nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒01‒03
103 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Has Austerity Worked in Spain? By David Rosnick; Mark Weisbrot
  2. Central bank accountability under adaptive learning. By Marine Charlotte André; Meixing Dai
  3. International Spillovers of ECB’s Unconventional Monetary Policy: The Effect on Central and Eastern Europe By Klara Halova; Roman Horvath
  4. Have Inflation Targeting and EU labour Immigration Changed the System of Wage Formation in Norway By Gjelsvik, Marit Linnea; Nymoen, Ragnar; Sparrman, Victoria
  5. Short- and Long-Run Tradeoff Monetary Easing By Koki Oikawa; Kozo Ueda
  6. How can it work? On the impact of quantitative easing in the Eurozone By Francesco Saraceno; Roberto Tamborini
  7. Transmission Channels and Welfare Implications of Unconventional Monetary Easing Policy in Japan By Hiroshi Ugai
  8. Lessons from the crisis.Did central banks do their homework? By Aleksandra Hałka
  9. Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility By Konstantinos Theodoridis; Haroon Mumtaz
  10. Seasonality in the Frequency of Price Change and Optimal Monetary Policy By Söderberg, Johan
  11. An Approach About Monetary Policy Risk Balance In Colombia: A Multivariate Analysis Based On Time Series By Fernando Uscátegui; Mike Woodcock; Carlos Méndez
  12. Keynes on the Marginal Efficiency of Capital and the Great Depression By Tsoulfidis, Lefteris
  13. The US$/€ exchange rate: Structural modeling and forecasting during the recent financial crises By Claudio, Morana
  14. The interaction between monetary and macroprudential policy: Should central banks "lean against the wind" to foster macrofinancial stability? By Krug, Sebastian
  15. Cross-border finance, trade imbalances and competitiveness in the euro area By Gabrisch, Hubert
  16. Floor systems and the Friedman rule: the fiscal arithmetic of open market operations By Keister, Todd; Martin, Antoine; McAndrews, James J.
  17. Cross-border banking and business cycles in asymmetric currency unions By Dräger, Lena; Proaño, Christian R.
  18. Macro Credit Policy and the Financial Accelerator By Carlstrom, Charles T.; Fuerst, Timothy S.
  19. Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism By Cloyne, James; Ferreira, Clodomiro; Surico, Paolo
  20. Even Keel and the Great Inflation By Humpage, Owen F.; Mukherjee, Sanchita
  21. The Impact of Financial Factors on the Output Gap and Estimates of Potential Output Growth By Felipe, Jesus; Sotocinal, Noli; Bayudan-Dacuycuy, Connie
  22. Managers and Productivity Differences By Guner, Nezih; Parkhomenko, Andrii; Ventura, Gustavo
  23. Managers and Productivity Differences By Guner, Nezih; Parkhomenko, Andrii; Ventura, Gustavo
  24. Shocking language: Understanding the macroeconomic effects of central bank communication By Hansen, Stephen; McMahon, Michael
  25. Long-Term Unemployment: Attached and Mismatched? By Wiczer, David
  26. Conservatism and Liquidity Traps By Taisuke Nakata; Sebastian Schmidt
  27. Autonomous demand and the Marglin-Bhaduri model: a critical note By Riccarco Pariboni
  28. Inter-sectoral Labor Immobility, Sectoral Co-movement, and News Shocks By Munechika Katayama; Kwang Hwan Kim
  29. Whose inflation is it anyway? The inflation spillovers between the euro area and small open economies By Aleksandra Hałka; Karol Szafranek
  30. International Business Cycle Synchronization Since the 1870s: Evidence from a Novel Network Approach By Antonakakis, Nikolaos; Gogas, Periklis; Papadimitriou, Theophilos; Sarantitis, Georgios
  31. Unconventional Monetary Policy Shocks in OECD Countries: How Important is the Extent of Policy Uncertainty? By Rangan Gupta; Charl Jooste
  32. Forward Guidance in the Yield Curve: Short Rates versus Bond Supply By Greenwood, Robin; Hanson, Samuel G; Vayanos, Dimitri
  33. Graphic explanation for welfare economic foundation of hoarding loss By Miura, Shinji
  34. Deleveraging, deflation and depreciation in the euro area By Kuvshinov, Dmitry; Müller, Gernot; Wolf, Martin
  35. Credit Frictions and Optimal Monetary Policy By Cúrdia, Vasco; Woodford, Michael
  36. New Job Matches and Their Stability Before and During the Crisis By Nagore García, Amparo; van Soest, Arthur
  37. Is Switzerland an interest rate island after all? Time series and non-linear switching regime evidence By Feld, Lars P.; Köhler, Ekkehard A.
