective demand into heterodox/post-Keynesian approaches towards distribution and growth.
    Keywords: effective demand,employment,distribution,growth,Marx,Kalecki,Keynes
    JEL: E20 E21 E22 E24 E25
    Date: 2015
  8. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Serkan Çiçek (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary The economic outlook in the countries of Central East and Southeast Europe (CESEE) will improve in 2015–2017 with the forecast average economic growth rate close to 3% – some 1.5 pp. higher than the expected euro area average growth. Only the CIS countries and Ukraine will be an exception to this trend. Household consumption, aided by labour market improvements and low inflation, will be the main driver of growth. These are the main results of the newly released medium-term macroeconomic forecast by the Vienna Institute for International Economic Studies (wiiw), revising slightly upwards the growth projections relative to the Spring 2015 forecast. Sub-regional growth trends vary greatly. At one end of the spectrum, the Central European countries are expected to continue their robust recovery with growth rates in the order of 2-4% per annum over the forecast horizon (2015–2017). At the other end, the prospects facing the CIS countries are particularly poor unless global commodity prices recover, both Russia and Belarus already tumbling into a deep recession (expected growth in 2015 -3.7% and -3.8%, respectively), while Kazakhstan is following suit with a deceleration in growth (1.5% in 2015). Whereas economic activity in the Baltic countries suffered this year on account of their exposure to Russia, they appear to be resilient and recovery is still on track with growth in the medium term expected to be in the range of 1.5-3%. Overall, Southeast Europe displays improving, but irregular growth tendencies, in many cases accompanied by macroeconomic imbalances and deep structural problems. Serbia and Croatia, the worst performers in the group, will enjoy hardly any growth at all in 2015 (0.1% and 0.7%, respectively), while growth in other countries will be in the order of 2-4%. The situation in Ukraine remains particularly fragile and serious downside risks persist, although there are signs that the recession, much deeper than originally anticipated (with output projected to drop by -11.5% this year), might be bottoming out. Net exports are providing only a limited, if at all positive, contribution to growth, while household consumption, supported by labour market improvements and low inflation due to weak commodity prices, is coming to the fore as the main engine of growth across most of the CESEE region; consumption is expected to remain among the key drivers in the medium term as well. At the same time, private investment remains the much-needed missing link in the mechanism essential to rekindling sustainable output growth in the CESEE region, and public investment may prove to be an important complementary factor. In this regard, the EU structural and investment funds under the 2014–2020 Multiannual Financial Framework will be instrumental as a source of co-funding. Inflation remains very weak across the CESEE region, hovering at near-zero levels on account of low commodity prices, with the exception of the CIS countries, Turkey and Ukraine, whose inflation spiked owing to exchange rate pass-through effects that followed sharp currency depreciations in 2014–2015, as well as country-specific factors, such as the food embargo in Russia and the rise in utility tariffs in Ukraine. The external environment is only moderately supportive. As the multi-speed recovery of the world economy continues in 2015, driven primarily by advanced economies and accompanied by poor performance in large emerging market economies, manifold external risks also arise that could jeopardise the recovery of the CESEE region, including geopolitical tensions associated with the situation in Ukraine and the Middle East, a slowdown in major emerging markets, normalisation of monetary policy in the USA and low commodity prices (a negative shock for the CIS group). Special sections of the forecast report focus on some of the potential risks that have attracted much attention since the beginning of the year, including the refugee crisis in Europe, recession and import-substitution policy in Russia, the Volkswagen scandal, the economic slowdown in China and the implications of the Greek crisis. With the exception of the CIS countries and Ukraine, however, the CESEE countries appear to be rather resilient to date.
    Keywords: CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Russia, Ukraine, Kazakhstan, Turkey, growth divergence, external risks, macroeconomic imbalances, consumption-led growth, unemployment, inflation, competitiveness, public debt, private debt, current account
    JEL: C33 C50 E20 E29 F34 G01 G18 O52 O57 P24 P27 P33 P52
    Date: 2015–11
  9. By: Karyne B. Charbonneau; Lori Rennison
    Abstract: Forward guidance is one of the policy tools that a central bank can implement if it seeks to provide additional monetary stimulus when it is operating at the effective lower bound (ELB) on interest rates. It became more widely used during and after the global financial crisis. This paper reviews the international experience, based on the six central banks that have used forward guidance when operating at the ELB, in order to assess its effectiveness and the potential risks associated with its implementation. We distinguish between three distinct types of forward guidance (qualitative, time contingent and state contingent) and discuss the channels through which forward guidance operates. Overall, we find that forward guidance can be an effective tool at the ELB when clearly communicated and perceived as credible. Though evidence from the literature is somewhat mixed—since the specific effects vary across economies, episodes and type of guidance—it has generally been found to be effective in (1) lowering expectations of the future path of policy rates, (2) improving the predictability of short-term yields over the near term and (3) changing the sensitivity of financial variables to economic news. However, as with other monetary policy tools, the benefits of forward guidance need to be weighed against the costs. Those costs are mainly associated with potential loss of credibility and increased financial stability risks. Moreover, the international experience with forward guidance under conditions of negative ELBs and interest rates is limited to date.
    Keywords: Monetary policy framework, Monetary policy implementation, Transmission of monetary policy, Uncertainty and monetary policy
    JEL: E43 E52 E58 E6
    Date: 2015
  10. By: Mikael Khan; Louis Morel; Patrick Sabourin
    Abstract: This paper evaluates the usefulness of various measures of core inflation for the conduct of monetary policy. Traditional exclusion-based measures of core inflation are found to perform relatively poorly across a range of evaluation criteria, in part due to their inability to filter unanticipated transitory shocks. In contrast, measures such as the trimmed mean and the common component of CPI perform favorably, since they better capture persistent price movements and tend to move with macroeconomic drivers. All measures of core inflation, however, have limitations – consequently, there is merit in monitoring a set of measures. Moreover, core inflation measures are best viewed as complements to, rather than substitutes for, the thorough analysis of inflation and capacity pressures that informs the monetary policy process.
    Keywords: Inflation and prices, Monetary policy framework
    JEL: E31 E52
    Date: 2015
  11. By: Ali, Muhammad
    Abstract: This study seeks to investigate the internal and external determinants of the Pakistan banking sector, specifically after the recent financial crisis of 2008. The sample data comprises of total 26 banks, which include 17 conventional, 5 Islamic and 4 public banks. The selected sample covers the period of five years from 2009 to 2013. A balanced panel data regression model has been used and considered return on assets (ROA) and return on equity (ROE) as an alternative of bank's profitability. The results of the study suggest that bank’s profitability is significantly affected by its internal determinants while external determinants are insignificant. We find operating efficiency, liquidity, non-performing loans to total assets and real GDP has negative impact, whereas financial risk, gearing ratio, asset management, bank size, deposits, loans to total assets and inflation show positive impact on the assets side. On the other side, operating efficiency, gearing ratio, asset management, liquidity, deposits and real GDP have a positive impact while financial risk, bank size, asset quality and inflation exert negative impact on the equity side. During the study period, findings suggest that the Pakistan banking industry has managed well to avoid significant impact of external factors like inflation and GDP over profitability while efficient management is required to improve internal factors to be more profitable.
    Keywords: Banks, Assets, Operating costs, Profits, Assets size, Bank-specific determinants, Profitability.
    JEL: E0 E2 E4
    Date: 2015–04–01
  12. By: Diego Hernán Rodríguez
    Abstract: La frontera se considera como un espacio de interacción entre población de territorios de dos o más países, que comparten vínculos históricos, económicos, sociales y culturales. En los últimos años, la dinámica económica en las ciudades colombianas fronterizas con Venezuela, ha estado enmarcada en un escenario de continua depreciación del bolívar, lo que directa y/o indirectamente se ha visto reflejado en deterioro del comercio exterior, debilidad del sector productivo, alto desempleo e informalidad y la inflación al consumidor más baja del país. El documento presenta un análisis descriptivo, y en algunos casos cuantitativo, de tales canales de transmisión del efecto cambiario en la economía de Cúcuta.
    Keywords: Frontera, Cúcuta, Tasa de Cambio, Consumo, Empleo, Comercio Exterior
    JEL: E21 E24 E26 F31 O24
    Date: 2014–11–19
  13. By: Miranda-Agrippino, Silvia; Rey, Hélène
    Abstract: We find that one global factor explains an important part of the variance of a large cross section of returns of risky assets around the world. Using a model with heterogeneous investors, we interpret the global factor as reflecting aggregate realised variance and the time-varying degree of market-wide risk aversion. A medium-scale Bayesian VAR allows us to analyse the workings of the "Global Financial Cycle", i.e. the interaction between US monetary policy, real activity and global financial variables such as credit spreads, cross-border credit flows, bank leverage and the global factor in asset prices. We find evidence of large monetary policy spillovers from the US to the rest of the world.
    Keywords: Bayesian VAR; dynamic factor model; international financial flows; monetary policy
    JEL: E44 E58 F30 F33
    Date: 2015–11
  14. By: Abeer Reza; Eric Santor; Lena Suchanek
    Abstract: This paper summarizes the international evidence on the performance of quantitative easing (QE) as a monetary policy tool when conventional policy rates are constrained by the effective lower bound (ELB). A large body of evidence suggests that expanding the central bank’s balance sheet through large-scale asset purchases can provide effective stimulus under the ELB. Transmission channels for QE are broadly similar to those of conventional policy, notwithstanding some important but subtle differences. The effectiveness of QE may be affected by imperfect pass-through to asset prices, possible leakage through global capital reallocation, a reduced impact through the bank lending channel, and diminishing returns to additional rounds of QE. Although the benefits of QE appear, so far, to outweigh the costs, at some point this may be reversed. The exact “effective quantitative bound” where the costs of QE become larger than the benefits is as yet unknown. The summary of the evidence, however, suggests that QE is indeed an “adequate” substitute for monetary policy at the ELB, rather than a “perfect” one.
    Keywords: Central bank research, International topics, Monetary policy framework, Transmission of monetary policy
    JEL: N10 E52 E58 E61 E65
    Date: 2015
  15. By: Harriet Jackson
    Abstract: A key issue in the renewal of the inflation-control agreement is the question of the appropriate level of the inflation target. Many observers have raised concerns that with the reduction in the neutral rate, and the experience of the recent financial crisis, the effective lower bound (ELB) is more likely to be binding in the future if inflation targets remain at 2 per cent. This has led some to argue that the inflation target should be raised to reduce the incidence of ELB episodes. Much of this debate has assumed that the ELB is close to, but not below, zero. Recently, however, a number of central banks have introduced negative policy interest rates. This paper outlines the concerns associated with negative interest rates, provides an overview of the international experience so far with negative policy rates and sets out some general observations based on this experience. It then discusses how low policy interest rates might be able to go in these economies, and offers some considerations for the renewal of the inflation-control agreement.
    Keywords: Central bank research, Financial markets, International topics, Monetary policy framework
    JEL: E E5 E52 E58 E6 E65
    Date: 2015
  16. By: Neil R. Ericsson (Board of Governors of the Federal Reserve System)
    Abstract: Stekler and Symington (2016) construct indexes that quantify the Federal Open Market Committee’s views about the U.S. economy, as expressed in the minutes of the FOMC’s meetings. These indexes provide insights on the FOMC’s deliberations, especially at the onset of the Great Recession. The current paper complements Stekler and Symington’s analysis by showing that their indexes reveal relatively minor bias in the FOMC’s views when the indexes are reinterpreted as forecasts. Additionally, these indexes provide a proximate mechanism for inferring the Fed staff’s Greenbook forecasts of the U.S. real GDP growth rate, years before the Greenbook’s public release.
    Keywords: Autometrics; bias; Fed; financial crisis; FOMC; forecasts; GDP; Great Recession; Greenbook; impulse indicator saturation; projections; Tealbook; United States.
    JEL: E58 C53
    Date: 2015–11
  17. By: Easaw, Joshy (Cardiff Business School)
    Abstract: The purpose of the present paper is to provide a simple model which explains how households (or non-experts) form their inflation forecasts. The paper contributes to the existing literature and the understanding of how inflation expectations are formed in two ways. Firstly, we present an integrated model of how non-experts form their inflation expectations. The paper initially outlines how professionals form inflation forecast. Subsequently, the model presents the non-expert’s expectations formation incorporating the dynamics of the professional’s forecast. Secondly, we explain the prevalent phenomena where non-experts tend to overreact, or overshoot, initially as they revise their inflation forecast.
    Keywords: Inflation Expectations Formation; Information Rigidities; Over-reaction
    JEL: E3 E4 E5
    Date: 2015–10
  18. By: Luca Zamparelli (Sapienza, University of Rome); Daniele Tavani (Department of Economics, Colorado State University (USA).)
    Abstract: We study a demand-driven growth and distribution model with a public sector, both without and with government debt. Government spending is used to finance the accumulation of public capital and to pay wages to public employees. The interaction between public capital and induced technical change makes long-run growth: (i) hump-shaped in the composition of government spending, (ii) wage-led, and (iii) government spending-led. Provided that the interest rate on government bonds is kept sufficiently below the growth rate, the size of government debt is irrelevant for long-run growth.
    Keywords: Keynesian growth, Government spending composition, Factor shares, Fiscal policy.
