nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒12‒20
63 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Enhancing the financial sector linkages in the Bureau for Economic Research’s core macroeconometric model By Christelle Grobler; Ben Smit
  2. IW monetary outlook December 2015: Weak credit growth hinders eurozone inflation to increase By Hüther, Michael; Demary, Markus
  3. Monetary-fiscal policy interaction and fiscal inflation: A tale of three countries By Kliem, Martin; Kriwoluzky, Alexander; Sarferaz, Samad
  4. IW monetary outlook October 2015. Low inflation: A challenge for central banks By Hüther, Michael; Demary, Markus
  5. Does easing monetary policy increase financial instability? By Cesa-Bianchi, Ambrogio; Rebucci, Alessandro
  6. Secular drivers of the global real interest rate By Rachel, Lukasz; Smith, Thomas
  7. Neoliberal growth models, monetary union and the Euro crisis. A post-Keynesian perspective By Engelbert Stockhammer
  8. House prices and job losses By Pinter, Gabor
  9. IW-Zinsausblick Oktober 2015. Niedriginflation: Eine Herausforderung für Zentralbanken By Hüther, Michael; Demary, Markus
  10. Credit-less recoveries: the role of investment-savings imbalances By Hiona Balfoussia; Dimitris Malliaropulos
  11. Short-Term Pain for Long-Term Gain: Market Deregulation and Monetary Policy in Small Open Economies By Cacciatore, Matteo; Duval, Romain; Fiori, Giuseppe; Ghironi, Fabio
  12. Monetary Policy and Indeterminacy after the 2001 Slump By Firmin Doko Tchakota; Nicolas Groshenny; Qazi Haque; Mark Weder
  13. Labour Market Modelling within a DSGE Approach By Jaromir Tonner; Stanislav Tvrz; Osvald Vasicek
  14. Fisherian Futures Market By Kim, Minseong
  15. Inflation targeting or Exchange Rate Targeting: Which Framework Supports The Goal of Price Stability in Emerging Market Economics? By Nora Abu Asab; Juan Carlos Cuestas; Alberto Montagnoli
  16. Capital Misallocation during the Great Recession By Di Nola, Alessandro
  17. The Timing and Responsiveness of Fiscal Policy over the Business Cycle in Germany By Koester, Gerrit B.; Priesmeier, Christoph
  18. Reglas versus Discreción en la Política Fiscal: Introducción al caso Dominicano By Ovalle, Raul; Ramírez, Francisco A.
  19. Rational exuberance booms and asymmetric business cycles By Ambrocio, Gene
  20. Okun's Law and Potential Output By David Lancaster; Peter Tulip
  21. Search-and-Matching Frictions and Labour Market Dynamics in Latvia By Ginters Buss
  22. The evolution of the Maltese economy since independence By Grech, Aaron George
  23. Volatility effects of news shocks in (B)RE models with optimal monetary policy By Offick, Sven; Wohltmann, Hans-Werner
  24. Endogenous firm entry in an estimated model of the US business cycle. Updated version By Offick, Sven; Winkler, Roland C.
  25. The informal aspects of the activity of countries studied through Social Accounting and Socio-Demographic Matrices. By Santos, Susana
  26. Networks and the macroeconomy: an empirical exploration By Acemoglu, Daron; Akcigit , Ufuk; Kerr, William R
  27. Incidencia de los Choques Externos y Domésticos sobre la Dinámica de la Inflación: Evidencia a partir de un VAR Bayesiano By Jiménez, Miguel A.; Ramírez, Francisco A.
  28. Unbalanced privatization in emerging economies and capital flows By Damien Cubizol
  29. Quantitative and Qualitative Monetary Easing and Long-Term Interest Rates: The Effects through the Stock of "Net Supply" and Maturity Structure of Japanese Government Bonds By Ichiro Fukunaga; Naoya Kato
  30. What Do We Know About Fiscal Multipliers? By Favero, Carlo A.; Karamysheva, Madina
  31. Estimates of the Non-accelerating Inflation Rate of Unemployment (NAIRU) for Hungary By Lajos Tamás Szabó
  32. Wagner's law versus displacement effect By Funashima, Yoshito
  33. Firms’ adjustment during 2010–13: evidence from the Wage Dynamics Survey By Millard, Stephen; Tatomir, Srdan
  34. The theoretical weaknesses of the expansionary austerity doctrine By Alberto Botta
  35. Lost in Fiscal Space: Some Simple Analytics of Macroeconomic Policy in the Spirit of Tinbergen, Wicksell and Lerner By J.W. Mason; Arjun Jayadev
  36. Inequality and growth : the perverse relation between the procuctive and the non-productive assets of the economy By Mario Amendola; Jean-Luc Gaffard; Fabrizio Patriarca
  37. Ewolucja pogladow Miltona Friedmana, a ocena polityki pienieznej Fed i EBC w okresie kryzysu finansowego By Maciej Ryczkowski
  38. Capital Income Taxation and Welfare under DSGE Framework By Unal, Umut
  39. Deep Learning Stock Volatilities with Google Domestic Trends By Ruoxuan Xiong; Eric P. Nicholas; Yuan Shen
  40. Changing saving and investment behavior: the impact of financial literacy training and reminders on micro-businesses By ABEBE, Girum; TEKLE, Biruk; MANO, Yukichi
  41. On Time-Consistent Policy Rules for Heterogeneous Discounting Programs By Jean-Pierre Drugeon; Bertand Wigniolle
  42. Foreign Exchange Interventions, Capital Controls and Monetary Policy: The Case of China By Hao Jin
  43. Household Economic Inequality in Australia By Rosetta Dollman; Greg Kaplan; Gianni La Cava; Tahlee Stone
  44. Aportes al estudio de la formación de capital en la Argentina actual (2002-2012) By Pablo Manzanelli
  45. Why corporations in developing countries are likely to be even more susceptible to the vicissitudes of international finance than their counterparts in the developed world: A Tribute to Ajit Singh By José Gabriel Palma
  46. On Impatience, Temptation & Ramsey's Conjecture By Jean-Pierre Drugeon; Bertand Wigniolle
  47. Adjusting fiscal balances for the business cycle: New tax and expenditure elasticity estimates for OECD countries By Robert W.R. Price; Thai-Thanh Dang; Jarmila Botev
  48. Currency-based measures targeting banks - Balancing national regulation of risk and financial openness By Annamaria de Crescenzio; Marta Golin; Anne-Christelle Ott
  49. Real-Time Data should be used in Forecasting Output Growth and Recessionary Events in the US By Chrystalleni Aristidou; Kevin Lee; Kalvinder Shields
  50. Unit Roots in Economic and Financial Time Series: A Re-Evaluation based on Enlightened Judgement By Kim, Jae; Choi, In
  51. Liquidity Shocks and Asset Prices By GUERRON-QUINTANA, Pablo A.; JINNAI, Ryo
  52. Financial Development, Financial Openness, and Economic Growth By Estrada, Gemma Esther; Park, Donghyun; Ramayandi, Arief
  53. Renta financiera y solvencia mundial By Jose Luis Nicolini Llosa
  54. Innovation and competition in Internet and mobile banking: an industrial organization perspective By Mariotto, Carlotta; Verdier, Marianne
  55. Policy initiatives and firms’ access to external finance: Evidence from a panel of emerging Asian economies By Bose, Udichibarna; MacDonald, Ronald; Tsoukas, Serafeim
  56. Writing off, Restructuring or Refinancing the Debt? The IMF’s role in the Greek Debt Crisis By P. Manasse
  57. Political budget cycles and media freedom By Francisco Jose Veiga; Linda Goncalves Veiga; Atsuyoshi Morozumi
  58. Looking for a success in the euro crisis adjustment programs: the case of Portugal By Reis, Ricardo
  59. Emergence of networks and market institutions in a large virtual economy By Kephart, Curtis; Friedman, Daniel; Baumer, Matt
  60. Exact Present Solution with Consistent Future Approximation: A Gridless Algorithm to Solve Stochastic Dynamic Models By Wouter den Haan; Michal Kobielarz; Pontus Rendahl
  61. Keine Deflation im Euro-Raum: Niedrige Inflation bedingt durch sinkende Weltmarktpreise und Anpassungsprozesse in Krisenländern By Döhrn, Roland
  62. Оценка функционирования механизма региональных финансов Омской области By Bogomyagkova, Olga
  63. Political Budget Cycles: Manipulation of Leaders or Bias from Research? A Meta-Regression Analysis By Antoine Cazals; Pierre Mandon

  1. By: Christelle Grobler (Bureau for Economic Research, University of Stellenbosch); Ben Smit (Bureau for Economic Research, University of Stellenbosch)
    Abstract: The recent Great Financial Crisis (GFC) highlighted the importance of the development of financial sector linkages in macroeconomic models. The aim of this paper is to present the enhanced linkages from the financial sector to real economic activity in the Bureau for Economic Research’s (BER) core traditional semi-structural quarterly macroeconometric model. While many central banks have developed DSGE-type models, many national treasuries and other institutions use models similar to the BER’s core model. There is a large body of available literature on incorporating the financial sector into DSGE-type models, but this literature is rather limited for more traditional forecasting models. An additional objective was to add to this body of literature in documenting the changes to the BER’s model. Apart from incorporating the BER’s finance-neutral measure of potential output (see Kemp, 2015), credit markets and assets prices are now model determined. Also, banking sector variables such as the capital adequacy and liquidity ratios as well as the EY Financial Services (as surveyed by the BER) indicators on the credit standards of retail banks influence lending rate spreads faced by households and firms. The aim was to broaden the monetary transmission mechanism in the model so that the financial sector has an explicit impact on real variables in addition to the usual interest rate and exchange rate channels. This is illustrated by comparing the results of a similar sized interest rate shock before and after the model enhancements.