    JEL: E12 E25 E62 H50
    Date: 2015–11
  19. By: Degiannakis, Stavros; Duffy, David; Filis, George; Livada, Alexandra
    Abstract: The paper investigates the effects of fiscal policy on the time-varying business cycle synchronisation between the EMU12 member-countries and the aggregate EMU12-wide business cycle. The impact of fiscal policy on the level of synchronisation is estimated from the difference between the time-varying correlation of each country's business cycle and the aggregate EMU12 business cycle, before and after the effects of fiscal policy on the business cycle are accounted for. The findings suggest that fiscal policy has important effects on business cycle synchronisation for all EMU12 countries. Hence, fiscal policy is shown to have the potential to be supportive of macroeconomic stabilisation in the Eurozone. However the evidence reveals that none of the countries under examination consistently use fiscal policy to promote business cycle synchronisation.
    Keywords: Time varying correlation, EMU business cycle, business cycle synchronisation, fiscal policy, Diag-BEKK model.
    JEL: C32 E32 E62 O52
    Date: 2014–09
  20. By: Bonfiglioli, Alessandra; Gancia, Gino A
    Abstract: Does economic uncertainty promote the implementation of structural reforms? We answer this question using one of the most exhaustive cross-country panel data set on reforms in six major areas and measuring economic uncertainty with stock market volatility. To address endogeneity concerns, we propose various identification strategies, instrumenting uncertainty with world shocks to volatility and with natural disasters, terrorist attacks, political coups and revolutions. Across all specifications, we find that uncertainty has a positive and significant effect on the adoption of reforms. This result is robust to the inclusion of a large number of controls, including political variables, economic variables, crisis indicators, and a host of country, reform and time fixed effects. These findings are broadly consistent with recent models suggesting that uncertainty promotes reforms by mitigating agency problems between policy makers and voters.
    Keywords: reforms; uncertainty
    JEL: E02 E60 L51
    Date: 2015–11
  21. By: Easaw, Joshy (Cardiff Business School); Heravi, Saeed (Cardiff Business School); Dixon, Huw David (Cardiff Business School)
    Abstract: The purpose of the present paper is to investigate perceived inflation gap persistence using actual data of professional forecasts. We derive the unobserved perceived inflation gap persistence and using a state dependent model we estimate the non-linear persistence coefficient of inflation gap. Our main result is that for GDP deflator inflation, the estimates of persistence largely confirm the results obtained indirectly using a linear model. However, when we look at CPI inflation, we find that there is strong evidence for state-dependence and time variation.
    Keywords: Perceived Inflation Gaps; Professional’s Survey-based Forecasts; State-Dependent Models
    JEL: E31 E52 E58
    Date: 2015–10
  22. By: Noland, Marcus
    Abstract: Unconventional monetary policy (UMP) has had predictable effects. How exit plays out is scenario-dependent. Quantitative easing has had the predictable effect of encouraging currency depreciation and some partner countries may have attempted to offset these exchange rate effects. Korea presents a particularly interesting case: it is relatively small and relatively open and integrated, in both trade and financial terms, with the United States and Japan, two practitioners of UMP. Authorities have acted to limit the won’s appreciation primarily against the currency of China, not the US or Japan. Nevertheless, Korea’s policy is a source of tension with the US. Under legislation currently being considered, the currency manipulation issue could potentially interfere with Korean efforts to attract direct investment from the US and create an obstacle to Korea joining the Trans-Pacific Partnership.
    Keywords: unconventional monetary policy, quantitative easing, spillovers, currency manipulation, Korea
    JEL: E58 E65 F41 F42
    Date: 2015–11–19
  23. By: Hobijn, Bart (Arizona State University); Nechio, Fernanda (Federal Reserve Bank of San Francisco)
    Abstract: We estimate the upper-level elasticity of substitution between goods and services of a nested aggregate CES preference specification. We show how this elasticity can be derived from the long-run response of the relative price of a good to a change in its VAT rate. We estimate this elasticity using new data on changes in VAT rates across 74 goods and services for 25 E.U. countries from 1996 through 2015. Our results point to an upper-level elasticity of between 1, at a high level of aggregation that distinguishes 12 categories of goods and services, and 3, at the lowest level of aggregation with 74 categories.
    JEL: D12 E19 E21
    Date: 2015–10–26
  24. By: Jean-François Rouillard (GREDI, Universite de Sherbrooke)
    Abstract:  A two-country real business cycle model with national endogenous borrowing con- straints and frictionless international financial markets can account for the high level of international co-movements. The borrowing mechanism brings about a wedge be- tween the real interest rate and the expected marginal product of capital, which plays a key role in the international transmission of technology shocks. Moreover, terms of trade are amplified by the effects of these shocks on real interest rates which ultimately lead to greater synchronization of economic activities across countries. Finally, the signs of international co-movements are not sensitive to the structure of international asset markets (incomplete markets or financial autarky). Therefore, in the presence of national financial frictions, international efficiency cannot be assessed from looking at the behavior of aggregate variables.
    Keywords:  borrowing constraints, working capital, international co-movements, terms of trade.
    JEL: E44 F34 F44
    Date: 2015–11
  25. By: Piotr Ciżkowicz; Andrzej RzoÅ„ca; Andrzej Torój
    Abstract: We lay a ground for a simple comparison of positive and possible side (adverse) effects of zero interest rate policy (ZLB policy) on welfare. Using a standard New Keynesian dynamic stochastic general equilibrium model, we show that if one assumes that the ZLB policy has no side effects, then this policy is welfare enhancing relative to positive lower bound (PLB) policy, except for the case where PLB policy is pursued under commitment, while the ZLB policy is discretionary. However, moderate side effects of the ZLB policy usually suffice for the PLB policy to pay off in terms of welfare. Only if the ZLB policy was pursued under commitment, while PLB policy was discretionary, would the PLB policy dominance over the ZLB policy, in terms of welfare, require strong side effects of ZLB policy. Otherwise PLB policy could dominate the ZLB policy in terms of welfare, even if restructuring, fostered by the PLB policy, entailed some costs, which could be reduced (or avoided) through slow restructuring. For given side effects of the ZLB, the larger and the more persistent the shock that makes the ZLB bind, the more likely PLB policy dominance over the ZLB policy. The findings holds for economies with both fast and slow potential output growth, with low and high inflation target, flexible and rigid.
    Keywords: fiscal reaction function, sovereign bond yields’ convergence, fiscal adjustment composition
    JEL: C23 E62 F34 H63
    Date: 2015
  26. By: Rishabh Kumar (Department of Economics, New School for Social Research)
    Abstract: I develop a structuralist model of long run growth and distribution with capitalists and workers. Wealth distribution oers a resolution to prot-led vs wage-led regimes. At a stable steady state, wealth must be shared by each class and the consumption of workers becomes a key determinant of capacity utilization. The paradox of thrift be- comes a paradox of wealth. Capitalists' tendency to over-accumulate has negative consequences for their own steady state wealth, through the mechanisms of demand driven economic growth. As an applica- tion, it is predicted that observed levels of wealth inequality can cost the US economy approximately $500 billion of annual output in cur- rent terms. The model oers support for public policies looking to equalize the distribution of wealth and income whilst also improving macroeconomic stability and performance.
    Keywords: Wealth distribution, Economic Growth, Paradox of thrift
    JEL: D3 E21 O4
    Date: 2015–11
  27. By: Jean-François Rouillard (GREDI, Universite de Sherbrooke)
    Abstract:  A canonical two-country real business cycle model with complete international asset markets fails to replicate the sign of the correlation between relative consumptions and real exchange rates—i.e. the consumption–real exchange rate anomaly or Backus-Smith puzzle. When preferences are non-separable between consumption and leisure, the same two-country model augmented by domestic financial frictions and shocks can account for the sign of the Backus-Smith correlation. Specifically, shocks to the firms’ borrowing capacity create important fluctuations in the labor wedge, inducing firms to demand more labor following these positive financial shocks. These procyclical movements in hours worked significantly affect the marginal utility of consumption and explain the Backus-Smith correlation. Moreover, the same model under financial autarky predicts a correlation that is far away from its empirical counterpart. This finding suggests that this correlation is not a good indicator of international risk sharing.
    Keywords: Backus-Smith puzzle, borrowing constraints, labor wedge, working capital, financial shocks, non-separable preferences
    JEL: E44 F34 F44
    Date: 2015–11
  28. By: Péter Gábriel (Magyar Nemzeti Bank (Central Bank of Hungary)); Judit Rariga (Magyar Nemzeti Bank (Central Bank of Hungary)); Judit Várhegyi (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: The aim of this study is to provide an overview of the main characteristics of expectations of professional forecasters, households and firms in respect of Hungarian inflation trends. In countries where an inflation targeting regime is in place, inflation expectations are of key importance from the perspective of monetary policy and play a significant role in central bank decisionmaking and follow-up communication. The inflation expectations of economic agents are relevant for central banks for two main reasons. On the one hand, inflation expectations can provide direct information concerning the credibility of monetary policy. On the other hand, they may carry important information that can help central banks in forecasting macroeconomic developments. For the purpose of understanding and forecasting inflation developments, most central banks monitor the expectations of individual economic agents on a regular basis. Besides average expectations, the dispersion of inflation expecta tions may also contain significant information for central banks. For Hungary, inflation expectation data are available from surveys based on quantitative or qualitative questionnaires for households, firms and professional forecasters.
    Keywords: inflation expectations, survey, central bank
    JEL: C83 D84 E31 E52
    Date: 2014
  29. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Economic Club of New York, New York City.
    Keywords: personal consumption expenditures (PCE) deflator; inflation expectations; zero lower bound; interest rate normalization; lift-off; short-term neutral real interest rate; nominal federal funds rate; real federal funds rate; r*; financial conditions
    JEL: E52 E66
    Date: 2015–11–12
  30. By: Hamza Bennani; Etienne Farvaque; Piotr Stanek
    Abstract: We study determinants of individual FOMC members disagreement with the decided policy rate. Utilizing a novel dataset of macroeconomic indicators for the Fed districts and preferences revealed by FOMC members in the transcripts, we construct individual reaction functions for each member for the period 1994-2008. Then, we explain the gap between each member’s preferred rate and the adopted policy rate by individual background characteristics. First, we find that FOMC members tend to react to regional economic conditions, in particular the unemployment rate. Second, that Professors, and individuals holding a master degree or issued from either private or public sector have a higher propensity to disagree on the dovish side during the meetings, while female members as well as governors nominated by a Democrat President tend to disagree on the hawkish side (as compared to the “reference†member, who is a male, PhD holder, Regional Bank President with experience in the financial sector). Moreover, we show that, under Ben Bernanke, in a period a large economic uncertainty, the propensity to disagree increased for all types of members.
    Keywords: Transcripts, FOMC, Interest Rate, Individual Taylor Rule.
    JEL: E43 E58 F36
    Date: 2015
  31. By: Piotr Denderski; Wojciech Paczos
    Abstract: Over the last 30 years cross-country financial integration has increased significantly. In this process many banks in developing and transition economies became foreign-owned. Using a panel data on banks in eleven Central and Eastern Europe economies we provide new evidence that foreign-owned banks react differently to monetary policy changes than domestic-owned banks not only during financial crises but also in normal times. We embed bank heterogeneity in a stylized DSGE model featuring monopolistic competition in the banking sector and show that such a pattern may be driven not only by a facilitated access to internal market within the financial conglomerate they belong to but also by their competitive advantages. While the first mechanism leads to a decrease of the responsiveness of the banking sector to the monetary policy, the second mechanism does not.
    Keywords: banks, bank ownership, bank lending channel, monetary policy
    JEL: E44 E50 G21
    Date: 2015
  32. By: Boris Blagov; Michael Funke; Richhild Moessner
    Abstract: Using a Markov-switching VAR with endogenous transition probabilities, we analyse what has triggered the interest rate pass-through impairment for Italy, Ireland, Spain and Portugal. We find that global risk factors have contributed to higher lending rates in Italy and Spain, problems in the banking sector help to explain the impairment in Spain, and fiscal problems and contagion effects have contributed in Italy and Ireland. We also find that the ECB's unconventional monetary policy announcements have had temporary positive effects in Italy. Due to the zero lower bound these findings are amplified if EONIA is used as a measure of the policy rate. We did not detect changes in the monetary policy transmission for Portugal.
    Keywords: Lending rates, interest rate pass-through
    Date: 2015–11
  33. By: Palle Sørensen (Aarhus University and CREATES)
    Abstract: This paper empirically distinguishes between the two main contending explanations for credit cycles. Namely, the bank lending channel and the balance sheet channel. This is done by using unique Danish survey, register, rating, and bank data. The results indicate that the bank lending channel explains most of the changes in credit policy by Danish banks towards small and medium (SME) sized firms. However, the results show that both channels are operational, but the balance sheet channel is surprisingly weak partly because discouragement during the crisis kept struggling firms from applying for credit. The analysis also reveals that the credit supply was weaker in banks that were struggling during the crisis and indirectly that firms could not off-set this effect by changing banks. Furthermore, the evidence suggests that the financial crisis also affected the liquidity of non-financial firms, as credit demand rose immediately following the crisis.
    Keywords: Business Fluctuations, Financial Markets and the Macroeconomy, Banks, and Credit Policies.
    JEL: E32 E44 G21 G32
    Date: 2015–11–10
  34. By: Zeilbeck, Severin
    Abstract: The economy of the European Union has not recovered from the impact of the economic and financial crisis. Growth rates remain low and investment activity is weak. This questions current economic policies of the Economic and Monetary Union, known as austerity. In opposition to fiscal contraction measures, expansive fiscal action policies are often called for to initiate economic recovery. But the national interests of austerity's main proponent, performed in an asymmetric intergovernmental bargaining arena, render most of the proposed expansive action plans impossible and hence austerity is expected to prevail. The Juncker-Plan constitutes an expansive action plan which respects the restrictive budgetary rules. Nevertheless an investment volume of 315 billion Euro should be made available, enabled by 21 billion Euro of public money. The budget contribution should lever private funds by a multiplier of 15. The crucial factor of 15 rests on experience with Synergetic Financial Instruments which have been increasingly executed during the last budget period. This work assesses the impact of expansive public investment conducted through these Synergetic Financial Instruments and thus gathers information to undertake an appraisal of the Juncker-Plan, foremost of its crucial mechanisms and resulting numbers. By this, the potential of financial instruments as means of fiscal policy and the validity of the Juncker-Plan can be assessed.
    Keywords: Economic and Monetary Union,austerity,fiscal policy,public investment,financial instruments,Juncker-Plan,European Fund for Strategic Investment
    JEL: G23 E61 E62 E65 G01 G11 H62 H63
    Date: 2015
  35. By: Minford, Lucy
    Abstract: This paper investigates whether government policy had a causal impact on UK output and productivity growth between 1970 and 2009. An open economy DSGE model of the UK is set up, with productivity growth determined by the tax and regulatory environment in which firms start up and operate. The agent’s optimality conditions imply a reduced form linear relationship between policy and short-run productivity growth. Identification is assured for the DSGE model by the rational expectations restrictions; therefore the direction of causality is unambiguously from policy to productivity. The model is estimated and tested by Indirect Inference, a simulation-based method with good power against general misspecification. The results of this study offer robust empirical evidence that temporary changes in policies underpinning the business environment can have long-lasting effects on UK economic growth.
    JEL: E6 O11 O47 O5 O38
    Date: 2015–11
  36. By: Nikita Céspedes Reynaga (Ministerio de Economía y Finanzas del Perú)
    Abstract: En este documento se estudia la tasa de creación de empleo y la tasa de separación en Lima Metropolitana, el contexto de estudio es relevante al existir pocos estudios que caracterizan estos indicadores en economías informales y en desarrollo. Encontramos que estos indicadores del sector formal son en promedio similares a los estimados en economías desarrolladas; sin embargo, en el sector informal los valores calculados son aproximadamente tres veces mayores a los del sector formal. Existe una considerable heterogeneidad de las dos series según diversas variables observables; además, las dos variables están relacionadas con el ciclo económico: la tasa de separación es contracíclica y la tasa de encontrar empleo es procíclica, siendo esta ciclicidad mayor en el sector formal.
    Keywords: Creación de empleo, destrucción de empleo, ciclo económico, informalidad laboral, duración de desempleo, duración de empleo
    JEL: E24 E26 J63 J64 O17
    Date: 2015–10
  37. By: Givens, Gregory
    Abstract: I study the welfare gains from commitment relative to discretion in the context of an equilibrium model that features deep habits in consumption. Policy simulations reveal that the welfare gains are increasing in the degree of habit formation and economically significant for a range of values consistent with U.S. data. I trace these results to the supply-side effects that deep habits impart on the economy and show that they ultimately weaken the stabilization trade-offs facing a discretionary planner. Most of the inefficiencies from discretion, it turns out, can be avoided by installing commitment regimes that last just two years or less. Extending the commitment horizon further delivers marginal welfare gains that are trivial by comparison.
    Keywords: Deep Habits, Optimal Monetary Policy, Commitment, Discretion
    JEL: E52 E61
    Date: 2015–11
  38. By: Manuel Amador (Federal Reserve Bank of Minneapolis); Gita Gopinath (Harvard); Emmanuel Farhi (Harvard University); Mark Aguiar (Princeton University)
    Abstract: We study fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment. We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of debt in a monetary union, that is the fraction of high-debt versus low-debt members, on the occurrence of self-fulfilling debt crises. We demonstrate that a high-debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high- and low-debt members, than one where all other members are low-debt. This contrasts with the conventional wisdom that all countries should prefer a union with low-debt members, as such a union can credibly deliver low inflation. These findings shed new light on the criteria for an optimal currency area in the presence of rollover crises.
    Date: 2015
  39. By: Roberta Cardani; Alessia Paccagnini; Stefania Villa
    Abstract: This paper examines whether the presence of parameter instabilities in dynamic stochastic general equilibrium (DSGE) models affects their forecasting performance. We apply this analysis to medium-scale DSGE models with and without financial frictions for the US economy. Over the forecast period 2001-2013, the models augmented with financial frictions lead to an improvement in forecasts for inflation and the short term interest rate, while for GDP growth rate the performance depends on the horizon/period. We interpret this finding taking into account parameters instabilities. Fluctuation test shows that models with financial frictions outperform in forecasting inflation but not the GDP growth rate.
    Keywords: Bayesian estimation; Forecasting; Financial frictions; Parameter instabilities
    JEL: C11 C13 C32 E37
    Date: 2015–10
  40. By: Branimir Jovanovic (National Bank of the Republic of Macedonia); Aneta Krstevska (National Bank of the Republic of Macedonia); Neda Popovska-Kamnar (National Bank of the Republic of Macedonia)
    Abstract: Surplus liquidity in the banking system changes the monetary transmission mechanism, reducing the effectiveness of the traditional instrument, the interest rate. In this paper we examine the real effects of several monetary-policy instruments in Macedonia, an economy characterized by surplus liquidity. We use regime-switching Vector Auto regressions and track the responses of different economic activity indicators to changes in the monetary policy instruments. Our findings suggest that the interest rate channel is weakly effective in Macedonia. The responses to the other instruments are not very sizeable, either, but are significant. This implies that monetary policy can affect economic activity through the reserve requirement and the offered amount of central bank bills. These findings have implications for both the analysis and the conduct of monetary policy in economies with surplus liquidity. Regarding analysis, the implication is that the traditional approach, which considers only the role of the interest rate, is likely to lead to wrong conclusions. Regarding conduct, the implication is that monetary authorities, besides on the price impact of the interest rate, should additionally rely on the reserve requirement and other available instruments producing volume impact.
    Keywords: monetary policy, surplus liquidity, excess liquidity, VAR, Macedonia
    JEL: E50 E52
    Date: 2015–10
  41. By: Mathieu Taschereau-Dumouchel (University of Pennsylvania - Wharton); Edouard Schaal (New York University)
    Abstract: We propose a search theory of unemployment in which coordination concerns amplify and propagate shocks. Because of an aggregate demand externality, firms are more likely to create jobs when aggregate employment is high. The model features multiple equilibria under complete information, but we extend the global game approach of Schaal and Taschereau-Dumouchel (2014) to obtain uniqueness. Because coordination is persistent, the model can generate large, long-lasting unemployment crises. When unemployment is high, aggregate demand is low and firms are more likely to coordinate on low job creation. As a result, unemployment persists and job creation remains durably low. We calibrate the model to the United States economy and find that it generates more volatile, persistent and asymmetric fluctuations than a benchmark Diamond-Mortensen-Pissarides search model.
    Date: 2015
  42. By: Robert E. Hall (Hoover Institution); Ricardo Reis
    Abstract: Since 2008, the central banks of advanced countries have borrowed trillions of dollars from their commercial banks in the form of interest-paying reserves and invested the proceeds in portfolios of risky assets. We investigate how this new style of central banking affects central banks’ solvency. A central bank is insolvent if its requirement to pay dividends to its government exceeds its income by enough to cause an unending upward drift in its debts to commercial banks. We consider three sources of risk to central banks: interest-rate risk (the Federal Reserve), default risk (the European Central Bank), and exchange-rate risk (central banks of small open economies). We find that a central bank that pays dividends equal to a standard concept of net income will always be solvent—its reserve obligations will not explode. In some circumstances, the dividend will be negative, meaning that the government is making a payment to the bank. If the charter does not provide for payments in that direction, then reserves will tend to grow more in crises than they shrink in normal times. To prevent this buildup, the charter needs to provide for makeup reductions in payments from the bank to the government. We compute measures of the financial strength of central banks, and discuss how different institutions interact with quantitative easing policies to put these banks in less or more danger of instability. We conclude that the risks to financial stability are real in theory, but remote in practice today.
    JEL: E42 E58
    Date: 2015–07
  43. By: Christian Friedrich; Kristina Hess; Rose Cunningham
    Abstract: Central banks may face challenges in achieving their price stability goals when financial stability risks are present. There is, however, considerable heterogeneity among central banks with respect to how they manage these potential trade-offs. In this paper, we review the institutional and operational policy frameworks of ten central banks in major advanced economies and then assess the effect of financial stability risks on their monetary policy decisions according to these frameworks. To do so, we construct a time-varying financial stability orientation (FSO) index that quantifies a central bank’s policy orientation with respect to financial stability that spans the major viewpoints of the literature: “leaning against the wind” versus “cleaning up after the crash.” The index encompasses three dimensions: (i) the nature of the statutory frameworks, (ii) the extent of the regulatory tool kit, and (iii) the prominence of financial stability references in central bank monetary policy statements. We then include our FSO index in a modified Taylor rule, which is estimated using a cross-country panel of up to ten central banks for the period from 2000Q1 to 2014Q4. We find that in episodes of high financial stability risks, measured by a strongly positive credit to GDP gap, “leaning-type” central banks, i.e., those with a high FSO index value, appear to account for financial stability considerations in their monetary policy rate decisions. For “cleaning-type” central banks, we do not find this to be the case. Our baseline specification suggests that a representative leaning-type central bank’s policy rate is about 0.3 percentage points higher when financial stability risks are present than the policy rate of a representative cleaning-type central bank. We also find that the strength of this response increases in the additional presence of a house price boom but not so for the simultaneous occurrence of an equity price boom.
    Keywords: Financial stability, International topics, Monetary policy framework
    JEL: E5 E4 G01
    Date: 2015
  44. By: Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business); Gernot Doppelhofer (Norwegian School of Economics); Martin Feldkircher (Oesterreichische Nationalbank); Florian Huber (Department of Economics, Vienna University of Economics and Business; Oesterreichische Nationalbank)
    Abstract: We analyze the interaction between monetary policy in the US and the global economy proposing a new class of Bayesian global vector autoregressive models that accounts for time-varying parameters and stochastic volatility (TVP-SV-GVAR). Our results suggest that US monetary policy responds to shocks to the global economy, in particular to global aggregate demand and monetary policy shocks. On the other hand, US-based contractionary monetary policy shocks lead to persistent international output contractions and a drop in global inflation rates, coupled with rising interest rates in advanced economies and a real depreciation of currencies with respect to the US dollar. We find considerable evidence for heterogeneity in the spillovers across countries, as well for changes in the transmission of monetary policy shocks over time.
    Keywords: Global vector autoregression, time-varying parameters, stochastic volatility, monetary policy, international spillovers
    JEL: C30 E52 F41
    Date: 2015–11
  45. By: Magdalena Petrovska (National Bank of the Republic of Macedonia); Ljupka Georgievska (National Bank of the Republic of Macedonia)
    Abstract: This paper applies a SVAR model which combines different monetary policy instruments to construct an alternative indicator of monetary policy stance in Macedonia. It employs the approach introduced by Bernanke and Mihov (1998) of isolating monetary policy shocks from the whole set of monetary policy instruments that otherwise react to real developments. The residuals from such VAR are cleaned from the central bank’s reaction function and represent true monetary policy innovations. Furthermore, we solve the interdependence among different monetary policy instruments contained in the residuals by developing a structural model. We use the model to extract unanticipated policy stance, as an alternative view on the monetary policy.
    Keywords: SVAR, Monetary policy stance, Monetary framework
    JEL: E50 E52
    Date: 2015–07
  46. By: Volha Audzei; Frantisek Brazdik
    Abstract: To understand the potential for forming an optimum currency area it is important to investigate the origins of macroeconomic volatility. We focus on the contribution of exchange rate shocks to macroeconomic volatility in selected Central and Eastern European countries. The contribution of the exchange rate shock relative to other shocks allows us to evaluate whether the Exchange rate is a source of volatility or a buffer against shocks as the theory suggests. The identification of the contributions is based on variance decomposition in two-country structural VAR models, which are identified by the sign restriction method. We identify countries where shocks are predominantly symmetric relative to the effective counterpart and countries where the contribution of real exchange rate shocks is strong. In general, for all the countries considered the results are consistent with the real exchange rate having a shock-absorbing nature. Finally, a significant role of symmetric monetary policy shocks in movements in real exchange rates is found for some of the countries.
    Keywords: Asymmetric shocks, Central and Eastern Europe, monetary union, real exchange rates, sign restrictions method, structural vector autoregression
    JEL: C32 E32 F31 F41
    Date: 2015–09
  47. By: Andrea Silvestrini; Andrea Zaghini (-)
    Abstract: We examine the inter-linkages between financial factors and real economic activity. We review the main theoretical approaches that allow financial frictions to be embedded into general equilibrium models. We outline, from a policy perspective, the most recent empirical papers focusing on the propagation of exogenous shocks to the economy, with a particular emphasis on works dealing with time variation of parameters and other types of nonlinearities. We then present an application to the analysis of the changing transmission of financial shocks in the euro area. Results show that the effects of a financial shock are time-varying and contingent on the state of the economy. They are of negligible importance in normal times but they greatly matter in conditions of stress.
    Keywords: financial crisis; nonlinearities; financial shocks
    JEL: C32 E32 E44 E58
    Date: 2015–06
  48. By: Farley Grubb (Department of Economics, University of Delaware)
    Abstract: I use denominational structure (the spacing and size of monetary units) to explain how the Continental Congress attempted to manage a successful common currency when sub-national political entities were allowed to have separate currencies and run independent monetary policies. Congress created a common currency that was too large to use in ordinary transactions. Congress hoped this currency would be held for post-war redemption and would not circulate as money during the war. As such, it would not contribute to wartime inflation. By contrast, individual state currencies were emitted in small enough denominations to function as the domestic medium of exchange.