    Keywords: Macroeconometric model, banking sector, capital adequacy ratio, liquidity ratio, credit standards
    JEL: E10 E17 E20 E27 E44
    Date: 2015
  2. By: Hüther, Michael; Demary, Markus
    Abstract: While the ECB still struggles with an impaired bank lending channel of monetary transmission, the Fed successfully fought the labor market slack that was caused by the great recession of 2008. Due to the improved labor market, the Fed can now start its gradual interest rate lift-off. The ECB will increase its stance of policy accommodation instead, since low interest rates still do not translate into higher inflation. On the contrary, inflation and interest rates are decreasing in tandem. The reason for the impaired monetary transmission channel was originally the banking and sovereign debt crisis in the Eurozone, but the impairment of monetary transmission is now caused by banks’ reduction in risk-weighted assets, which are an effect of the implementation of the new Basel III capital ratios. Instead of lending to businesses and households banks increased their exposure to sovereigns. This effect is due to the preferential treatment of sovereign debt in bank regulation and is exacerbated by the low interest rate environment. As long as credit growth does not contribute to the growth of money, reducing interest rates even further will not bring inflation back to its target value. [...]
    JEL: E31 E52 E58
    Date: 2015
  3. By: Kliem, Martin; Kriwoluzky, Alexander; Sarferaz, Samad
    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 crosscountry 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
  4. By: Hüther, Michael; Demary, Markus
    Abstract: The European Central Bank (ECB) as well as the Federal Reserve Bank (Fed) are currently challenged by inflation below their inflation targets. While the Eurozone recovery is still anemic, the US economy is growing and the labor market improved, such that the Fed now fulfills one target of its dual mandate of stabilizing inflation and maximum employment. While consumer price inflation is low in the US, core inflation remained stable in during the last year. Because of the improved labor market towards near full employment we expect the Fed to conduct an interest rate lift-off. Given the current effective federal funds rate of 0.14 percent, an increase of the federal funds target corridor to 0.25 to 0.50 percent in December 2015 seems possible without endangering growth. It will be a strong signal that the Fed is confident that the economic recovery is strong enough to bring inflation back to its target value in the next year. However, we expect the Fed to abstain from further interest increases until the second half of next year due to the still low inflation rate. [...]
    Abstract: Niedrige Inflationsraten fordern die Geldpolitik der Europäischen Zentralbank (EZB) und der Federal Reserve Bank (Fed) heraus. Während die wirtschaftliche Erholung der Eurozone immer noch schleppend verläuft, wächst die US-Wirtschaft robust und der US-Arbeitsmarkt verbesserte sich soweit Richtung Vollbeschäftigung, dass die Fed ein Ziel ihres dualen Mandats nun erfüllt. Während die US-Inflation immer noch niedrig ist, verhielt sich die Kerninflationsrate aber stabil. Eine Zinserhöhung durch die Fed ist zu erwarten. Die effektive Federal Funds Rate von aktuell 0,14 Prozent erlaubt eine Ausweitung des Zielkorridors auf 0,25 bis 0,50 Prozent, ohne dass das Wirtschaftswachstum beeinträchtigt würde. Eine Zinserhöhung wäre zudem ein star-kes Signal, dass die Fed die wirtschaftliche Erholung für ausreichend befindet und dass sie eine Rückkehr der Inflation zu ihren Zielwert im kommenden Jahr erwartet. Es ist aber aufgrund der niedrigen Inflationsrate wenig wahrscheinlich, dass die Fed in der ersten Hälfte des kommenden Jahres ihren Leitzinskorridor noch einmal aus-weiten wird bzw. den traditionellen Durchschnittszielwert wiedereinführen wird. [...]
    JEL: E31 E52 E58
    Date: 2015
  5. By: Cesa-Bianchi, Ambrogio (Bank of England); Rebucci, Alessandro (Bank of England)
    Abstract: This paper develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macroprudential policy and to the role of US monetary and regulatory policy in the run up to the Great Recession. There are two main results. First, real interest rate rigidities in a monopolistic banking system increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macroprudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available policy instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. An implication of our analysis is that the weak link in the US policy framework in the run up to the Global Recession was not excessively lax monetary policy after 2002, but rather the absence of an effective second policy instrument aimed at preserving financial stability.
    Keywords: Macroprudential policies; monetary policy; financial crises; frictions; interest rate rigidities.
    JEL: E44 E52 E61
    Date: 2015–12–11
  6. By: Rachel, Lukasz (Bank of England); Smith, Thomas (Bank of England)
    Abstract: Long-term real interest rates across the world have fallen by about 450 basis points over the past 30 years. The co-movement in rates across both advanced and emerging economies suggests a common driver: the global neutral real rate may have fallen. In this paper we attempt to identify which secular trends could have driven such a fall. Although there is huge uncertainty, under plausible assumptions we think we can account for around 400 basis points of the 450 basis points fall. Our quantitative analysis highlights slowing global growth as one force that may have pushed down on real rates recently, but shifts in saving and investment preferences appear more important in explaining the long-term decline. We think the global saving schedule has shifted out in recent decades due to demographic forces, higher inequality and to a lesser extent the glut of precautionary saving by emerging markets. Meanwhile, desired levels of investment have fallen as a result of the falling relative price of capital, lower public investment, and due to an increase in the spread between risk-free and actual interest rates. Moreover, most of these forces look set to persist and some may even build further. This suggests that the global neutral rate may remain low and perhaps settle at (or slightly below) 1% in the medium to long run. If true, this will have widespread implications for policymakers — not least in how to manage the business cycle if monetary policy is frequently constrained by the zero lower bound.
    Keywords: Equilibrium interest rate; long-term yields; global saving and investment; global trend growth.
    JEL: E02 E10 E20 E40 E50 E60 F00 F41 F42 F47 J11 O30 O40
    Date: 2015–12–11
  7. By: Engelbert Stockhammer (Kingston University)
    Abstract: The paper offers an account of the Euro crisis based on post-Keynesian monetary theory and its typology of demand regimes. Neoliberalism has transformed social and financial relations in Europe but it has not given rise to a sustained profit-led growth process. Instead, growth has relied either on financial bubbles and rising household debt ('debt-driven growth') or on net exports ('export-driven growth'). In Europe the financial crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and monetary policy. This neoliberal economic policy regime in conjunction with the separation of monetary and fiscal spheres has turned the financial crisis of 2007 into a sovereign debt crisis in southern Europe.
    Keywords: Euro crisis, neoliberalism, European economic policy, European integration, financial crisis, sovereign debt crisis
    JEL: E02 E12 E50 E60 F50 P16
    Date: 2015–12
  8. By: Pinter, Gabor (Bank of England)
    Abstract: What explains the strong comovement between house prices and job losses over the UK business cycle? To study this question, I build a general equilibrium model with collateral constraints, endogenous job separation and housing shocks, and confront it with macroeconomic data via Bayesian methods. The results suggest that shocks to house prices (i) explain about 10-20% of output fluctuations and about 20%–30% of fluctuations in unemployment and job separation rates via the collateral channel, and (ii) were a major cause in triggering the 1990 and 2008 recessions in the United Kingdom.
    Keywords: Business cycle; house prices; financial frictions; labour market frictions.
    JEL: E21 E27 E32 E44
    Date: 2015–12–11
  9. By: Hüther, Michael; Demary, Markus
    Abstract: Niedrige Inflationsraten fordern die Geldpolitik der Europäischen Zentralbank (EZB) und der Federal Reserve Bank (Fed) heraus. Während die wirtschaftliche Erholung der Eurozone immer noch schleppend verläuft, wächst die US-Wirtschaft robust und der US-Arbeitsmarkt verbesserte sich soweit Richtung Vollbeschäftigung, dass die Fed ein Ziel ihres dualen Mandats nun erfüllt. Während die US-Inflation immer noch niedrig ist, verhielt sich die Kerninflationsrate aber stabil. Eine Zinserhöhung durch die Fed ist zu erwarten. Die effektive Federal Funds Rate von aktuell 0,14 Prozent erlaubt eine Ausweitung des Zielkorridors auf 0,25 bis 0,50 Prozent, ohne dass das Wirtschaftswachstum beeinträchtigt würde. Eine Zinserhöhung wäre zudem ein star-kes Signal, dass die Fed die wirtschaftliche Erholung für ausreichend befindet und dass sie eine Rückkehr der Inflation zu ihren Zielwert im kommenden Jahr erwartet. Es ist aber aufgrund der niedrigen Inflationsrate wenig wahrscheinlich, dass die Fed in der ersten Hälfte des kommenden Jahres ihren Leitzinskorridor noch einmal aus-weiten wird bzw. den traditionellen Durchschnittszielwert wiedereinführen wird. [...]