    Keywords: bills of credit, legal tender, paper money, quantity theory of money, zero-coupon bonds.
    JEL: E42 E52 H77 N11
    Date: 2015
  49. By: Maia Güell (University of Edinburgh, CEPR, FEDEA and IZA); Michele Pellizzari (University of Geneva, CEPR, fRDB and IZA); Giovanni Pica (Università degli Studi di Milano, LdA, CSEF, Baffi and fRDB); Josè V. Rodríguez Mora (University of Edinburgh and CEPR)
    Abstract: We apply a novel measure of intergenerational mobility (IM) developed by Güell, Rodríguez Mora, and Telmer (2014) to a rich combination of Italian data allowing us to produce comparable measures of IM of income for 103 Italian provinces. We then exploit the large heterogeneity across Italian provinces in terms of economic and social outcomes to explore how IM correlates with a variety of outcomes. We find that (i) higher IM is positively associated with a variety of "good" economic outcomes, such as higher value added per capita, higher employment, lower unemployment, higher schooling and higher openness and (ii) that also within Italy the "the Great Gatsby Curve" exists: in provinces in which mobility is lower cross-sectional income inequality is larger. We finally explore the correlation between IM and several socio-political outcomes, such as crime and life expectancy, but we do not find any clear systematic relationship on this respect.
    Keywords: Surnames, intergenerational mobility, cross-sectional data analysis.
    JEL: C31 E24 R10
    Date: 2015–04–14
  50. By: Branimir Jovanovic (National Bank of the Republic of Macedonia); Egzona Hani (National Bank of the Republic of Macedonia); Ljupka Georgievska (National Bank of the Republic of Macedonia)
    Abstract: What explains the post-crisis slowdown in bank credit to private sector in the South-East European economies? We try to answer this question, by comparing the actual credit growth to the fundamental and equilibrium growths. The fundamental growth is defined as the growth justified by the fundamentals, the equilibrium growth – as the growth consistent with the economy being in medium-term equilibrium. Results suggest that the slowdown reflects both return of the credit activity to its fundamental value, and return of the fundamental values to their equilibrium levels, after years of excessiveness during the precrisis period. Rapid credit growth, as in the pre-crisis period, should not be expected in the near future.
    Keywords: credit growth, equilibrium credit, fundamental credit, South-East Europe
    JEL: E44 E51 G21
    Date: 2014–10
  51. By: Paul Hubert (OFCE); Jérôme Creel (OFCE); Mathilde Viennot (École normale supérieure - Cachan)
    Abstract: This paper assesses the transmission of ECB monetary policies, conventional and unconventional, to both interest rates and lending volumes or bond issuance for three types of different economic agents through five different markets: sovereign bonds at 6-month, 5-year and 10-year horizons, loans to non-financial corporations, and housing loans to households, during the financial crisis, and for the four largest economies of the Euro Area. We look at three different unconventional tools: excess liquidity, longer-term refinancing operations and securities held for monetary policy purposes following the decomposition of the ECB’s Weekly Financial Statements. We first identify series of ECB policy shocks at the Euro Area aggregate level by removing the systematic component of each series and controlling for announcement effects. We second include these exogenous shocks in countryspecific structural VAR, in which we control for the credit demand side. The main result is that only the pass-through from the ECB rate to interest rates has been effective. Unconventional policies have had uneven effects and primarily on interest rates.
    Keywords: Transmission Channels; Unconventional Monetary Policy; Quantitative Easing; Bank Lending
    Date: 2015–11
  52. By: Bilin Neyapti (Bilkent University)
    Abstract: This paper presents a model to explore the welfare effects of the government’s choice over two types of public goods provision: domestic regulatory and security spending (adjudication) versus education. Output is a function of physical and social capital, both of which can be heterogeneous across the regions. Local social capital is exposed to spillover effects of other regions. Education spending increases social capital, whereas adjudication spending increases total factor productivity. The solution in an OLG framework indicates that the welfare maximizing ratio of education spending is negatively related with the past levels of social capital stock and the degree of social cohesion, but positively related with the current levels of aggregate income and the tax rate. Simulations of the model’s temporal solution reveal the short-run and long-run difference, reversing the positive effects of the tax rate and the income level, which is a crucial point. Income and cultural homogeneity are associated positively with the level of aggregate income and social cohesion whereas the relationship between income distribution and social cohesion is non-linear in the short-run.
    Keywords: Economic Development; Income Equality; Public Spending; Social Capital; Social Cohesion.
    JEL: E02 E6 H11 H52 I24 I25 I31 Z18
    Date: 2015–11
  53. By: Jack Rossbach (University of Minnesota)
    Abstract: This paper theoretically and quantitatively evaluates the hypothesis that, due to the existence of large firms (granularity), idiosyncratic shocks to individual firms can lead to significant variation in the growth of countries. I embed granularity, through finiteness in the set of firms, in a general equilibrium environment featuring monopolistic competition, growth, and international trade. Firm productivities grow according to idiosyncratic productivity shocks, which obey a Gibrat's law proportional growth process, and are the only source of growth in the model. I derive an approximate analytic mapping for the standard deviation of GDP growth in this framework, which is non-zero due to granularity. This mapping depends on only a few key parameters, which I estimate for a wide-range of countries using firm-level micro data. My results indicate that idiosyncratic shocks to firms can play a significant role in generating both short-run macroeconomic fluctuations and variation in longer-run growth trends, particularly for countries that engage heavily in international trade. Empirically, I show that the model does well in matching relative differences in GDP volatility across OECD countries.
    Date: 2015
  54. By: Josip Tica (Faculty of Economics and Business, University of Zagreb)
    Abstract: Cilj ovoga rada je analizirati ekonomske implikacije Direktive 2014/17/EU Europskog parlamenta i Vijeća od 4. veljače 2014. o ugovorima o potrošačkim kreditima koji se odnose na stambene nekretnine i o izmjeni direktiva 2008/48/EZ, 2013/36/EU i Uredbe (EU) br. 1093/2010 koja sveobuhvatno regulira područje kreditiranja kupoprodaje nekretnine regulirajući kredite u stranoj valuti, kredite s promjenjivim kamatnim stopama, prijevremenu otplatu kredita, ovršni postupak, procjenu ovršenih nekretnina i čitav niz drugih mjera. Obveza država članica je da do 21. ožujka 2016. donesu i objave zakone i druge potrebne promjene za usklađivanje s ovom direktivom, a Direktiva se neće odnositi na ugovore na kredite koji su postojali prije tog datuma, ali imajući u vidu regulaciju prijevremeno otplate moguće je da će u financijskom smislu ugovori o kreditima u skladu s Direktivnom biti potencijalna alternativa postojećim ugovorima. Sukladno tome, važno je razumjeti ekonomske implikacije, te prednosti i nedostatke nove i stare regulacije u stambenom kreditiranju.
    Keywords: Stambeno kreditiranje, krediti u stranoj valuti, krediti s promjenjivim kamatnim stopama
    JEL: E3 K2 G3
    Date: 2015–11–18
  55. By: Danica Unevska-Andonova (National Bank of the Republic of Macedonia); Dijana Janevska-Stefanova (National Bank of the Republic of Macedonia)
    Abstract: In the analysis of public and external debt sustainability the National Bank of the Republic of Macedonia is actively using the IMF’s Debt Sustainability Analysis (DSA) framework. The aim of our analysis is to improve the analytical power of the IMF’s DSA framework, in the case of Macedonia. This paper uses simple framework, based on methodology used in Adler and Sosa (2013), that integrates econometric estimates of the effect of global factors on key domestic variables that determine public and external debt dynamics, within the IMF‘s standard debt sustainability framework. VAR estimation is used in obtaining the forecasts of key domestic variables, conditional on a set of assumed global variables under different global shock scenarios. The results in general suggest that under all shock scenarios, there is negative effect to domestic GDP, however in the case of current account there is negative effect in the beginning of the period of applied shocks, but positive in the later period. Consequently, the expected effect to public debt sustainability is negative for the whole period due to lower real GDP growth. However, regarding external debt sustainability, negative effect is expected in the first year or two due to lower GDP growth and higher current account deficit, yet, in a medium run, external sustainability might not be jeopardized as the lower GDP growth might be neutralized by the lower current account deficit.
    Keywords: public debt, external debt, debt sustainability, Macedonia
    JEL: C32 E60 F42 F47
    Date: 2015–10
  56. By: Roberto Frenkel (Buenos Aires University and CEDES)
    Abstract: The exchange rate regimes are the crucial variable of international economic relations. This paper attempts to evaluate the performance of floating exchange rate regimes in the major Latin American countries.
    Keywords: Central banks and their policies, Current account adjustment, Financial crises, Macroeconomic impact of globalization, Foreign exchange, Exchange rate regimes.
    JEL: E58 F32 G01 F31
    Date: 2015–11
  57. By: Gerardo Alberto Villa Durán
    Abstract: En este artículo se estudia la actividad económica de Medellín entre 1984 y 2007 a través de un indicador sintético, un índice coincidente, que resume la evolución de la actividad en forma agregada. El indicador mensual compuesto se construye siguiendo la metodología propuesta por Stock y Watson, y en ese sentido no registra ninguna innovación. Siguiendo el mismo procedimiento utilizado en el caso de Medellín se construye un índice para Colombia y se compara con el de Medellín. Se utilizan como variables el número total de trabajadores, un indicador del comercio al por menor, el ingreso mediano de los trabajadores y el consumo de energía eléctrica en Medellín. Para Colombia, la masa salarial, el consumo de energía eléctrica en el sistema interconectado nacional; el índice de comercio al por menor y, finalmente, los ingresos medianos. El estudio constituye una interpretación de la economía de la ciudad construida en el contexto de indicadores cíclicos, sobre la base de un modelo estadístico.
    Keywords: Indicadores económicos de Medellín, ciclo económico Medellín, indicador sintético, índice coincidente.
    JEL: R15 R3 E32
    Date: 2014–01–23
  58. By: Harri Pönkä (University of Helsinki and CREATES)
    Abstract: We study the role of credit in forecasting US recession periods with probit models. We employ both classical recession predictors and common factors based on a large panel of financial and macroeconomic variables as control variables. Our findings suggest that a number of credit variables are useful predictors of US recessions over and above the control variables both in and out of sample. Especially the excess bond premium, capturing the cyclical changes in the relationship between default risk and credit spreads, is found to be a powerful predictor. Overall, models that combine credit variables, common factors, and classic recession predictors, are found to have the best forecasting performance.
    Keywords: Business cycle, Credit Spread, Factor models, Forecasting, Probit models
    JEL: C22 C25 E32 E37
    Date: 2015–11–08
  59. By: Ohanian, Lee E. (University of California); Restrepo-Echavarria, Paulina; Wright, Mark L. J. (Federal Reserve Bank of Chicago)
    Abstract: Since 1950, the economies of East Asia grew rapidly but received little international capital, while Latin America received considerable international capital even as their economies stagnated. The literature typically explains the failure of capital to flow to high growth regions as resulting from international capital market imperfections. This paper proposes a broader thesis that country-specific distortions, such as domestic labor and capital market distortions, also impact capital flows. We develop a DSGE model of Asia, Latin America, and the Rest of the World that features an open-economy business cycle accounting framework to measure these domestic and international distortions, and to quantify their contributions to international capital flows. We find that domestic distortions have been the predominant drivers of international capital flows, and that the general equilibrium effects of these distortions are very large. International capital market distortions also matter, but less so.
    Keywords: Investments; capital flows; Asia; Latin America
    JEL: E22 N25 N26
    Date: 2013–11–25
  60. By: Potter, Simon M. (Federal Reserve Bank of New York)
    Abstract: Remarks at the Bank of England-Federal Reserve Bank of New York Conference on Money Markets and Monetary Policy Implementation, London, United Kingdom.
    Keywords: quantitative easing (QE); monetary policy implementation; implementation tools; normalization; implementation framework; volatility; operating framework; balance sheet; interest on reserve balances
    Date: 2015–11–16
  61. By: Franke, Rainer; Yanovski, Boyan
    Abstract: This note considers Tobin's average Q in a framework where firms finance investment by equities and debt. The determination of its long-run equilibrium value Qo is based on positing equality of the loan rate and, adjusted for a risk premium, the return on equities. Qo can thus be characterized as a ratio of two rates representing the somewhat modified interest costs and profits of the firms. The familiar benchmark value Qo=1 obtains if another condition on the risk premium holds true, which may or may not be the case. An elementary numerical check demonstrates that possible deviations of Qo from unity are not overly dramatic.
    Keywords: Tobin's average Q,debt and equity financing,no-arbitrage condition,fundamentalist traders
    JEL: C02 D84 E12 E30
    Date: 2015
  62. By: Saroj Bhattarai (University of Texas at Austin); Arpita Chatterjee (UNSW Business School, UNSW); Woong Yong Park (University of Illinois at Urbana-Champaign)
    Abstract: We estimate international spillover effects of US Quantitative Easing (QE) on emerging market economies. Using a Bayesian VAR on monthly US macroeconomic and financial data, we first identify the US QE shock with non-recursive identifying restrictions. We estimate strong and robust macroeconomic and financial impacts of the US QE shock on US output, consumer prices, long-term yields, and asset prices. The identified US QE shock is then used in a monthly Bayesian panel VAR for emerging market economies to infer the spillover effects on these countries. We find that an expansionary US QE shock has significant effects on financial variables in emerging market economies. It leads to an exchange rate appreciation, a reduction in long-term bond yields, a stock market boom, and an increase in capital inflows to these countries. These effects on financial variables are stronger for the "Fragile Five" countries compared to other emerging market economies. We however do not find significant effects of the US QE shock on output and consumer prices of emerging markets.
    Keywords: US Quantitative Easing, Spillovers, Emerging Market Economies, Bayesian VAR, Panel VAR, Non-recursive Identification, Fragile Five Countries
    JEL: C31 E44 E52 E58 F32 F41 F42
    Date: 2015–11
  63. By: Bernard Njindan Iyke
    Abstract: This paper explores the correlations of the short- and long-term interest rate series through time in South Africa. Two time series techniques are utilized: the Kapetanios et al. (2003) nonlinear STAR unit root test and the asymmetric cointegration with threshold adjustment test of Enders and Siklos (2001). We find the interest rate series (i.e. the SARB policy rate and the yield on long-term government bonds) to be cointegrated with fairly weak threshold adjustment. In addition, we find a distinct causal flow from the yield on long-term government bonds to the SARB policy rate with momentum equilibrium adjustment symmetry, indicating that linear error correction models may fit the yield curves in South Africa better.
    Keywords: Asymmetric Adjustment, cointegration, Term Structure, interest rates, South Africa
    JEL: C22 E43
    Date: 2015
  64. By: Raí da Silva Chicoli; Siegfried Bender
    Abstract: Este artigo analisa a sustentabilidade da dívida pública brasileira utilizando a metodologia proposta por Bohn (1998, 2008), levando em consideração a estrutura de receitas e despesas do governo federal e os empréstimos do governo federal para bancos públicos, principalmente BNDES. Para isso, utilizam-se dois conceitos de superávit primário (oficial e permanente) e de endividamento (dívidas líquida, bruta e bruta excluídas reservas internacionais), para o período de 2003 a 2014. Em todos os casos analisados, a hipótese de sustentabilidade não foi satisfeita, logo há a necessidade de se alterar a política fiscal do país. Foram realizados testes de quebra estrutural seguindo a metodologia de Bai e Perron (1998), nos quais se verificou que a alteração no padrão da política fiscal pós-crise de 2008 foi um dos principais responsáveis pelo resultado de não sustentabilidade.
    Keywords: Public debt sustainability; fiscal policy; primary surplus
    JEL: H63 H62 E62
    Date: 2015–10–28
  65. By: Bonfiglioli, Alessandra; Crinò, Rosario; Gancia, Gino A
    Abstract: We study the equilibrium determinants of firm-level heterogeneity in a model in which firms can affect the variance of their productivity draws at the entry stage and explore the implications in closed and open economy. By allowing firms to choose the size of their investment in innovation projects of unknown quality, the model yields a Pareto distribution for productivity with a shape parameter that depends on industry-level characteristics. A novel result is that export opportunities, by increasing the payoffs in the tail, induce firms to invest in bigger projects with more spread-out outcomes. Moreover, when more productive firms also pay higher wages, trade amplifies wage dispersion by making all firms more unequal. These results are consistent with new evidence on how firm-level heterogeneity and wage dispersion vary in a panel of U.S. industries. Finally, we use patent data across U.S. states and over time to provide evidence in support of a specific mechanism of the model, namely, that export opportunities increase firm heterogeneity by fostering innovation.
    Keywords: firm heterogeneity; international trade; productivity dispersion; wage inequality
    JEL: E24 F12 F16
    Date: 2015–11
  66. By: Martin Kuncl (Bank of Canada); Kinda Hachem (University of Chicago)
    Abstract: Bail-in bonds are gaining a lot of attention among bank regulators. In principle, these bonds raise the hurdle for a government bailout by converting into loss-absorbing capital once the issuing bank runs into trouble. We show that imposing bail-in requirements on all banks can actually increase the need for a bailout. In our model, the probability that a bank runs into trouble depends on the bank's individual state and an aggregate state. Individual states are private information but banks can provide signals to investors by offering bail-in bonds with implicit guarantees against conversion. The bond itself appears as a bail-in bond on the issuer's balance sheet while the guarantee is booked off balance sheet until the bond converts. Naturally, bail-in bonds with implicit guarantees are only traded if investors believe that banks will honor the guarantees. Our model reveals a network effect which (1) lowers the cost of honoring guarantees and (2) generates more implicit guarantees than would be sustainable in a pure reputation equilibrium. An implicit guarantee is only discovered when the issuer is weak so, in a model with aggregate shocks, regulatory promises to punish guarantees are less credible when guarantees are widespread. At the same time, because individual shocks are also present, signaling motives for offering an implicit guarantee are strongest when the regulator is expected to start triggering conversions. Bail-in bonds with implicit guarantees thus proliferate precisely when they undermine the bail-in purpose. Once the bonds start to convert, the guarantees drain liquidity from bank balance sheets and a sizable bailout may be needed to shore up the banking system.
    Date: 2015
  67. By: Marchionatti, Roberto; Sella, Lisa (University of Turin)
    Abstract: After the ‘new Great Crisis’ exploded in 2008 it is widely recognized that mainstream macroeconomics - the last result of Lucas’s anti-Keynesian revolution of the 1980s which tried to give macroeconomics sound neo-Walrasian microeconomic bases - has failed to anticipate and then appraise the crisis. Has this crisis revealed a failure of this macroeconomics as a scientific theory? Mainstream macroeconomists defend their models on the basis of their alleged superiority in terms of clarity and coherence. The thesis of this paper is that this claim about superiority is false. The paper argues that the reasons for the failure of mainstream macroeconomics – in particular its poor predictive performance and interpretative weakness - reside in the implications of the neo-Walrasian legacy and the problems connected with the implementation of that programme
    Date: 2015–05
  68. By: Pitsoulis, Athanassios; Schwuchow, Sören C.
    Abstract: Greece and its creditors concluded negotiations over a third bailout by signing a Memorandum of Understanding on 19 August 2015. The dominant view among most economic policy analysts and commentators seems to be that the actions of the Greek government in the months before the deal have been erratic and lacked coordination. In this paper we argue instead that the decisions of the Greek negotiators, including asking the voters to reject the earlier terms demanded by the creditors in a referendum, can be explained by the logic of brinkmanship. We develop a game-theoretic model to show that the actions of the Greek government are consistent with a strategy aimed at securing concessions, which can be used to bolster domestic approval.
    Keywords: Greek debt crisis; Brinkmanship; Crisis management
    JEL: D78 E65 H12
    Date: 2015–11–13
  69. By: Cristina Fernández (Banco de España); Pilar García Perea (Banco de España)
    Abstract: This paper poses the following question: what would euro area GDP per capita have been, had the monetary union not been launched? To this end we use the synthetic control methodology. We find that the euro did not bring the expected jump to a permanent higher growth path. During the early years of the monetary union, aggregate GDP per capita in the euro area rose slightly above the path predicted by its counterfactual; but since the mid-2000s, these gains have been completely eroded. Central European countries – Germany, the Netherlands and Austria – did not seem to obtain any gains or losses from the adoption of the euro. Ireland, Spain and Greece registered positive and significant gains, but only during the expansionary years that followed the launch of the euro, while Italy and Portugal quickly lagged behind the GDP per capita predicted by their counterfactual. We test the robustness of the synthetic estimation not only to the exclusion of any particular country from the donor pool but also to the omission of each of the selected determinants of GDP per capita and to the reduction of the dimensions in the optimisation programme, namely the number of GDP determinants.
    Keywords: treatment effects, synthetic control method, monetary union
    JEL: C33 E42 F15 O52
    Date: 2015–11
  70. By: Peter Hördahl; Eli M Remolona; Giorgio Valente
    Abstract: We investigate the movements of the yield curve after the release of major U.S. macroeconomic announcements through the lenses of an arbitrage-free dynamic term structure model with macroeconomic fundamentals. Combining estimated yield responses obtained using high-frequency data with model estimates using monthly data, we show that bond yields move after announcements mostly because of revisions to expectations about short-term interest rates. Changes in risk premia are also sizable, partly offset the effects of short-rate expectations and help to account for the hump-shaped pattern across maturities. Most announcement responses are due to changes in expectations about the output gap.
    Keywords: Bond excess returns, term structure of interest rates, affine models, macroeconomic announcements
    Date: 2015–11
  71. By: Karol Szafranek
    Abstract: The global economy is highly dependent on commodity prices, which are, by and large, the outcome of market-specific supply and demand fundamentals. As a result, driven by different determinants, financial assets and commodity prices should be negligibly correlated. However, systematically growing engagement of noncommercial investors equipped with financial engineering innovations on commodity markets, generous inflow of capital resulting from the necessity for wider diversification of investment portfolios combined with the strengthening influence of purely financial and speculative motives have led in the 2000’s to a much stronger correlation between the financial and commodity markets, sparking a heated debate on the commodity markets financialisation. The empirical analysis presented here supports the claim that since 2005 commodity markets have been under heavier influence of macroeconomic, financial and speculative determinants. However, the process loses on strength since 2011. Results of the Varx Dcc Garch model with leverage effect and multivariate t error distribution demonstrate that the inclusion of the commodity markets’ growing sensitivity to macroeconomic conditions, financial markets turmoil and the impact of speculative aspects alters the dynamic conditional correlation path between commodities and the financial markets from 2005 to 2011 signaling the process of financialisation. Additional conclusions are drawn regarding the stability of the market interdependence as well as the parameter estimates.
    Keywords: Icommodity markets, financialisation, Varx, Dcc, price dynamics determinants
    JEL: C32 C58 E44 Q02
    Date: 2015
  72. By: Jair N. Ojeda-Joya; Oscar Jaulin-Mendez; Juan C. Bustos-Peláez
    Abstract: We study the interdependence between real commodity prices and world real GDP using long-term annual data since 1870, by performing two empirical exercises. First, we compute long-term and medium-term cycles and measure their degree of synchronization for different leads and lags. Second, we perform several causality tests in order to better understand the nature of their interdependence. Our results show that GDP and commodity-price cycles are correlated, and there is evidence of short-term causality between them. However, there is no evidence of Granger causality from GDP to medium and long term cycles of commodity prices. This finding is consistent with the technology-based theories of commodity-price cycles. Searching for a supply-side determinant, we study the interdependence between oil-price and the remaining commodity-price cycles. Our results imply that oil prices are key drivers of metal price cycles for all fluctuation frequencies.
    Keywords: medium-term cycles, commodity prices, frequency domain, super cycles
    JEL: C22 E32 Q02
    Date: 2015–11–09
  73. By: Toncheva, Rossitsa
    Abstract: Настоящият доклад има за цел да даде само една гледна точка на добре позната, но „объркана”1 материя, каквато са парите. Като се анализира критически академичното определение за пари, се извежда категорията „бартерни пари”, която не накърнява валидността на научните достижения до момента, а се опитва да внесе известна яснота. Необходимостта от добре обосновано понятие за „бартерни” пари се диктува главно от наличната практика за създаване на частни валути по целия свят и тенденцията те да се представят единствено като социален феномен. Анализът показва, че в основата на всяка валута е размяната, която съдържа генетично паричността в себе си. На тази основа израстват множество конкурентни и допълващи се валути – явление, което предизвиква държавното управление и бизнеса към структурно нови отношения, а академичните среди към адекватна и полезна интерпретация.
    Keywords: бартерни пари, пари
    JEL: A10 E40 E50
    Date: 2014–04–24
  74. By: Hyeongwoo Kim; Jintaek Kim
    Abstract: We empirically investigate dynamic responses of 49 world commodity prices to exchange rate shocks using recursively identified vector autoregressive models. Our major empirical findings are as follows. First, price adjustments toward the new equilibrium tend to be gradual with a few exceptions. We propose two measures of price-stickiness that exhibit a high degree of short-run price rigidity in most commodities. Second, our dynamic elasticity analysis implies that commodity price responses are quite heterogeneous even in the long-run. Some commodity prices over-correct for the exchange rate shock, which implies higher volatility for those prices than the exchange rate. Third, for those commodities that over-react, domestic prices would rise significantly when the US dollar depreciates unexpectedly, perhaps suggesting a role for price stabilization policies.
    Keywords: Commodity Prices; Price Stickiness; Dynamic Elasticity; Vector Autoregression; Impulse-Response Function
    JEL: E31 F31 Q02
    Date: 2015–11
  75. By: jae sim (Federal Reserve Board); Raphael Schoenle (Brandeis University); Egon Zakrajsek (Federal Reserve Board); Simon Gilchrist (Boston University)
    Abstract: In this paper, we analyze the business cycle and welfare consequences of monetary union among countries that face heterogeneous financial market frictions. We show that facing financial distress in the absence of devaluation, the firms in financially weak countries countries have an incentive to raise their prices to cope with liquidity shortfalls. At the same time, firms in countries with greater financial slack poach from the customer base of the former countries by undercutting their prices, without internalizing the detrimental effects on union-wide aggregate demand. Thus, a monetary union among countries with heterogeneous degrees of financial frictions may create a tendency toward internal devaluation for core countries with greater financial resources, leading to chronic current account deficits of the peripheral countries. A risk-sharing arrangement between the core and the periphery can potentially undo the distortion brought about by the currency union. However, such risk sharing requires unrealistic amounts of wealth transfers from the core to the periphery. We show that unilateral fiscal devaluation carried out by the peripheral countries can substantially improve the situation not only for themselves but also for the core countries if there exists an important degree of pecuniary externality not internalized by the predatory pricing strategies of individual firms.