    Abstract: The European Central Bank (ECB) as well as the Federal Reserve Bank (Fed) are currently challenged by inflation below their inflation targets. While the Eurozone recovery is still anemic, the US economy is growing and the labor market improved, such that the Fed now fulfills one target of its dual mandate of stabilizing inflation and maximum employment. While consumer price inflation is low in the US, core inflation remained stable in during the last year. Because of the improved labor market towards near full employment we expect the Fed to conduct an interest rate lift-off. Given the current effective federal funds rate of 0.14 percent, an increase of the federal funds target corridor to 0.25 to 0.50 percent in December 2015 seems possible without endangering growth. It will be a strong signal that the Fed is confident that the economic recovery is strong enough to bring inflation back to its target value in the next year. However, we expect the Fed to abstain from further interest increases until the second half of next year due to the still low inflation rate. [...]
    JEL: E31 E52 E58
    Date: 2015
  10. By: Hiona Balfoussia (Bank of Greece); Dimitris Malliaropulos (Bank of Greece and University of Piraeus)
    Abstract: This paper argues that the investment–savings imbalances of households and companies play an important role in determining the probability that an economy experiences a credit-less recovery, following a recession. The investment¬–savings gap determines the need for “external” finance of the private sector in the form of either bank credit or capital market financing. Using a broad dataset covering 96 countries and 272 recovery episodes, we provide empirical evidence that credit-less recoveries are indeed associated with both low and declining financing needs of the private sector, as proxied by the investment-savings gap at the trough of the recession and its adjustment during the downturn. We show that this reflects a rebalancing of wealth towards financial assets during the downturn which can subsequently be used to finance real investment during the recovery stage, even in the absence of positive bank credit flows. Lastly, we provide empirical evidence that, controlling for the change in investment-savings imbalances, economies whose economic downturn was preceded by a credit boom are more likely to experience a credit-less recovery.
    Keywords: Credit-less recovery; crisis; savings-investment imbalance; financing needs; flow of funds
    JEL: E22 E32 E44 G01
    Date: 2015–11
  11. By: Cacciatore, Matteo; Duval, Romain; Fiori, Giuseppe; Ghironi, Fabio
    Abstract: This paper explores the effects of labor and product market reforms in a New Keynesian, small open economy model with labor market frictions and endogenous producer entry. We show that it takes time for reforms to pay off, typically at least a couple of years. This is partly because the benefits materialize through firm entry and increased hiring, both of which are gradual processes, while any reform-driven layoffs are immediate. Some reforms---such as reductions in employment protection---increase unemployment temporarily. Implementing a broad package of labor and product market reforms minimizes transition costs. Importantly, reforms do not have noticeable deflationary effects, suggesting that the inability of monetary policy to deliver large interest rate cuts in their aftermath---either because of the zero bound on policy rates or because of membership in a monetary union---may not be a relevant obstacle to reform. Alternative simple monetary policy rules do not have a large effect on transition costs.
    Keywords: employment protection; firm entry; product market regulation; structural reforms; unemployment benefits
    JEL: E24 E32 E52 F41 J64 L51
    Date: 2015–12
  12. By: Firmin Doko Tchakota (School of Economics, University of Adelaide.); Nicolas Groshenny (School of Economics, University of Adelaide.); Qazi Haque (School of Economics, University of Adelaide.); Mark Weder (School of Economics, University of Adelaide.)
    Abstract: This paper estimates a New Keynesian model of the U.S. economy over the period following the 2001 slump, a period for which the adequacy of monetary policy is intensely debated. To relate to this debate, we consider three alternative empirical inflation indicators in the estimation. When using CPI or PCE, we find support for the view that the Federal Reserve's policy was extra easy and may have led to equilibrium indeterminacy. The interpretation changes when using core PCE and monetary policy appears to have been reasonable and sufficiently active to rule out indeterminacy. We then relax the assumption that inflation in the model is measured by a single indicator. We re-formulate the artificial economy as a factor model where the theory's concept of inflation is the common factor to the three empirical inflation series. We find that CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Again, this procedure cannot dismiss indeterminacy.
    Keywords: Great Deviation, Indeterminacy, Taylor Rules
    JEL: E32 E52 E58
    Date: 2015–12
  13. By: Jaromir Tonner; Stanislav Tvrz; Osvald Vasicek
    Abstract: The goal of this paper is to find a suitable way of modelling the main labour market variables in the framework of the CNB's core DSGE model. The model selection criteria are: the predictive ability for unemployment, the change in the overall predictive ability in comparison to the baseline model and the extent of the required model change. We find that the incorporation of a modified Gali, Smets and Wouters (2011) labour market specification allows us to predict unemployment with an acceptable forecast error. At the same time it leads to a moderate improvement in the overall predictive ability of the model and requires only minor adjustments to the model structure. Thus, it should be preferred to more complicated concepts that yield a similar improvement in predictive ability. We also came to the conclusion that the concept linking unemployment and the GDP gap is promising. However, its practical application would require (additional) improvement in the accuracy of the consumption prediction. As a practical experiment, we compare the inflation pressures arising from nominal wages and the exchange rate in the baseline model and in alternative specifications. The experiment is motivated by the use of the exchange rate as an additional monetary policy instrument by the CNB since November 2013 in an environment of near-zero interest rates and growing disinflationary pressures. We find that the baseline model tends to forecast higher nominal wage growth and lower exchange rate depreciation than the models with more elaborate labour markets. Therefore, the alternative models would probably have identified an even higher need for exchange rate depreciation than the baseline model did.
    Keywords: DSGE, labour market, Nash bargaining, right to manage
    JEL: C53 E32 E37
    Date: 2015–08
  14. By: Kim, Minseong
    Abstract: The very fact that utility maximization in real business cycle and New Keynesian models is intertemporal suggests the possibility of a Fisherian intertemporal futures market, which is not state-contingent. Ex-ante speaking, the addition of a futures market does not result in any difference, but the addition does make difference ex-post. Furthermore, New Keynesian models rely on nominal effects, and what would introduction of a Fisherian futures market mean for these models? This paper answers this question by presenting a model that features Fisherian intertemporal futures markets.
    Keywords: futures market, certainty equivalence, new keynesian, collaterals, renegotiation
    JEL: E12 E13 E32 E43 E44
    Date: 2015–12–16
  15. By: Nora Abu Asab (Department of Economics, University of Sheffield); Juan Carlos Cuestas (Department of Economics, University of Sheffield); Alberto Montagnoli (Department of Economics, University of Sheffield)
    Abstract: We investigate the relationship between inflation and inflation uncertainty under inflation targeting and a conventional fixed exchange rate system and the impact of each regime on inflation and inflation uncertainty over the span from 1980:01 to 2014:06. The results from GARCH in mean models reveal that, under the two monetary regimes, inflation increases inflation uncertainty and inflation uncertainty raises inflation. This positive bi-directional relationship between inflation and inflation uncertainty provides evidence of the importance of non-discretionary monetary policies. Both regimes appear effective in reducing inflation uncertainty in the long-run which suggests the importance of monetary regimes as signalling devices for inflation expectations. The fixed exchange rate regime has no impact on average inflation and inflation inertia, while inflation targeting has been successful at lowering average inflation and inflation persistence of its followers. Nevertheless, the results provide evidence that inflation targeting countries have not benefited equally from inflation targeting.
    Keywords: Inflation Targeting, Fixed Exchange Rate System, GARCH, Monetary Policy, Price Stability
    JEL: C54 C58 E50 E58
    Date: 2015–12
  16. By: Di Nola, Alessandro
    Abstract: In this paper I evaluate the contribution of financial frictions in explaining the drop in aggregate TFP through misallocation during the Great Recession. I build a quantitative model with heterogeneous establishments; with the help of the model I compute the counterfactual drop in misallocation: by how much would aggregate TFP have decreased if the credit crunch had been absent. I find that a "real recession" would have caused a drop of only 0.16 percent, as opposed to 1.04 percent found in the data; therefore financial frictions account for a significant part of the drop in aggregate TFP. The key mechanism is the following: the increase in the cost of external finance affects negatively the reallocation of productive inputs from low to high productivity firms, by dampening the growth of small-highly productive firms.
    Keywords: Financing constraints, misallocation, heterogeneous firms, incomplete markets, idiosyncratic shocks.