    Date: 2015
  76. By: Ipsita Roy (Graduate College "The Economics of Innovative Change", Friedrich Schiller University Jena, and Max Planck Institute of Economics.); Davide Consoli
    Abstract: Building on the canonical model of skill-biased technical change to incorporate differential effects of technology and international trade on the skill composition of occupations, the paper employs a task-based approach to analyze structural changes in regional employment within a rich vocational education setting in West Germany during 1979 and 2012. Results confirm theoretical predictions that regional employment districts with high initial share of routine occupations have experienced greater subsequent adoption of computer and information technology and larger decline in routine occupations. Exposure to global imports in goods and services have reduced overall employment in routine-intensive occupations; the magnitude being notably smaller as compared to technology. However, when looking at the direction of displacement of routine-workers, regions with greater share of routine jobs have experienced greater growth of high-skilled abstract jobs in the subsequent periods while the overlap between initial apprenticeship intensity and subsequent decline in regional routine employment is significantly strong. Taken together, findings show that unlike in the U.S. where employment growth in low-skilled service occupations has been the greatest, in Germany there is a greater trend towards occupational upgrading and larger growth in managerial and professional occupations due to the operationalization of its apprenticeship system.
    Keywords: Skill-biased Technical Change, Task-based Approach, Skill Composition, Technology, International Trade, Apprenticeship, Regional Employment District
    JEL: E24 F16 J21 J24 O33 R23
    Date: 2015–11–19
  77. By: Miguel Carrion Alvarez; Dirk Ehnts
    Abstract: Standard presentations of stock-flow consistent modeling use specific Post Keynesian closures, even though a given stock-flow accounting structure supports various different economic dynamics. In this paper we separate the dynamic closure from the accounting constraints and cast the latter in the language of graph theory. The graph formulation provides (1) a representation of an economy as a collection of cash flows on a network and (2) a collection of algebraic techniques to identify independent versus dependent cash-flow variables and solve the accounting constraints. The separation into independent and dependent variables is not unique, and we argue that each such separation can be interpreted as an institutional structure or policy regime. Questions about macroeconomic regime change can thus be addressed within this framework. We illustrate the graph tools through application of the simple stock-flow consistent model, or "SIM model," found in Godley and Lavoie (2007). In this model there are eight different possible dynamic closures of the same underlying accounting structure. We classify the possible closures and discuss three of them in detail: the "standard" Godley–Lavoie closure, where government spending is the key policy lever; an "austerity" regime, where government spending adjusts to taxes that depend on private sector decisions; and a "colonial" regime, which is driven by taxation.
    Keywords: Stock-flow Consistent Models; Closures; Graph Theory; Macroeconomic Regimes; Methodology
    JEL: E17
    Date: 2015–11
  78. By: Ponomarev, Yuri; Trunin, Pavel V.; Uljukaev, Aleksej V.
    Abstract: The article provides estimates of short-run and medium-run exchange rate pass-through into domestic prices in Russia during the period of 2000–2012 using vector error correction model. Exchange rate pass-through asymmetry estimates, its assessments on different sub-periods and exchange rate volatility effect on pass-through are also provided.
    Abstract: В статье приводятся оценки краткосрочной перспективе и обменного курса среднесрочной перспективе сквозной в внутренних цен в России в период 2000-2012 с использованием вектора коррекции ошибок модели. Обменный курс сквозного асимметрия оценкам, его оценки по различным суб-периодов и курсовой волатильности влияния на сквозного также предоставляются.
    Keywords: exchange rate pass-through,asymmetry of exchange rate pass-through,exchange rate volatility,inflation,monetary policy,vector error correction model
    JEL: C32 E31 E52 F31 F41
    Date: 2014–03
  79. By: Kurt Mitman (Stockholm University); Iourii Manovskii (University of Pennsylvania); Marcus Hagedorn (Institute of Advanced Studies)
    Abstract: We measure the effect of unemployment benefit duration on employment. We exploit the variation induced by the decision of Congress in December 2013 not to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.
    Date: 2015
  80. By: Iourii Manovskii (University of Pennsylvania); Dmytro Hryshko (University of Alberta); Moira Daly (Copenhagen Business School)
    Abstract: The stochastic process for earnings is the key element of incomplete markets models in modern quantitative macroeconomics. It determines both the equilibrium distributions of endogenous outcomes and the design of optimal policies. Yet, there is no consensus in the literature on the relative magnitudes of the permanent and transitory innovations in earnings. When estimation is based on the earnings moments in levels, the variance of transitory shocks is found to be relatively high. When the moments in differences are used, the variance of the permanent component is relatively high instead. We show theoretically that the difference can be induced by the fact that earnings at the start or at the end of earnings spells are lower and more volatile than the observations in the interior of earnings histories. Using large administrative datasets from Denmark and Germany, we show that this property of earnings spells quantitatively accounts for the full amount of discrepancy in the estimates. Finally, we show that this property of earnings can induce a substantial upward bias in the estimate of consumption insurance against permanent shocks in the standard incomplete markets model.
    Date: 2015
  81. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to the Urban Land Institute, San Francisco, California. (President Williams presented similar remarks at the Community Leaders Luncheon in Salt Lake City, Utah on October 1, 2015)
    Date: 2015–10–06
  82. By: John Adams; Chris Curry; Ferran Espuny-Pujol; Ruth Hancock; Bo Hu; Derek King; Sarah Luheshi; Marcello Morciano; Timothy Pike; Shamill Popat; Raphael Wittenberg
    Abstract: In April 2016 major reforms to state pensions and long-term care will be implemented in Great Britain and England respectively. Their combined effects have received little attention despite interactions between the two systems. The long-term effects of both sets of reforms will depend on how details of the systems are set in the intervening years, and on how policies in other parts of the welfare system evolve. We will investigate the long-term impacts of alternative ways in which current pensions and long-term care financing reforms may evolve over the next 40 years to ensure that that there is widespread appreciation of the implications of any changes which may have significant long-term effects.
    JEL: E6
    Date: 2015–11
  83. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to Community Leaders, Spokane, Washington. (President Williams presented similar remarks to the Urban Land Institute in San Francisco, California on October 6, 2015.)
    Date: 2015–10–08
  84. By: enoch hill (university of minnesota); Fabrizio Perri (University of Minnesota); Alessandra Fogli (Minneapolis Federal Reserve Bank)
    Abstract: This paper uses micro-spatial data and develops a simple theory that explicitly includes a spatial dimension to better understand the start and the diffusion of business cycles. We first document how unemployment has diffused across US counties during recent recessions and find a recurring spatial pattern. Unemployment does not increase in all counties at the same time; at the start of the recession it increases in a few specific areas and then spreads from there to the rest of the country, following an epidemic pattern, i.e. increasing first in areas that are closer to areas of high unemployment. Our theory develops a stylized model of a country, composed by many locations, where each location is connected to its neighbors by explicit trade links. In particular we assume that each location produces a differentiated good which is demanded more heavily by locations which are nearby. Labor markets are segmented at the location level and in each location there can be unemployment due to sticky wages. We then model an aggregate shock as an event that affects, at the same time, the productivity or the demand (modeled as government demand for a good produced by a given location) of many different (random) locations. We have two main findings. The first is that our setup is able to account for the spatial pattern of business cycles we document in the data. The second is that the intensity of the local trade links is an important determinant of the amplification and propagation of the initial aggregate shock. If trade links are strong, small shocks tend to be muted and not persistent, while large shocks can be very disruptive. If trade links are weak, the opposite is true, small shocks
    Date: 2015
  85. By: Branimir Jovanovic (National Bank of the Republic of Macedonia)
    Abstract: This paper estimates the unrecorded economic activity and employment in Macedonia during 1998-2013. We model the unrecorded economic activity as an unobserved process that depends on tax “burden”, business regulations and quality of governance, and affects cash in circulation, foreign currency in circulation and energy consumption. We then estimate it, using the Kalman filter. After we estimate the unrecorded economic activity in this way, we calculate the unrecorded employment using a wide range of values for the employment/economic activity ratio. Finally, after we estimate the unrecorded employment, we will be able to calculate the true rate of unemployment in Macedonia. The findings suggest that unrecorded economic activity in Macedonia has declined sizeably, from 34 percent of official GDP in the late 1990’s, to 10 percent in 2010’s. Unrecorded employment has declined over this period, too, from 160- 200,000 in late 1990’s to 70-90,000 currently. Accordingly, the true rate of unemployment was likely to be around 20-22% in 2013, which is some 7-8 percentage points below the official one.
    Keywords: unrecorded economy, unrecorded employment, Kalman filter, Macedonia
    JEL: E26
    Date: 2015–09
  86. By: Julia Passabom Araujo; Mauro Rodrigues
    Abstract: This paper extends Evans and Jovanovic (1989)’s entrepreneurship model to incorporate the informal sector. Specifically, entrepreneurs can operate either in the formal sector – in which they have limited access to credit markets, but have to pay taxes – or in the informal sector – in which they can avoid paying taxes, but have no access to credit markets. In addition, technology in the informal sector is both less productive and more labor intensive than that in the formal sector. We calibrate the model to the Brazilian economy, and evaluate the impact of credit frictions and taxation on occupational choices, aggregate output and inequality. Removing all distortions can improve aggregate efficiency considerably, largely because this induces entrepreneurs to switch to the formal sector, where technology is superior. Most of this effect comes from removing credit market frictions, but taxes on formal businesses are also important. The elimination of distortions can also reduce inequality, but this comes from credit constraints and labor income taxation. Reducing taxes on formal businesses actually increases inequality in the model.
    Keywords: Informal sector; credit frictions; taxation; entrepreneurship
    JEL: E26 L26 O17
    Date: 2015–11–10
  87. By: Kazuo MIno (Kyoto University)
    Abstract: This paper constructs a tractable model of endogenous growth with financial frictions and fi…rm heterogeneity. We introduce factor income tax, consumption tax as well as the government consumption into the base model and explore the growth effect of …fiscal policy. We show that from the qualitative perspective, the long-run effects of …fiscal actions in our model are similar to those obtained in the representative-agent models. However, the quantitative impacts of …fiscal policy on long-run growth in our setting can be substantially different from those established in the model where agents are homogeneous and there is no fi…nancial friction.
    Keywords: fiscal policy, financial constraints, firm heterogeneity, endogenous growth
    JEL: D31 O41
    Date: 2015–11
  88. By: Zuidwijk, R.A.
    Keywords: international transportation, global supply chain, feight transportation, intermodal transportation, sea port, supply chain management, supply chain coordination, information systems, operations research, operation management, port logistics, containerization, sustainability, security
    JEL: N7 C61 D23 E47 F17 L15 L81 L9
    Date: 2015–11–13
  89. By: Mauro Napoletano (OFCE); Andrea Roventini (Department of economics); Jean-Luc Gaffard (OFCE)
    Date: 2015–11
  90. By: Ian Gough
    Abstract: Macroeconomic policy should be evaluated, he says, and devised according to sustainability criteria alongside economic and social criteria. Economic goals whether growth of GDP productivity or competitiveness, should not trump equity/justice or sustainability. But nor should environmental goals trump social goals. The urgent challenge addressed in this PRIME e-publication is to develop a macroeconomic framework that supports ‘eco-social’ policies to pursue both goals simultaneously. Just and sustainable macroeconomic planning should take into account two policy dimensions: the emissions intensity of different items of consumption, and the necessitousness of these items. Ways of measuring both of these are proposed. When personal consumption in the UK is analysed in this way, an awkward policy dilemma immediately appears: almost all necessities are high carbon, while most ‘luxuries’ emit lower than average GHGs. Transport is also high carbon and comprises both necessary spending given current infrastructure and luxury spending. Thus a radical macroeconomic framework needs to endorse and devise new ‘eco-social’ policies to serve both justice and sustainability goals, alongside income redistribution and public social consumption. Three approaches are suggested: taxing high-carbon luxury consumption, variable pricing of high-carbon necessities, and rationing carbon.
    JEL: N0
    Date: 2015–10
  91. By: Moura, Alban
    Abstract: This paper uses an estimated sticky-price model to identify endogenous movements in government consumption in the U.S. economy. Two feedback effects are considered, one originating from the stock of public debt and one from contemporaneous output. The data provide significant statistical evidence in favor of such mechanisms, even though a subsample analysis reveals that their strength may have decreased over time. Monte Carlo simulations assessing a DSGE model with exogenous spending and various identified VARs suggest that failing to account for these feedbacks may induce a severe upward bias in estimated multipliers.
    Keywords: Government spending multiplier, endogenous fiscal policy, structural econometrics
    JEL: C32 E62 H30
    Date: 2015–11
  92. By: Tapchieva, Tatiana
    Abstract: In this article author analyses dynamics of revenues and expenditures of Russian budgetary system, rate of the external and internal public debt of the Russian Federation and gives main reasons of changes in these elements of centralized finances during the period of 2005-2014.
    Keywords: Russian budgetary system, external and internal public debt of the Russian Federation, transition period, centralized finances, financial system
    JEL: H61 H62 H63
    Date: 2015
  93. By: Mateusz Pipień; Sylwia Roszkowska
    Abstract: The article presents the application of a linear regression model to the problem of space-time disaggregation of the GDP of the Polish economy. In the approach described, the structural parameters of linear regression are subject to estimation, where the annual GDP of voivodships (regions of Poland at NUTS 2 level) or the rate of its changes represent the explained variable, while the annual domestic GDP or the rate of its changes is the explanatory variable. The authors propose to estimate the quarterly GDP and its changes in individual regions as functions of regression parameters. The study presents the results of GDP estimates and its changes in individual regions. Alternative approaches were subject to evaluation in terms of the level of statistical uncertainty associated with the estimation and in terms of the level of spatial diversity of the estimated values.
    Keywords: Disaggregation of observed macroeconomic categories, classical linear regression model, uncertainty of estimation.