    JEL: E2 E22 E25
    Date: 2015–09–01
  17. By: Koester, Gerrit B.; Priesmeier, Christoph
    Abstract: This paper provides new empirical evidence on the timing and sensitivity of fiscal policy over the business cycle in Germany. Employing structural vector autoregressions with time-varying transmission parameters, we find that the responsiveness of the fiscal balance to output gap shocks varied substantially over the last decades. Combining output gap and fiscal balance reactions reveals three distinct fiscal regimes that gradually flow into each other. Increasing countercyclical reactions can be observed in the 1970s. This is followed by almost two decades of decreasing short-term but increasing medium-term countercylicality. A third regime is characterized by further decreases of the short-termcountercyclicality, while fiscal policy turns acyclical in the medium-term perspective. Additional analyses show, that especially changes in the degree of trade openness and the employment ratio, along with the adoption of stronger inflation targeting have driven the decline of the sensitivity of German public finances.
    Keywords: Cyclicality of fiscal policy; Structural VAR; Time–varying parameter
    JEL: C32 E32 E62
    Date: 2015–12–18
  18. By: Ovalle, Raul; Ramírez, Francisco A.
    Abstract: The presence of deficit bias in fiscal policy, both at global as well as domestic level, has generated a debate around the viability of the adoption of fiscal rules to reduce such bias. In absence of an evaluation of this subject for the dominican case, this paper contributes to this discussion through the analysis of the impact of the introduction of different types of fiscal rules on macroeconomic volatility relative to the discretionary case. Results suggest that rules based on public expenditure adjustment, instead of taxes, reduce volatility. In contrast, fiscal balance objectives and limits on revenues introduce more validity, as the theory predict. This suggest that there is space for the modification of the current fiscal policy framenwork to one producing less macroeconomic uncertainty, considering the credible commitment of policymakers involved in the adoption of fiscal rules.
    Keywords: Fiscal rules; Fiscal bias;DSGE Modelling
    JEL: E32 E37 E62
    Date: 2014–09
  19. By: Ambrocio, Gene (Bank of Finland Research)
    Abstract: I propose a theory of information production and learning in credit markets in which the incentives to engage in activities that reveal information about aggregate fundamentals vary over the business cycle and may account for both the excessive optimism that fueled booms preceding financial crises and the slow recoveries that followed. In my theory, information about aggregate fundamentals is produced along two dimensions. First, optimistic beliefs lead to a fall in private investment in information reducing the quality of information available, an intensive margin. This gives rise to episodes of rational exuberance where optimism sustains booms even as fundamentals decline in the buildup to crises. Second, the quantity of information is increasing in the level of economic activity, an extensive margin. Thus, recoveries are slow since the low levels of investment and output provide little information about improvements in the state of the economy. Consistent with model predictions, I find supporting evidence in terms of a U-shaped pattern in macro-uncertainty measures over the business cycle. I also discuss the implications on endogenous information production on cyclical macro-prudential policy.
    Keywords: business cycle asymmetry; macro-uncertainty; social learning
    JEL: D83 E32 E44 G01 G14
    Date: 2015–11–25
  20. By: David Lancaster (Reserve Bank of Australia); Peter Tulip (Reserve Bank of Australia)
    Abstract: We find that Okun's law provides a simple and accurate means of understanding and predicting changes in the unemployment rate in Australia. Okun's law also implies a rate of output growth consistent with stable unemployment, called the growth of potential output. Our estimates of potential output growth are imprecise and fluctuate over time. A recent estimate is a bit below 3 per cent a year, with a +/– one standard error band covering the range 2\textonequarter to 3\textthreequarters per cent. This is a percentage point or two below estimates from before the mid 1990s.
    Keywords: Okun's law; potential output; unemployment
    JEL: E24 E27 J64
    Date: 2015–12
  21. By: Ginters Buss (Bank of Latvia)
    Abstract: This paper examines, in an estimated, full-fledged New Keynesian DSGE model with Nash wage bargaining, sticky wage and high value of leisure akin to Christiano, Trabandt and Walentin (2011), whether search-and-matching frictions in the labour market can explain aggregate labour market dynamics in Latvia. If vacancies are not observed, the model can, to a reasonable degree, generate realistic variance and dynamics of unemployment and the correlation between unemployment and (latent) vacancies, yet at the expense of too volatile vacancies. As a by-product, one quarter ahead forecasts of hours worked and GDP exhibit less excess volatility and, thus, are more precise compared to a model without search-and-matching frictions. However, if both unemployment and vacancies are observed and a shock to matching efficiency is allowed for, then cyclical behaviour of forecasted vacancies as well as correlation between unemployment and vacancies tend to counter the data (to the advantage of a better fit of vacancy volatility), and the smoothed matching efficiency is counter-intuitively counter-cyclical. Hence the model cannot fit the three statistics – variance of unemployment and vacancies, and correlation between the two, simultaneously.
    Keywords: DSGE model, unemployment, small open economy, Bayesian estimation, currency union, forecasting
    JEL: E0 E3 F0 F4 G0 G1
    Date: 2015–12–10
  22. By: Grech, Aaron George
    Abstract: This paper surveys the performance of the Maltese economy in the first half century since independence. The picture that emerges is of a nation that has benefitted from an extraordinary rate of economic growth and a significant reduction in volatility. The Maltese economy has matured exceedingly rapidly, with cycles of inflation and unemployment becoming much less pronounced and with a consistent underlying downward trend. The economic structure has shifted strongly towards services, which has led to an increased demand for labour that has accommodated the secular rise in female participation. The role of the state has changed dramatically, though as in other small open economies it continues to play a relatively more active economic function. The financial system has also altered beyond recognition, playing a more direct role in affecting economic activity. While the Maltese economy faces significant challenges, the strengths developed since independence will stand it in good stead.
    Keywords: Economic development, Industrial Structure, National Budget, Small States, Malta.
    JEL: E24 E3 H6 N14
    Date: 2015–06
  23. By: Offick, Sven; Wohltmann, Hans-Werner
    Abstract: This paper studies the volatility implications of anticipated cost-push shocks (i.e. news shocks) in a New Keynesian model under optimal unrestricted monetary policy with forward-looking rational expectations (RE) and backward-looking boundedly rational expectations (BRE). If the degree of backward-looking price setting behavior is sufficiently small (large), anticipated cost-push shocks lead to a higher (lower) volatility in the output gap and in the central bank's loss than an unanticipated shock of the same size. The inversion of the volatility effects of news shocks between rational and boundedly rational expectations follows from the inverse relation between the price-setting behavior and the optimal monetary policy. By contrast, if the central bank does not optimize and follows a standard Taylor-type rule and the price setters are purely (forward-) backward-looking, the volatility of the economy is (increasing with) independent of the anticipation horizon. The volatility results for the inflation rate are ambiguous.
    Keywords: Anticipated shocks,Optimal monetary policy,Bounded rationality,Volatility
    JEL: E32 E52
    Date: 2015
  24. By: Offick, Sven; Winkler, Roland C.
    Abstract: A recent theoretical literature highlights the role of endogenous firm entry as an internal amplification mechanism of business cycle fluctuations. The amplification mechanism works through the competition and the variety effect. This paper tests the significance of this amplification mechanism, quantifies its importance, and disentangles the competition and the variety effect. To this end, we estimate a medium-scale real business cycle model with firm entry for the U.S. economy. The competition and the variety effect are estimated to be statistically significant. Together, they amplify the volatility of output by 8.5 percent relative to a model in which both effects are switched off. The competition effect accounts for most amplification, whereas the variety effect only plays a minor role.
    Keywords: Bayesian estimation,Business Cycles,Competition Effect,Entry,Mark-ups,Variety Effect
    JEL: E20 E32
    Date: 2015
  25. By: Santos, Susana
    Abstract: Approaches based on Social Accounting Matrices (SAMs) and Socio-Demographic Matrices (SDMs) will be presented as a way of capturing relevant networks of linkages and the corresponding multiplier effects, which can subsequently be used for modelling the activity of the countries to be studied. Emphasis will be placed on the activity of household unincorporated enterprises, also known as informal enterprises. Based on methodological principles derived mainly from the works of Richard Stone, this study will be developed in a matrix format, including, on the one hand, people – represented by a SDM – and, on the other hand, activities, products, factors of production and institutions – represented by a SAM. The exposition will be accompanied by an application to Portugal, in which different scenarios will be briefly presented, involving changes in incomes and expenditures. The macroeconomic effects of these changes will be summarised in the form of changes in the macroeconomic aggregates: Gross Domestic Product, Gross National Income and Disposable Income.
    Keywords: Social Accounting Matrix; Socio-Demographic Matrices; Informal Economy.
    JEL: E01 J11
    Date: 2015
  26. By: Acemoglu, Daron (Massachusetts Institute of Technology); Akcigit , Ufuk (University of Chicago); Kerr, William R (Harvard University)
    Abstract: The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input-supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patenting). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various different types of shocks through economic networks and industry interlinkages could have first-order implications for the macroeconomy.