    JEL: C13 C43 E01
    Date: 2015
  94. By: Jair N. Ojeda-Joya (Banco de la República de Colombia); Oscar Jaulin-Mendez (Banco de la República de Colombia); Juan C. Bustos-Peláez (Universidad Nacional de Colombia)
    Abstract: We study the interdependence between real commodity prices and world real GDP using long-term annual data since 1870, by performing two empirical exercises. First, we compute long-term and medium-term cycles and measure their degree of synchronization for different leads and lags. Second, we perform several causality tests in order to better understand the nature of their interdependence. Our results show that GDP and commodity-price cycles are correlated, and there is evidence of short-term causality between them. However, there is no evidence of Granger causality from GDP to medium and long term cycles of commodity prices. This finding is consistent with the technology-based theories of commodity-price cycles. Searching for a supply-side determinant, we study the interdependence between oil-price and the remaining commodity-price cycles. Our results imply that oil prices are key drivers of metal price cycles for all fluctuation frequencies. Classification JEL: C22, E32, Q02
    Keywords: medium-term cycles, commodity prices, frequency domain, super cycles.
    Date: 2015–11
  95. By: José Manuel Montero (Banco de España); Ana Regil (Banco de España)
    Abstract: The cyclical resilience of the labour force has been one of the most notable features of the Spanish labour market during the latest economic crisis, despite the depth and duration of the recession, and in contrast to its performance in previous recessionary periods. The behaviour of labour supply has been driven by the favourable trend of the aggregate participation rate. Thus, this paper firstly analyses the cyclical performance of the participation rate over time using data from the Labour Force Survey for different demographic groups (by sex, nationality, age and educational attainment). The analysis reveals that the lower cyclical sensitivity during the latest downturn was driven by the stronger relative performance of labour force participation by Spanish women, highly educated workers and middle-aged and older people. In the second part of the paper, we estimate an empirical relationship between the participation rate, broken down into sex and nationality, and some of its main determinants identified in the literature. The ensuing estimation results will serve as a basis for conducting a projection exercise for the aggregate participation rate over a 10-year horizon. Overall, our results show that factors such as educational attainment, the fertility rate, the minimum wage, the pension system or the unemployment insurance system all prove relevant for labour participation decisions by individuals. The future course of these variables can help mitigate the negative impact on the labour supply arising from the expected population ageing in Spain.
    Keywords: labour force, participation rate, cyclical resilience, fractional response models.
    JEL: J21 C25 E24
    Date: 2015–11
  96. By: Pavel Krivenko (Stanford); Martin Schneider (Stanford University); Cosmin Ilut (Duke University)
    Abstract: This paper studies the joint dynamics of economic activity and agent's perceived uncertainty about future activity. Feedback effects due to learning and changing incentives to innovate generate cyclical fluctuations in asset prices and output.
    Date: 2015
  97. By: Marcel Fratzscher; Oliver Goede; Lukas Menkhoff; Lucio Sarno; Tobias Stöhr
    Abstract: This study examines foreign exchange intervention based on novel daily data covering 33 countries from 1995 to 2011. We find that intervention is widely used and a highly effective policy tool, with a success rate in excess of 80 percent under some criteria. The policy works very well in terms of smoothing the path of exchange rates, and in stabilizing the exchange rate in countries with narrow band regimes. Moving the level of the exchange rate in flexible regimes requires that some conditions are met, including the use of large volumes and that intervention is made public and supported via communication.
    Keywords: Foreign exchange intervention, exchange rate regimes, effectiveness measures, communication, capital controls
    JEL: F31 F33 E58
    Date: 2015
  98. By: Malgorzata Olszak (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland); Mateusz Pipien (Department of Econometrics and Operations Research, Cracow University of Economics, Poland); Iwona Kowalska (Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland); Sylwia Roszkowska (University of Warsaw, Faculty of Management)
    Abstract: This paper extends the literature on the capital crunch effect by examining the role of public policy for the link between lending and capital in a sample of large banks operating in the European Union. Applying Blundell and Bond (1998) two-step robust GMM estimator we show that restrictions on bank activities and more stringent capital standards weaken the capital crunch effect, consistent with reduced risk taking and boosted bank charter values. Official supervision also reduces the impact of capital ratio on lending in downturns. Private oversight seems to be related to thin capital buffers in expansions, and therefore the capital crunch effect is enhanced in countries with increased market discipline. We thus provide evidence that neither regulations nor supervision at the microprudential level is neutral from a financial stability perspective. Weak regulations and supervision seem to increase the pro-cyclical effect of capital on bank lending.
    Keywords: capital ratio, lending, capital crunch, regulations, supervision, procyclicality
    JEL: E32 G21 G28 G32
    Date: 2015–10
  99. By: Valerio Scalone (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome (Italy).)
    Abstract: Non-linear model estimation is generally perceived as impractical and computationally burdensome. This perception limited the diffusion on non-linear models estimation. In this paper a simple set of techniques going under the name of Approximate Bayesian Computation (ABC) is proposed. ABC is a set of Bayesian techniques based on moments matching: moments are obtained simulating the model conditional on draws from the prior distribution. An accept-reject criterion is applied on the simulations and an approximate posterior distribution is obtained by the accepted draws. A series of techniques are presented (ABC-regression, ABC-MCMC, ABC-SMC). To assess their small sample performance, Montecarlo experiments are run on AR(1) processes and on a RBC model showing that ABC estimators outperform the Limited Information Method (Kim, 2002), a GMM-style estimator. In the remainder, the estimation of a new-keynesian model with a zero lower bound on the interest rate is performed. Non-gaussian moments are exploited in the estimation procedure.
    Keywords: Monte-Carlo analysis, Method of moments, Bayesian, Zero Lower Bound, DSGE estimation.
    JEL: C15 C11 E2
    Date: 2015–11
  100. By: Bibek Adhikari (Department of Economics, Tulane University)
    Abstract: Theoretical prediction that a value-added tax (VAT) does not distort firms' production decisions has led to its rapid adoption worldwide, but there is surprisingly little empirical evidence. This paper provides one of the first causal estimates of the efficiency gains of introducing a VAT in a worldwide sample of countries. I compute the counterfactual trajectory of GDP per worker in the absence of a VAT using synthetic controls, which is a weighted average of countries without a VAT that closely resembles the economic structure and outcomes of the country with a VAT for several years before the adoption of a VAT. In line with previous studies, I find that the VAT has, on average, positive and economically meaningful impact on economic efficiency. However, this result is driven by richer countries only. There is no significant impact of the VAT on poorer countries. I find similar results when estimating the impact of the VAT on total factor productivity and capital stock per worker, two important channels through which a VAT affects economic efficiency. This paper provides evidence that a success of VAT almost entirely depends on the initial level of income of a country, which, in result, determines whether a country is able to properly design and enforce a VAT. The findings are robust across a series of placebo studies and sensitivity checks.
    Keywords: value-added tax, economic efficiency, synthetic control methods
    JEL: H20 H25 O40 E6
    Date: 2015–11
  101. By: Samuel Huber; Jaehong Kim
    Abstract: In the post-crisis period, increased regulation of financial intermediaries led to a signifi- cant decline in corporate bond market liquidity. In order to stabilize these markets, policy makers recently proposed that the trading of corporate bonds should be more centralized. In this paper, we show that a centralization of corporate bond markets always leads to an inferior outcome when compared with the initial over-the-counter structure. The regulator may achieve a superior allocation only if it is feasible for him to also affect market liquidity, by either increasing or decreasing it.
    Keywords: Monetary theory, over-the-counter markets, financial regulation, corporate bonds, liquidity
    JEL: D52 D62 E31 E44 E50 G11 G12 G28
    Date: 2015–11
  102. By: Fuchs, Johann (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 sharpen tests for 'discouragement' and 'added worker' effects by splitting the explanatory variable - the unemployment rate - into a short-term and a long-term component. While short-term unemployment might not result in additional workers on a large scale, long-term unemployment reduces household income more, increasing the need for additional income. On the other hand, it may discourage older workers for psychological and sociological reasons. Applying our model to the German labor market, these hypotheses could be confirmed. Even for men, about whom only few empirical studies on this issue are available, distinguishing between short-term and long-term unemployment reveals discouragement effects." (Author's abstract, IAB-Doku) ((en))
    Keywords: Langzeitarbeitslosigkeit, kurzfristige Arbeitslosigkeit, Erwerbsbeteiligung, Geschlechterverteilung, altersspezifische Faktoren, stille Reserve
    JEL: C32 E24 J21
    Date: 2015–11–17
  103. By: Vivian Malta (BTG Pactual); Rene Garcia (EDHEC Business School); Carlos Carvalho (PUC-Rio); Marco Bonomo (Insper Institute of Education and Research)
    Abstract: We propose a price-setting model which helps to reconcile micro evidence of relatively frequent price adjustments with macroeconomic persistent effects of aggregate shocks. In our model, both price adjustments and the gathering of some types of information are costly, requiring the payment of a lump-sum cost. Additional relevant information flows continuously, and can be factored into pricing decisions costlessly. We estimate three versions of the model by a Simulated Method of Moments, including a special case in which all information is costly. When idiosyncratic information is free and aggregate information is costly, our estimated model is able to match individual price-setting statistics for the U.S. and, at the same time, produce persistent monetary non-neutrality.
    Date: 2015
  104. By: José Fernández
    Abstract: This paper examines the degree of interdependence between three agricultural commodity prices, crude oil price returns, macroeconomic variables and the S&P GSCI commodity returns index. We apply Aielli (2013) cDCC model using monthly data from 1982 to 2012 to estimate the dynamic correlations of the returns series and endogenously detect any structural instability of the dynamic correlations. Our results indicate that crude oil price returns present statistically significant dynamic correlations with all the macroeconomic variables in addition to the GSCI index. Additionally, we detect structural changes in these dynamic correlations mainly associated with the financial crisis of 2008. On the other hand, our results show that there exists no degree of interdependence between maize, soybeans and sugar with crude oil price returns and most of the macroeconomic variables. The exceptions are between soybeans with the U.S. exchange rate and sugar with global economic activity. Nevertheless, only the GSCI index presents significant dynamic correlations with these commodity price returns.
    Keywords: Volatility, crude oil, agricultural food commodities.
    Date: 2015–11–16
  105. By: Ciprian Antoniade ALEXANDRU (Faculty of Economics, Ecological University of Bucharest); Nicoleta CARAGEA (Faculty of Economics, Ecological University of Bucharest); Mariana PAJA (Faculty of Economics, Ecological University of Bucharest)
    Abstract: This paper exposes the methodology of the Macroeconomic Imbalance Procedure (MIP), according to the methodology developed by Eurostat. The system is based on a scoreboard of a set of indicators, defined as a filter to identify the potential risks in the national economies in the European Union and issues for which a closer analysis is deemed necessary. The results of these reviews forms the basis for further steps under the MIP whereby a graduated approach is followed reflecting the state of imbalances. This study is a coherent and comprehensive presentation of the MIP as a statistical tool which can eventually lead to identify potential risks in the euro area Member States.
    Keywords: MIP, imbalance procedure, scoreboard, financial indicators, deflator
    JEL: E66 O52
    Date: 2014–01
  106. By: Erdal Özmen (Department of Economics, METU); Özge Doğanay Yaşar (Central Bank of the Republic of Turkey)
    Abstract: This paper investigates the impacts of sovereign credit ratings and global financial conditions on the evolution of EMBI spreads for a panel of 23 developing countries by using daily data for the period between 1998 and 2012. To this end, we employ not only the conventional panel estimation procedures, but also the recent methods tackling with either cross-sectional dependence stemming from common global shocks or a potential endogeneity. Our results suggest that credit ratings along with global financial conditions are the main determinants of EMBI. The determinants of EMBI are not invariant to speculative and investment grading episodes and transitions between them. The recent global crisis changed the determinants of EMBI and led to credit ratings impact to converge between speculative and investment grading episodes.
    Keywords: Emerging Market Economies, EMBI Spreads, Sovereign Credit Ratings, Global Financial Crisis, Common Correlated Effects
    JEL: E44 G11 G15
    Date: 2015–11
  107. By: Yosuke Jin; Patrick Lenain
    Abstract: A well-functioning labour market is indispensable to promote job creation, increase living standards, and develop a cohesive society. In Italy, the various deficiencies of the labour market have resulted in high unemployment, low labour force participation and job-skill mismatch. These deficiencies have contributed to the problem of allocation of resources, income distribution, and low productivity, reducing people’s well-being. The current government, following on past governments’ reforms, is introducing a package of labour market reforms – the Jobs Act – to improve the labour market in a consistent way. The reform will make the labour market more flexible and inclusive, and reduce duality. The long-lasting problem of effective enforcement will need to be overcome, with an increased focus on rapid implementation by the current government. A set of well-designed institutions, not only labour market policies but also the education system and product market regulation, would encourage higher labour force participation, especially among women, and produce more and better quality jobs in a more skill-intensive economy. This Working Paper relates to the 2015 OECD Economic Survey of Italy (<P>La réforme du marché du travail pour des emplois plus nombreux et de meilleure qualité en Italie<BR>Un marché du travail qui fonctionne bien est indispensable pour promouvoir la création d'emplois, augmenter les conditions de vie, et développer une société prospère. En Italie, les diverses lacunes du marché du travail ont abouti à un chômage élevé, une faible participation au marché du travail et une inadéquation des compétences sur le marché du travail. Ces déficiences ont contribué au problème de la répartition des ressources et des revenus, et de la faible productivité, qui contribuent à réduire le bien-être du peuple. Le gouvernement actuel, suite aux réformes des gouvernements passés, est en train d’introduire un ensemble de réformes du marché du travail – appelé le « Jobs Act » – afin d’améliorer le marché du travail de manière cohérente. La réforme rendra le marché du travail plus flexible et inclusif, et réduira la dualité. Assurer une exécution efficace des reformes, un problème de longue durée en Italie, devra être surmonter, avec un accent sur la mise en œuvre rapide des reformes par le gouvernement. Un ensemble d'institutions bien conçues, non seulement les politiques du marché du travail mais aussi le système d'éducation et la réglementation du marché de produits, encourageraient une participation plus élevée de la population active, surtout chez les femmes, et produira des emplois plus nombreux et de meilleure qualité dans une économie exigeante qui est de plus en plus axée sur les compétences avancées. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l'Italie 2015 ( ique-italie.htm).