    Keywords: economic fluctuations; geographic collocation; input-output linkages; networks; propagation; shocks
    JEL: E32
    Date: 2015–12–09
  27. By: Jiménez, Miguel A.; Ramírez, Francisco A.
    Abstract: This paper analyzes the effect of an oil shock on some key macroeconomic variables for the case of the Dominican Republic, particularly the response of inflation and real economic activity. In addition, the elasticity of short run and long run term on petroleum derivatives commonly used in the Dominican Republic are estimated. A Bayesian VAR is used to evaluate the effect of an unanticipated increase of 10% in the price of oil. wing conclusions: 1) changes in oil prices have significant effects on the dynamics of non-core component of inflation, as well as other macroeconomic variables, except for core inflation; 2) to curb inflation, monetary policy reacts in a restrictive way, resulting in a temporary appreciation of the real exchange rate, as a result of rising interest rates; 3) real economic activity responds negatively deviating from its long-term trend with effects that persists over one year 4) last, but not least: historical decomposition shows that the non-core component of inflation is explained by a decrease of oil prices.
    Keywords: Oil prices; inflation; business cycles
    JEL: E31 Q4
    Date: 2015
  28. By: Damien Cubizol (Université de Lyon, F-69007, France; CNRS, GATE Lyon St Etienne, 93, Chemin des Mouilles, F-69130, Ecully, France; Université Lyon 2, Lyon, F-69007, France)
    Abstract: This empirical study reveals that a higher credit distribution by State-Owned Banks (SOBs) to State-Owned Enterprises (SOEs), to the detriment of some highly productive private firms, has an effect on foreign investments in emerging countries experiencing an economic transition. A first approach relying on GMM, Bayesian techniques, and utilizing a sample of 40 emerging countries over the period 1987-2007, demonstrates that the capital misallocation created by SOBs during privatization hinders inward FDI and enhances the accumulation of foreign assets. Then, to specify the effect on FDI inflows, a sectoral approach is implemented for 1992-2012 and strengthens the results; the rise in the credit afforded to SOEs to the detriment of growing private firms is associated with a slowdown of inward FDI stocks by approximately 16% to 23% during privatization. This conclusion is valid in manufacturing but not in tertiary sectors, that is, in sectors with more private firms and external finance dependence. The literature on the Chinese case is partly extended to the main emerging privatizing countries. These results allow for improvement in policy actions to better allocate capital in transition economies and for international stability.
    Keywords: Financial intermediation, privatization, Foreign Direct Investment, Net Foreign Assets, emerging economies
    JEL: E22 E44 F21 G20 P30
    Date: 2015
  29. By: Ichiro Fukunaga (Bank of Japan); Naoya Kato (Bank of Japan)
    Abstract: The relationship between the supply-demand structure of government bond markets and long-term interest rates has been studied both theoretically and empirically, motivated by the implementation of large-scale government bond purchases by many central banks in advanced economies. Fukunaga, Kato, and Koeda (2015) examined the effects of changes in the holders and maturity structures of Japanese Government Bonds (JGBs) on the term structure of interest rates and the risk premium on long-term bonds. Using a regression approach and a term structure model approach, they confirmed that the "net supply" of JGBs-that is, the amount outstanding of JGBs issued (supplied) by the government minus that held (demanded) by investors with preferences for particular maturities, including the Bank of Japan (BOJ)-had statistically significant effects on long-term interest rates. They also reported calculations based on the two approaches showing that the BOJ's JGB purchases as part of its Quantitative and Qualitative Monetary Easing (QQE) had substantial effects on the long-term interest rates.
    Keywords: Japanese Government Bonds; Term structure of interest rates; Preferred-habitat investors; Quantitative and Qualitative Monetary Easing
    JEL: E43 E52 G12 H63
    Date: 2015–12–11
  30. By: Favero, Carlo A.; Karamysheva, Madina
    Abstract: The Empirical evidence on fiscal multipliers is very heterogenous. In this paper we first survey available estimates of fiscal multipliers to try to understand their heterogeneity. We provide a general framework that allows to make the identification and specification choices made by the different authors explict and leads hopefully to a better understanding of the heterogeneity of results.
    Keywords: fiscal adjustment; fiscal plans; output growth
    JEL: E62 H60
    Date: 2015–12
  31. By: Lajos Tamás Szabó (Magyar Nemzeti Bank (the Central Bank of Hungary))
    Abstract: Labour market tightness, that is the ratio of jobs to the unemployed, has an impact on wage setting, which also affects inflation. Among other things, the unemployment gap, which is the difference between unemployment rate and non-accelerating inflation rate of unemployment (NAIRU), is used to measure inflationary pressure from the labour market. This paper examines which of the NAIRU estimation methods described in the literature can be applied to Hungary. In evaluating the results, the revisional property of the NAIRU is also examined, as well as the forecast capacity of the unemployment gap with regard to wages. Based on these, the model containing the tightness indicator performs the best. This is notable from a forecasting perspective, because the vast majority of estimates in the literature use wages to provide an estimate of the unemployment gap. Therefore, an indicator which does not use wages at all to estimate the unemployment gap performs the best in forecasting wage growth. Based on the estimation the NAIRU has decreased in recent years. Of the factors affecting the NAIRU, the variables describing the general macro environment (total factor productivity, long-term unemployed, number of persons employed in construction, risk premium) have considerablely contributed to the decrease in the NAIRU, which may have been complemented by changes in labour market institutions. Based on the literature, the latter may be useful when explaining the differences between countries. For the estimation of these factors’ effects (e.g. decrease in the tax wedge, transformation of the unemployment benefit system etc.) further research is necessary. Within the framework of the sensitivity analysis, if the groups which are loosely linked to the labour market (e.g. discouraged workers) are also regarded as part of the free labour force capacity, the view of the tightness of the labour market (the unemployment gap) does not change. However, the results are sensitive to the assumption made about the labour market status of fostered workers.
    Keywords: NAIRU, unemployment, wages, vacancies
    JEL: E24 J21 J69
    Date: 2015
  32. By: Funashima, Yoshito
    Abstract: The public sector has grown dramatically over the past few centuries in many developed countries. In this paper, we use wavelet methods to distinguish between two leading explanations for this growth—Wagner's law and the displacement effect. In doing so, we use the long-term data of ten OECD countries for a maximum time span of 1800-2009. We find that the validity of Wagner's law is likely to vary strongly over time for each country. A roughly similar feature in most of the countries is that the law is less valid in the earliest stage of economic development as well as in the advanced stages, with the validity tending to follow an inverted U-shaped pattern with economic development. Further, our results indicate that the long-run growth of government size cannot be adequately explained by Wagner's law. On the other hand, the displacement effect appears to account for the bulk of the growth in most of the countries.
    Keywords: Size of public sector; Wagner's law; Economic development; Displacement effect; Wavelet
    JEL: E62 H50 N40
    Date: 2015–12
  33. By: Millard, Stephen (Bank of England); Tatomir, Srdan (Bank of England)
    Abstract: This paper sets out the main lessons learnt from a survey of wage-setting in the United Kingdom, carried out as part of the European Central Bank’s Wage Dynamics Network survey covering 25 European countries. The survey covered the 2010–13 period, during which most firms experienced an increase in demand and a moderate increase in costs as the economy recovered from the Great Recession. We found the median frequency of wage-setting to be annual and that around 30% of firms directly and explicitly related changes in their base wage to inflation. There was also some evidence of downward nominal wage rigidity with around 25% of firms freezing wages in 2010, although by 2014 this had fallen to around 10%. The survey suggested that theories of wage rigidity based around the ability of workers to ‘shirk’ and/or fairness considerations explained why firms were reluctant to cut wages.
    Keywords: Wage-setting; survey evidence; labour market adjustment
    JEL: E24 J30
    Date: 2015–12–11
  34. By: Alberto Botta (Mediterranean University of Reggio Calabria (IT))
    Abstract: The existing criticism to the expansionary austerity theory has extensively addressed the methodological problems affecting the econometric techniques underpinning it, and hence the solidity of its empirical findings. Relatively fewer efforts have been spent in showing the theoretical inconsistencies of the expansionary austerity literature, i.e. the rather extreme assumptions and circumstances under which an expansionary fiscal correction episode might effectively materialize. In this paper, we try to further develop this second type of critique. We first present some stylized facts that seem to contradict the central pillars of the expansionary austerity building. We then move to the theory and provide a detailed analysis of the specific policy measures expansionary austerity supporters advocate to compose possibly successful austerity packages. We do so through a simple short-run model. We show that fiscal consolidation might have expansionary outcomes only under extreme, very specific and uncertain conditions. Expansionary austerity would hardly take place in the context of monetarily sovereign economies, or in presence of an accommodative monetary policy like that implemented by the ECB since late 2011, or into economic systems that are poorly integrated on international good markets and cannot manage their own exchange rate freely.
    Keywords: Fiscal policy, expansionary austerity theory, post-Keynesian macro models
    JEL: E12 E61 E62
    Date: 2015–12
  35. By: J.W. Mason; Arjun Jayadev
    Abstract: The interest rate and the fiscal balance can be thought of as two independent instruments to be assigned to two targets, the path of output and the path of public debt. Under what we term a ’sound finance rule’ the interest rate targets output while the fiscal balance targets public debt; under a ‘functional finance rule’ the budget balance is assigned to the output gap and the interest rate to the debt ratio. The same unique combination of interest rate and fiscal balance will be consistent with output at potential and a constant debt-GDP ratio regardless of which instrument is assigned to which target The stability characteristics of the two rules differ, however. At low levels of debt, both rules converge, but at high levels of debt, only the functional finance rule converges. So contrary to conventional wisdom, the case for countercyclical fiscal policy becomes stronger, not weaker, when the ratio of public debt to GDP is already high. We apply our framework to describe policy generated cycles in the US over the past five decades.
    Date: 2015–12
  36. By: Mario Amendola (Dipartimento di Scienze Sociali ed Economiche); Jean-Luc Gaffard (OFCE); Fabrizio Patriarca (Università degli Studi di Roma "La Sapienza" [Rome])
    Abstract: The explosion of the global financial crisis in 2008 and its transmission to the real economies have been interpreted as calling for new kinds of regulation of the banking and the financial systems that would have allowed re-establishing a virtuous relation between the real and the financial sectors of the economy. In this paper we maintain the different view that the financial crisis and the ensuing real crisis have roots in th e strong increase in incomes inequality that has been taking place in the Western world in the last thirty years or so. This has created an all around aggregate demand deficiency crisis that has strongly reduced prospects and opportunities for investments in productive capacities and shifted resources toward other uses, thus feeding a perverse relation between the productive and the non-productive assets of the economy. In this context the way out of the crisis is re-establishing the right distributive conditions: which cannot be obtained by a policy aimed at relieving the weight of private or public debts but calls for a redistribution through taxes on the incomes of non-productive sectors, according to a fine tuning that should prevent from excessive taxations transforming positive into negative effects.
    Keywords: assets; debt; inequality; taxation
    JEL: D3 E2
    Date: 2015–12
  37. By: Maciej Ryczkowski (Nicolaus Copernicus University, Poland)
    Abstract: Z biegiem czasu wiele kluczowych pogladow Miltona Friedmana (1912-2006) uleg³o zmianie. Wiele z tych aktualnych pogladow nie jest powszechnie znanych. Czesciowa tego przyczyna jest brak wydania przez Friedmana jakiegokolwiek szczegolowego zestawienia rozwoju polityki monetarnej po 1960 roku. Kolejne publikacje autorstwa jego i Schwartz nie by³y kontynuacj¹ ich historycznych analiz. Nie istnieje zatem od tego czasu jedno, pojedyncze zrodlo przedstawiajace w usystematyzowany sposob poglady monetarysty na temat polityki pienieznej. Celem artykulu jest wyszczegolnienie zmian, jakie siê dokonaly w pogladach Miltona Friedmana na rolê pieniadza i polityke pieniezna w ostatnich latach jego zycia, a nastêpnie proba oceny niekonwencjonalnych dzia³an podjetych przez System Rezerwy Federalnej i Europejski Bank Centralny w odpowiedzi na swiatowy kryzys finansowy w kontekscie najnowszych zalecen monetarysty. Proba oceny tych wysoce niekonwencjonalnych dzia³añ o niespotykanej skali z perspektywy jego ostatnich pogladow jest niewatpliwie trudna, jednakze moze byæ pomocna w ustalaniu roli agregatow pienieznych we wspo³czesnej polityce monetarnej. Z przedstawionych rozwazan wynika, ¿e Friedman prawdopodobnie w znacznej mierze nie pochwala³by rozwiazan wdrozonych przez System Rezerwy Federalnej i Europejski Bank Centralny do walki z kryzysem po 2007 roku.
    Keywords: Milton Friedman, nowe poglady Miltona Friedmana, monetaryzm, podaz pieniadza, polityka antykryzysowa, kontrola podazy pieniadza
    JEL: B31 E41 E51 E58
    Date: 2015–12
  38. By: Unal, Umut
    Abstract: This paper develops a dynamic stochastic general equilibrium (DSGE) model for analyzing the impact of various capital income tax policies in a small open economy that is populated by households possessing endogenous time preferences. We contribute to the literature by studying the impacts of: i) anticipated tax shocks under stochastically growing output, ii) stochastic tax shocks under deterministic output, on our dynamic general equilibrium framework. With our model's specifications, this is the first attempt to integrate uncertainty in the study of taxation and welfare. Our results suggest that only under certain conditions welfare paradoxes may exist, in the sense that increases in tax instruments may improve welfare.
    Keywords: Endogenous time preference, adjustment costs, perturbation methods, stochastic shocks.
    JEL: E62 F4
    Date: 2015
  39. By: Ruoxuan Xiong; Eric P. Nicholas; Yuan Shen
    Abstract: We have applied the Long Short-Term Memory neural network to model S&P 500 volatilities incorporating Google domestic trends as indicators of the public mood and macroeconomic factors. In the 30% testing data, our Long Short-Term Memory model gives a mean absolute percentage error of 24.2%, outperforming linear Ridge/Lasso and autoregressive Garch benchmarks by at least 31%. This evaluation is done on the optimal observation and normalization scheme which maximizes the mutual information. Our preliminary investigation shows strong potential to better understand stock behaviors using deep learning neural network structures.
    Date: 2015–12
  40. By: ABEBE, Girum; TEKLE, Biruk; MANO, Yukichi
    Abstract: In developing countries, savings is an important financial tool, particularly for micro-business with limited access to credit. However, micro-entrepreneurs often undersave, even when they have some surplus and the desire to save may be because of a knowledge gap and behavioral biases. We employed an experimental approach relaxing these savings constraints to explore the effects of providing financial literacy training and reminders to micro-entrepreneurs in Ethiopia. While financial literacy training alone seemed ineffective, the reminders significantly increased the savings-to-sales ratio by 54.5%, the percentage of business proceeds reinvested back to business by 91.0 %, and the percentage of savings goal achieved by 116%. Joint treatment significantly increased the percentage of savings goal achieved by 66.5% and deposit in an ordinary bank account by 84%. Our results confirm earlier findings that savings can be limited by attention, whereas how entrepreneurs manage savings depends on their levels of financial literacy [151 words].
    Keywords: savings, reminders, financial training, entrepreneurs
    JEL: D92 E21 L26
    Date: 2015–12–08
  41. By: Jean-Pierre Drugeon (Paris School of Economics); Bertand Wigniolle (Paris School of Economics)
    Abstract: This article considers a new concept of social optimum for an economy populated by agents with heterogeneous discount factors. It is based upon an approach that constrains decision rules to be temporally consistent: these are stationary and unequivocally ruled by the state variable. For agents who differ only in their discount factors and have equal weights in the planner's objective, the temporally-consistent optimal solution produces identical consumption for the agents at all time periods. In the long run, the capital stock is determined by a modified golden rule that corresponds to an average-like summation of all discount factors. The general argument is illustrated by various two-agent examples that allow for an explicit determination of the temporally consistent decision rules. Interestingly, this temporally consistent solution can be simply recovered from the characterization of a social planner's problem with variable discounting and can also be decentralised as a competitive equilibrium through the use of various instruments
    Keywords: Time-Consistent Policy Rules; heterogeneous Discounting Programs
    JEL: E32 O41
    Date: 2015–10
  42. By: Hao Jin (Indiana University)
    Abstract: China has maintained a closed capital account to the private sector and channeled capital flows through the public sector by foreign exchange interventions. This paper presents an open economy model that incorporates this capital account policy configuration in order to study whether foreign exchange interventions can improve welfare in the presence of capital controls, compared to an open capital account. Furthermore, I analyze how these interventions affect the conduct of monetary policy. I find that optimal interventions improve welfare by strategically managing the terms of trade. In the presence of domestic nominal rigidity, interventions increase welfare even if monetary policy is set optimally. I find monetary policy effectively eliminates domestic price distortions, while foreign exchange interventions efficiently correct terms-of-trade externalities.
    Keywords: Foreign Exchange Interventions; Capital Controls; Monetary Policy; Chinese Economy; Welfare
    Date: 2015–10
  43. By: Rosetta Dollman (Reserve Bank of Australia); Greg Kaplan (Reserve Bank of Australia); Gianni La Cava (Reserve Bank of Australia); Tahlee Stone (Reserve Bank of Australia)
    Abstract: We document some new stylised facts about consumption and income inequality (or 'economic inequality') among households in Australia. Based on household-level information from the Household Expenditure Survey we find that consumption inequality is lower on average than income inequality, but that income and consumption inequality have both increased a little since the early 1990s, with income inequality increasing by more. These findings are broadly similar to the changes in income and consumption inequality documented in other developed economies. We provide insight into the welfare implications of these changes using panel data from the Household, Income and Labour Dynamics in Australia Survey. We decompose the broad trends in income inequality into four statistical components: (i) changes in observed household characteristics; (ii) changes in the returns to unobserved skills; (iii) changes in the size of persistent income shocks (reflecting events such as promotions and long-term unemployment); and (iv) changes in the size of transitory income shocks (reflecting events such as bonuses, short-term unemployment and short-term illness). The reported trends in income inequality do not appear to be due to changes in observed household characteristics, but rather to changes in the size of persistent and transitory income shocks. Since the middle of the 2000s, at least some of the increase in income inequality has been due to persistent factors, a conclusion that is consistent with the rise in consumption inequality over the corresponding period.