    Keywords: innovation, entrepreneurship, labour market reform, productivity, skills, turnover, compétences, productivité, entrepreneuriat
    JEL: E2 E24 J01 J08 J6
    Date: 2015–11–19
  108. By: Roberto Guadarrama-Baena, Povilas Lastauskas
    Abstract: This paper combines current literature on the heterogeneous firms in international trade with the public economics of fiscal policy. We study the nexus between the intensive and extensive margins of trade, and their relationship with fiscal policy. When taxes are collected through the fixed per-period production payments, borne by all active firms, they impact firm partitioning and exporting decisions, but are nevertheless left unmodelled and treated as a pure loss in the literature. Instead, we show theoretically how such taxes can be channelled back into an open economy through spending on education (thereby affecting workers’ skill distribution), and contrast the result with the standard trade liberalisation exercise and a wasteful channel, which are prevalent in the literature. We estimate the model’s predictions using a novel data set covering 40 countries from 1995 to 2011. Employing the instrumental-variable panel techniques, we find support to our main testable predictions: fixed production taxes, used as the source to fund education, create an educational channel on the aggregate expenditure and the extensive margin of trade. A decrease in expenditure and an increase in the extensive margin are both amplified once an educational channel is allowed for.
    Keywords: Fiscal policy, intensive and extensive margins of international trade, education, skill distribution
    JEL: C26 F12 F16 E62 I28
    Date: 2015–11–12
  109. By: Jean Luc Erero
    Abstract: This paper analyses the effects of increases in value added tax (VAT) through a dynamic computable general equilibrium model. The database of the model encompasses a social accounting matrix (SAM) for the year 2010. All the important South African taxes are included in the SAM and the household sectors are disaggregated according to income deciles, with the top decile being further split into five groups. Five different simulations are performed, ranging from 1% increase in the VAT to 5% over the period 2012 to 2018. Our findings show that the percentage increase in VAT would not affect lower income households negatively if the higher government revenue flowed to the lower income households. For example, the 1% increase in the VAT rate impacts on the investment through the price of capital. The change in investment means that any adjustment in capital stock will affect the production and demand for labour that might impact on the standard of living of all income groups. The GDP increases slightly by 0.02173% in 2013 and reports a positive change for the period between 2013 and 2018. This shows that in the short run the GDP depends on other variables such as investment and consumption, which likewise are positively affected by this shock.
    Keywords: value added tax, computable general equilibrium model, South Africa
    JEL: C68 E62 H21
    Date: 2015
  110. By: Tim Buyse; Freddy Heylen; Ruben Schoonackers (-)
    Abstract: This paper studies the drivers of business funded and performed R&D in a panel of 14 OECD countries since 1981. More specifically, we investigate the e ects of public R&D related policies and wage formation. Following Pesaran (Econometrica, 2006) and Kapetanios et al. (Journal of Econometrics, 2011), our empirical strategy allows for cross-sectionally correlated error terms due to the presence of unobserved common factors, which are potentially non-stationary. We find that tax incentives are effective. Public funding (subsidization) of R&D performed by firms can also be effective if subsidies are not too low, neither too high. R&D performed within the government sector and within institutions of higher education is basically neutral with respect to business R&D. We find no evidence for crowding out, nor for complementarity. Using an indicator for wage pressure developed by Blanchard (Economic Policy, 2006), we find that wage moderation may contribute to innovation, but only in fairly closed economies and in economies with flexible labour markets. In highly open economies and economies with rigid labour markets rather the opposite holds. In these economies high wage pressure may enhance creative destruction and force firms to innovate as competitive strategy. Our results show that a careful treatment of the properties of the data is crucial.
    Keywords: R&D, technology policy, wage formation, panel cointegration
    JEL: E22 J30 O31 O38 O57
    Date: 2015–09
  111. By: Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Kazimierz Laski (The Vienna Institute for International Economic Studies, wiiw); Jerzy Osiatynski; Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); M. Riese; Herbert Walther
    Abstract: Kazimierz Laski, 1921 – 2015 (by Michael Landesmann, Martin Riese and Herbert Walther; pp. 1-2) Remembering Kazimierz Laski  (15 December 1921 – 20 October 2015) (by Jerzy Osiatynski; pp. 3-5) Kalecki’s place in my career as an economist (by Kazimierz Laski; pp. 6-11) Net private savings in relation to the government’s financial balance some basic principles of macroeconomics disregarded by the European Union’s economic policy-makers (by Kazimierz Laski and Leon Podkaminer; pp. 12-18) Recommended reading (p. 19) Statistical Annex Monthly and quarterly statistics for Central, East and Southeast Europe (pp. 20-41)
    Keywords: macroeconomics, fiscal policy, macroeconomic balances
    Date: 2015–11
  112. By: Willi Mutschler
    Abstract: This note derives closed-form expressions for unconditional moments, cumulants and polyspectra of order higher than two for linear and nonlinear (pruned) DSGE models. The procedures are demonstrated by means of the Smets and Wouters (2007) model (first-order approximation), the An and Schorfheide (2007) model (second-order approximation) and the canonical neoclassical growth model (third-order approximation). Both the Gaussian as well as Student's t-distribution are considered as the underlying stochastic process. Useful Matrix tools and computational aspects are also discussed.
    Keywords: higher-order moments, cumulants, polyspectra, nonlinear SDGE, pruning
    JEL: C10 C51 E1
    Date: 2015–11
  113. By: Munseob Lee (University of Chicago); David Argente (University of Chicago)
    Abstract: Using detailed barcode level data, we construct income-group specific price indices for the period of 2004 to 2010. We find substantial differences across income groups arising mainly during the Great Recession. The annual cost of living inflation of the highest quartile has been on average 0.7 percentage points lower than that of the lowest quartile of the income distribution. The difference can be explained by the way consumers adjusted their shopping behavior to mitigate the crisis. We find that product quality substitution, a margin mostly available to richer households, is the main mechanism explaining the differences in cost of living inflation. Our evidence suggests that not accounting for these differences during economic downturns could lead to significant biases in the calculation of inequality and poverty measures.
    Date: 2015
  114. By: Ramón José Torregrosa Montaner (Universidad de Salamanca)
    Abstract: By means of an overlapping generations model we study some long-run steady state features prompted by free-access public capital which enters a constant-returns-to-scale production function, dissipating its return among the private factors. The public investment is funded by lump-sum taxes in both younger and older generations. Our main conclusion is that the utility of an individual living in the long run steady state equilibrium may decline, even when the private capital-labor ratio increases, as a con-sequence of both an increase in per-capita public investment, and a shift of the tax burden from the younger to the older generation.
    Keywords: Public capital, rent dissipation, long-run steady state
    JEL: E69 H49
    Date: 2015–11
  115. By: Paolo Becchi (University of Genova)
    Abstract: Il concetto di Europa è stato da sempre un concetto piuttosto evanescente. L’idea di Europa è, del resto, avvolta nel mito. Europa, figlia di Agenore re dei Fenici (gli attuali siriani), viene rapita sulla spiaggia da un toro bianco di grande bellezza e mitezza che la trasporta sino all’isola di Creta, dove assumendo le sembianze di Zeus, genera con lei tre figli, tra i quali Minosse. Fin qui il mito testimonia una visione armonica tra l’uomo, il divino e l’animale. Il rapimento è consensuale, non c’è violenza, anzi la donna abbraccia voluttuosamente il toro e l’attrazione è fatale. Ma come vedremo alla fine di questa mia analisi il mito ha delle conseguenze tutt’altro che pacifiche e che, per certi versi, possono spiegare alcune dinamiche attuali. Politici come Robert Schuman, Konrad Adenauer e Alcide De Gasperi nel secondo dopoguerra hanno peraltro cercato di alimentare un’altra leggenda, quella che fa risalire storicamente le origini dell’Europa alla nascita del Sacro Romano Impero. Dal loro punto di vista è comprensibile: Carlo Magno era il simbolo della cristianità e tutti e tre erano democristiani. Carlo Magno però nel IX secolo aveva in mente non l’Europa, bensì l’Impero Romano, come tra l’altro ha mostrato il grande storico francese, recentemente scomparso, Jacques Le Goff . Ma se è pur vero che le origini dell’Europa non sono da rintracciare nel Sacro Romano Impero non è affatto da escludere che essa sia destinata a fare la stessa fine dell’Impero Romano.
    Keywords: European history, Monetary regimes, Government expenditure and welfare programs, Federalism.
    JEL: N93 N94 E42 H53 H77
    Date: 2015–11
  116. By: Hüning, Hendrik; Meub, Lukas
    Abstract: We develop a dynamic two-period generalized beauty contest to study the optimal level of publicity when disclosed information is subject to multiplier effects inherent to social learning. We build upon the static case, where all agents receive a private signal about an unknown fundamental state and only a fraction of all agents receive an additional public signal. However, in our model, agents no longer act simultaneously; rather, agents informed by both signals act in the first period, while those uninformed about the public signal delay their action and learn about informed agents' actions. We show that in the unique equilibrium of our dynamic game, informed agents overreact more strongly to public signals. The optimal dissemination of public information is thus considerably lower than the static case suggests. If the social learning signal is reasonably precise, aggregate welfare is higher than in the static case. Our results hold relevance for the optimal information policy design of public authorities.
    Keywords: generalized beauty contest,monetary policy,optimal communication,social learning,strategic complementarities
    JEL: D82 D83 E5
    Date: 2015
  117. By: Alain Cohn; Michel André Maréchal; Frédéric Schneider; Roberto A. Weber
    Abstract: We study whether employment history can provide information about a worker’s noncognitive skills—in particular about “work attitude,” or the ability to work well and cooperatively with others. Our hypothesis is that, holding all else equal, a worker’s frequent job changes can indicate poorer work attitude, and that this information is transmitted in labor markets through employment histories. We provide support for this hypothesis across three studies that employ complementary lab, field, and survey experiments. First, using a laboratory labor market in which the only valuable characteristic of workers is their reliability in complying with an employer’s effort requests, we demonstrate that prior employment information allows employers to screen for such reliability and allows high-reliability workers to obtain better employment outcomes. Second, we conduct a field experiment in which we vary the frequency of job changes in fictitious job applicants’ resumes. Those applicants with fewer job changes receive more callbacks from prospective employers. A third survey experiment with human resource professionals confirms that the resume manipulations in the field study create different perceptions of work attitude and that these account for the callback differences. Our work highlights the potential importance of job history as a signal of worker characteristics, and points to a cost for workers of frequent job changes.
    Keywords: Employability; work attitude; job mobility
    JEL: C90 C93 J01 E24
    Date: 2015–11
  118. By: André Albuquerque de Sant’Anna (Brazilian Development Bank); Antônio Marcos Hoelz Pinto Ambrozio (Brazilian Development Bank); Filipe Lage de Sousa (Brazilian Development Bank); João Paulo Martin Faleiros (Brazilian Development Bank)
    Abstract: The aim of this paper is investigating whether Brazilian industrial firms are credit constraint. We exploit a rich database that contains more than 3.000 firms with characteristics that may affect their degree of credit constraints: size, being listed in the Brazilian stock market and level of exports-sales ratio. Our results show that all dimensions considered here may affect the sensitiveness of in-vestment to cash flow, i.e., large firms, stock market listed companies as well as large export capac-ity are associated with inexistence or less credit restriction. Specifically, considering firm’s size, our results corroborate the economic theory prediction and empirical international literature. However, when compared to Brazilian studies, our findings are similar to Terra (2003), however, they differ from Aldrighi and Bisinha (2010) evidences that are based only on listed firms. Furthermore, the in-fluence of being listed in the stock market and export capacity is beyond any possible correlation with size. Even small and middle firms are not credit constraint when listed in the stock market or when the exports-sales ratio is higher.
    Keywords: Credit Constraint, Firm’s Investment, Cash Flow, Exports, Stock Market
    JEL: D92 E22
  119. By: Quamrul Ashraf; Boris Gershman; Peter Howitt
    Abstract: This paper is an exploratory analysis of the role that banks play in supporting what Jevons called the "mechanism of exchange." It considers a model economy in which exchange activities are facilitated and coordinated by a self-organizing network of entrepreneurial trading firms. Collectively, these firms play the part of the Walrasian auctioneer, matching buyers with sellers and helping the economy to approximate equilibrium prices that no individual is able to calculate. Banks affect macroeconomic performance in this economy because their lending activities facilitate the entry and influence the exit decisions of trading firms. Both entry and exit have ambiguous effects on performance, and we resort to computational analysis to understand how they are resolved. Our analysis draws an important distinction between normal times and worst-case scenarios, in which the economy experiences systemic breakdowns. We show that banks provide a "financial stabilizer" that more than counteracts the familiar financial accelerator and that the stabilizing role of the banking system is particularly apparent in bad times. In line with this result, we also find that under less restrictive lending standards banks are able to more effectively improve macroeconomic performance in the worst-case scenarios.
    Keywords: Agent-based computational model, Market organization, Banking system, Macroeconomic stability, Financial stabilizer
    JEL: C63 E00 E63 G20 G28
    Date: 2015

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