    Keywords: inequality; income; consumption; imputed rent
    JEL: D6 D12 D31 E21 H31
    Date: 2015–12
  44. By: Pablo Manzanelli
    Abstract: El objetivo de este trabajo es el de examinar el proceso de formación de capital durante la posconvertibilidad (2002-2012), procurando identificar a los agentes económicos que tendieron a inducir la caída en la tasa de inversión que se registra desde 2008 en la economía argentina. En tal sentido, se parte del supuesto de que las grandes corporaciones que operan en el ámbito interno estarían -por su reticencia a canalizar sus utilidades a la inversión- restringiendo la ampliación potencial de las capacidades productivas domésticas y, con ello, provocando efectos perniciosos sobre la evolución de diversas variables de indudable importancia económica para el país (inversión, producto bruto, empleo, precios, fuga de divisas, balance de pagos, etc.).
    Keywords: Capital; Capacidad de inversión; Desarrollo económico; Mercados imperfectos.
    JEL: E22 O11 L12 L13
    Date: 2015–09–01
  45. By: José Gabriel Palma
    Abstract: This paper seeks to explore the nature of ‘Good’ Energy Policy by offering a multi-disciplinary social science and humanities perspective on policy making. The objective in doing this is to understand how to get from where we are today to a ‘better’ energy policy. We begin by discussing what we mean by ‘policy’. We then go on to characterise and challenge the technologists’ approach to energy policy. Next we discuss some key intellectual starting points that explain why policy making in this area is so difficult. We then turn to a set of multi-disciplinary social science and humanities perspectives on energy policy that together form promising areas for research. These are: perception; quantification; well-being; public trust; role of the state; competence and hubris in delivery; and parallels with healthcare. We close by discussing how these perspectives can illuminate whether a policy is ‘good’, ‘bad’ or something in between.
    Keywords: Ajit Singh; Causes of financial crisis; Corporate finance; East Asia; Financial liberalisation; Ideology; Keynes; Kindleberger; Latin America; Neo-liberal economic reforms; QE; and Systemic market failure
    JEL: B5 D3 D43 E2 E43 F3 G1 G3 G21 G23 L52 N5 N16
    Date: 2015–12–08
  46. By: Jean-Pierre Drugeon (Paris School of Economics); Bertand Wigniolle (Paris School of Economics)
    Abstract: This article is aimed at exploring the implications of the introduction of self-control and temptation motives in inter temporal preferences within an elementary competitive equilibrium with production. Letting heterogeneous agents differ from both their discounting parameters and their temptation motives, this article is interested in the long-run distribution of consumptions and wealths. Results are at odds from the ones obtained in a standard Ramsey benchmark setup in that long-run distributions are commonly non degenerated ones
    Keywords: Impatience; Temptation; Self-Control; Ramsey's Conjecture
    JEL: E32 O41
    Date: 2015–10
  47. By: Robert W.R. Price; Thai-Thanh Dang; Jarmila Botev
    Abstract: This paper re-estimates the elasticities of government revenue and expenditure items with respect to the output gap for OECD countries. These elasticities are used by the OECD to calculate cyclically adjusted fiscal balances. The study updates the earlier 2005 study using the most recent datasets and tax codes, the coverage being confined in this paper to 35 countries, the 34 OECD member states and Latvia. The same two-step methodology is retained: revenue and expenditure elasticities with respect to the output gap being defined as the product of, first, the elasticities of individual revenue and expenditure items with respect to their bases and, second, the elasticities of these bases with respect to the output gap. A number of refinements and methodological improvements are made relative to the 2005 study. The revisions to individual elasticities relative to the 2005 vintage are significant in a number of cases but do not follow a clear pattern across countries, except for the elasticities of corporate income tax revenue which are revised up in most cases.<P>Correction des soldes budgétaires en fonction des variations cycliques : Nouvelles estimations d'élasticités des impôts et des dépenses pour les pays de l'OCDE<BR>Cet article estime les élasticités des composantes de revenus et de dépenses des administrations publiques par rapport aux écarts de production pour les pays de l’OCDE. Ces élasticités sont utilisées par l’OCDE pour calculer les soldes financiers des administrations publiques corrigés du cycle économique. Cette étude est une mise à jour des travaux parus en 2005, elle utilise les données et les codes d’impôts les plus récentes , et couvre 35 pays, à savoir les 34 pays membres ainsi que la Lettonie. La méthode en deux étapes a été conservée : les élasticités par rapport aux écarts de production étant définies comme le produit , dans un premier temps, des élasticités des composantes individuelles de recettes et de dépenses par rapport à leurs assiettes , et dans un deuxième temps des élasticités de ces assiettes par rapport aux écarts de production. Des modifications et des améliorations méthodologiques ont été apportées depuis l’étude de 2005. Les révisions d’élasticités par rapport à la version de 2005 sont importantes dans certains cas mais ne suivent pas un schéma type pour tous les pays, à l’exception des élasticités des impôts sur les bénéfices des sociétés qui ont été révisées à la hausse dans la plupart des cas.
    Keywords: budget elasticity, fiscal surveillance, automatic stabilisers, cyclically adjusted, ajustement cyclique, stabilisateurs automatiques, élasticité budgétaire, surveillance fiscale
    JEL: E62 H30 H60
    Date: 2015–12–14
  48. By: Annamaria de Crescenzio; Marta Golin; Anne-Christelle Ott
    Abstract: This paper presents and analyses new datasets of de jure Currency-Based Measures (CBMs) directed at banks in a sample of 49 countries between 2005 and 2013. These measures are bank regulations that apply a discrimination−e.g. a less favourable treatment−on the basis of the currency of an operation, typically foreign currencies. The new data shows that CBMs have been increasingly used in the post-crisis period, including for macro-prudential purposes. In particular, some Emerging Market Economies, including some OECD countries, have increasingly resorted to and tightened their CBMs, especially to manage capital inflows. Information from these new datasets is also matched with measures on countries’ inability to borrow in domestic currency on international markets, defined as the original sin concept. With the exception of China, only countries suffering from original sin used and tightened CBMs on banks’ foreign exchange liabilities.
    Keywords: capital flows, foreign currency, financial stability, banking regulations, macroprudential policy, capital controls
    JEL: C82 E58 F3 G28
    Date: 2015–12–10
  49. By: Chrystalleni Aristidou; Kevin Lee; Kalvinder Shields
    Abstract: The paper investigates whether forecast performance is enhanced by real-time datasets incorporating past data vintages and survey expectations. It proposes a modelling framework and evaluation procedure which allows a real-time and a final assessment of the use of the data in forecasting judged by various statistical and economic criteria. Analysing US output data over 1968q4-2015q1, we find both elements of the real-time data are useful with their contributions varying over time. Revisions data are particularly valuable for point and density forecasts of growth but survey expectations are important in forecasting rare recessionary events.
    Keywords: Real-Time Data, Nowcasting, Revision, Survey, Growth, Recession
    Date: 2015
  50. By: Kim, Jae; Choi, In
    Abstract: This paper re-evaluates the key past results of unit root test, emphasizing that the use of a conventional level of significance is not in general optimal due to the test having low power. The optimal levels for popular unit root tests, chosen using the line of enlightened judgement under a symmetric loss function, are found to be much higher than conventional ones. We also propose simple calibration rules for the optimal level of significance for a range of unit root tests based on asymptotic local power. At the optimal levels, many time series in the extended Nelson-Plosser data set are judged to be trend-stationary, including real income variables, employment variables and money stock. We also find nearly all real exchange rates covered in the Elliott-Pesavento study to be stationary at the optimal levels, which lends strong support for the purchasing power parity. Additionally, most of the real interest rates covered in the Rapach-Weber study are found to be stationary.
    Keywords: Expected Loss; Optimal Level of Significance; Power of the Test; Response Surface
    JEL: C12 E30 F30
    Date: 2015–12–17
    Abstract: In models of liquidity, stock market booms tend to follow adverse liquidity shocks. This result is clearly at odds with the data. We demonstrate that allowing for endogenous productivity corrects this puzzling price dynamics. Negative growth prospects decrease equity prices because of a long-run predictable component in dividend growth.
    Keywords: liquidity, asset prices, endogenous growth, long-run risk
    Date: 2015–12–01
  52. By: Estrada, Gemma Esther (Asian Development Bank); Park, Donghyun (Asian Development Bank); Ramayandi, Arief (Asian Development Bank)
    Abstract: A sound and efficient financial system is an indispensable ingredient of economic growth. It consists primarily of banks and capital markets, which channel savings into investments and other productive activities that contribute to economic growth and augment the economy’s productive capacity. This paper explains the importance of financial development and openness. It sifts through the literature on the relationship between both variables and economic growth. It then reports the results and discusses some original empirical analysis. In addition to using more updated data, which extend the sample period to include some postcrisis years, the analysis examines whether country characteristics and factors such as the exchange rate regime affect the finance–growth nexus.
    Keywords: economic growth; exchange rate regime; financial development; financial openness
    JEL: C33 E44 F31 G20
    Date: 2015–08–12
  53. By: Jose Luis Nicolini Llosa
    Abstract: En un balance mundial consolidado, los rentistas son los únicos atesoradores intertemporales de activos financieros netos. Los bancos internacionales reciclan el flujo de ingresos de los rentistas como crédito hacia el resto del mundo. En esta dinámica circular, la riqueza financiera neta mundial en relación al PBI crece en función del cociente entre la participación de la renta en el ingreso mundial y la tasa de crecimiento del PBI. Definimos a este como el cociente de financiarización neta mundial y lo computamos para 2001-2012. El crecimiento de la riqueza financiera representa mayor endeudamiento mundial neto, lo que contribuye a aumentar el riesgo de insolvencia sistémica recesiva como en 2007. De allí en mas, la política monetaria quedó condicionada a sostener los precios de los activos financieros para evitar una nueva crisis.
    Keywords: Renta financiera internacional, Solvencia sistémica, Crisis internacional, Economía Internacional.
    JEL: E25 F3 G01 G15
    Date: 2015–09–01
  54. By: Mariotto, Carlotta (MINES ParisTech, PSL - Research University); Verdier, Marianne (Université Paris 2 Panthéon Assas, CRED (TEPP) and MINES ParisTech, PSL - Research University)
    Abstract: Over the recent years, the development of Internet banking and mobile banking has had a considerable impact on competition in the retail banking industry. In some countries, the regulatory framework has been adapted to allow non-banks to operate in retail payments and compete with banks for deposits. Several platforms or large retailers have started to offer innovative financial products to their customers. In this paper, we survey the issues related to innovation and competition in Internet banking and mobile banking and discuss some perspectives for future research.
    Keywords: bank competition; bank regulation; non-banks; payment systems; Internet banking; mobile banking; platform markets
    JEL: E42 G21 L96
    Date: 2015–11–25
  55. By: Bose, Udichibarna; MacDonald, Ronald; Tsoukas, Serafeim
    Abstract: This paper analyses the impact of policy initiatives co-ordinated by Asian national governments on firms' composition of external finance. Using a unique firm-level database of eight Asian countries - Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand over the period of 1996-2012 and a difference-in-differences approach, the results show a significant impact of policy initiatives on firms' choice to external finance. We find that firms increased their uptake of long-term debt, while decreased their short-term debt. We also document that less risky and more profitable firms are more significantly affected by the policy change than riskier and less profitable firms. Finally, we show that the improved access to external finance after the policy initiative helped firms to raise their investment spending.
    Keywords: External finance; Emerging Asia; Bond market policy initiatives; Financial constraints
    Date: 2015
  56. By: P. Manasse
    Abstract: This paper looks at the recent debt crisis in Greece and argues that the crisis exemplifies a sequence of systematic mistakes made by International Financial Institutions, mistakes whose consequences had been clearly anticipated at the time of the first bail-out and could have been avoided. I will argue that the “original sin” of international creditors has been that of refinancing, rather than partially writing off, the debt. This mistake has led to excessively restrictive policies, and has ultimately to interventions of bail-out/in much larger than those which would have solved the problem at the outset, causing unnecessary pain to the economy and damaging both creditors’ and debtors’ interests.
    JEL: F33 F34 E65
    Date: 2015–12
  57. By: Francisco Jose Veiga; Linda Goncalves Veiga; Atsuyoshi Morozumi
    Abstract: This paper examines the effects of elections on the conduct of central governments’ fiscal policies. To do so, it uses a unique panel database that includes disaggregated spending and revenue series at the central government level for multiple countries over the 1975-2010 period. After examining political environments under which incumbent governments generate political budget cycles (PBCs), we compare the relative importance of factors influencing cycles. Media freedom is identified as the factor that plays the most critical role. Specifically, we find robust evidence that the electoral effect on budget deficits under low media freedom is significantly larger than under high freedom, even when other determinants of PBCs are controlled for. We then show that what drives the election-year rise in budget deficits under low media freedom is an increase in the current, not capital, component of public expenditure.
    Keywords: Political budget cycles; Central government; Voter information; Media Freedom; Fiscal policy composition
    Date: 2015
  58. By: Reis, Ricardo
    Abstract: Portugal’s adjustment program in 2010-14 under the troika was extensive and aimed at addressing its large debt and anemic growth, so it may serve as a blueprint for reforms in the Eurozone. This paper argues that, conditional on a diagnosis of the underlying problems of the Portuguese economy, the adjustment program failed to deliver in definitely addressing the problems in public finances, but succeeded in leaving promising signs of reform in the structure of the economy. In particular, on the negative side, public debt is still high, primary surpluses improved modestly, and public spending barely fell as the problem of ever-rising pension payments remained unsolved. On the positive side, unemployment fell sharply, exports and the current account balance rose, capital and labor reallocated to more productive and tradable sectors, and the country is growing faster than the EU for the first time in 15 years.
    Keywords: fiscal austerity; fiscal consolidation; structural reforms
    JEL: E65 F44 H63 O52
    Date: 2015–12
  59. By: Kephart, Curtis; Friedman, Daniel; Baumer, Matt
    Abstract: A complete set of transactions, more than 40 million within a 1.8 year span, allows us to track the evolution of the trader network and the goods network in an on-line trading community. The computer platform was designed to make barter exchange as attractive as possible; money was not part of the design and all players were created equal. Yet, within weeks, several specific goods began to emerge as media of exchange, and not long after that various sorts of specialized traders began to appear. We track their progress using network-theoretic metrics such as node strength, assortativity, betweenness and closeness. By the end of our sample, virtually all trade was money-mediated and market makers played a major role.
    Keywords: Multiple Money as Medium of Exchange,Market Makers,Virtual Economy,Market Efficiency,Network Analysis
    JEL: B41 C45 D49 E42
    Date: 2015
  60. By: Wouter den Haan (London School of Economics (LSE); Centre for Macroeconomics (CFM); Centre for Economic Policy Research (CEPR)); Michal Kobielarz (Tilburg University); Pontus Rendahl (Cambridge University; Centre for Macroeconomics (CFM))
    Abstract: This paper proposes an algorithm that finds model solutions at a particular point in the state space by solving a simple system of equations. The key step is to characterize future behavior with a Taylor series expansion of the current period's behavior around the contemporaneous values for the state variables. Since current decisions are solved from the original model equations, the solution incorporates nonlinearities and uncertainty. The algorithm is used to solve the model considered in Coeurdacier, Rey, and Winant (2011), which is a challenging model because it has no steady state and uncertainty is necessary to keep the model well behaved. We show that our algorithm can generate accurate solutions even when the model series are quite volatile. The solutions generated by the risky-steady-state algorithm proposed in Coeurdacier, Rey, and Winant (2011), in contrast, is shown to be not accurate.
    Keywords: Risky Steady State, Solution Methods
    JEL: C63 E10 E23 F41
    Date: 2015–12
  61. By: Döhrn, Roland
    Abstract: Obwohl immer wieder von der Gefahr einer Deflationsspirale die Rede ist, zeigt eine RWI-Analyse keine solchen Tendenzen. Die niedrige Inflationsrate wird vor allem durch sinkende Nahrungsmittel- und Rohstoffpreise am Weltmarkt sowie das Bemühen der Krisenländer um die Wiederherstellung ihrer preislichen Wettbewerbsfähigkeit verursacht.
    Date: 2014
  62. By: Bogomyagkova, Olga
    Abstract: The article deals with a type of financial instrument - the mechanism of functioning of regional finance. The analysis of the financial condition of the Omsk region. The forecast financial dynamics of the region for the next year.
    Keywords: the mechanism of regional finances, the financial condition of the subject of the Russian Federation, regional finance, budgetary factors.
    JEL: E63
    Date: 2015–12–01
  63. By: Antoine Cazals (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Centre National de la Recherche Scientifique - Université d'Auvergne - Clermont-Ferrand I); Pierre Mandon (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Centre National de la Recherche Scientifique - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: Despite a long history of research on political budget cycles, their existence and magnitude are still in question. By conducting a systematic analysis of the existing literature we intend to clarify the debate. Based on data collected from over 1,700 regressions and 58 studies, our meta-analysis suggests that leaders do manipulate fiscal tools in order to be re-elected but to an extent that is significantly exaggerated by scholars. However, we show the incumbents' strategy differ depending on which tools they leverage. Finally, we discuss in further details how authors' methodological choices and country institutions affect political budget cycles.
    Keywords: Political cycles , Budget manipulation , Meta-analysis
    Date: 2015–12–07

This nep-mac issue is ©2015 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.