  38. La economía de Colombia, entre la apertura y el extractivismo By Álvaro Zerda Sarmiento
  39. Macroprudential Policy in a DSGE Model: anchoring the countercyclical capital buffer By Leonardo Nogueira Ferreira; Márcio Issao Nakane
  40. MERCURE : A Macroprudential Stress Testing Model developed at the ACPR By B. Camara; F.-D. Castellani; H. Fraisse; L. Frey; C. Héam; L. Labonne; V. Martin
  41. Consumer Credit, Oil Prices, and the U.S. Economy By Arora, Vipin
  42. Spillovers of U.S. unconventional monetary policy to emerging markets: The role of capital flows By Anaya, Pablo; Hachula, Michael; Offermanns, Christian
  43. Models, Inattention and Expectation Updates By Giacomini, Raffaella; Skreta, Vasiliki; Turén, Javier
  44. Debt sustainability in Sub-Saharan Africa : unraveling country-specific risks By Battaile,William G.; Hernandez,Fernando Leonardo; Norambuena,Vivian
  45. Debt stabilization and macroeconomic volatility in monetary unions under heterogeneous sovereign risk perceptions By Proaño, Christian R.; Lojak, Benjamin
  46. Is macroprudential policy instrument blunt? By Katsurako Sonoda; Nao Sudo
  47. The U.S. Debt Restructuring of 1933: Consequences and Lessons By Sebastian Edwards; Francis A. Longstaff; Alvaro Garcia Marin
  48. Are Unemployment Rates in OECD Countries Stationary? Evidence from Univariate and Panel Unit Root Tests By Khraief, Naceur; Shahbaz, Muhammad; Heshmati, Almas; Azam, Muhammad
  49. Forecasting Inflation in Emerging Markets: An Evaluation of Alternative Models By Zeyyad Mandalinci
  50. Measuring the Instability of China’s Financial System: Indices Construction and an Early Warning System By Sun, Lixin; Huang, Yuqin
  51. The Role of International Reserves Holding in Buffering External Shocks By Jean-Pierre Allegret; Audrey Sallenave
  52. Changes in nominal rigidities in Poland – a regime switching DSGE perspective By Pawel Baranowski; Zbigniew Kuchta
  53. Time-Varying Correlations between Trade Balance and Stock Prices in the United States over the Period 1792 to 2013 By Nikolaos Antonakakis; Rangan Gupta; Aviral Kumar Twari
  54. From Organization to Activity in the US Collateralized Interbank Market By Oet, Mikhail V.; Ong, Stephen J.
  55. The Political Economy of Growth, Inequality, the Size and Composition of Government Spending By Klaus Schmidt-Hebbel; José Carlos Tello
  56. Transparency and Trust: The Case of the European Central Bank By Roman Horvath; Dominika Katuscakova
  57. Persistence Dependence in Empirical Relations: The Velocity of Money By Ashley, Richard; Verbrugge, Randal
  58. Public Debt Sustainability in Developing Asia: An Update By Ferrarini , Benno; Ramayandi, Arief
  59. Is there heterogeneity in the response of consumption to income shocks? By Ludwig, Johannes
  60. Unified money circulation equation and an analogical explanation for its solvability By Miura, Shinji
  61. An initial 'Keynesian illness'? Friedman on taxation and the inflationary gap By Levrero, Enrico Sergio
  62. Individual and Aggregate Constrained Efficient Intertemporal Wedges in Dynamic Mirrleesian Economies By Chen, Yunmin; Chien, YiLi; Yang, C.C.
  63. The decentralised central bank: regional bank rate autonomy in Norway, 1850-1892 By Jan Tore Klovland; Lars Fredrik Øksendal
  64. Limit cycles under a negative effect of pollution on consumption demand: the role of an environmental Kuznets curve By Stefano Bosi; David Desmarchelier
  65. Karl Brunner, Scholar: An Appreciation By Allan H. Meltzer
  66. Why Do Countries Have Fiscal Rules? By Klaus Schmidt-Hebbel; Raimundo Soto; Ibrahim A. Elbadawi
  67. Dépenses publiques et croissance économique en Algérie: approche par un modèle de contrôle optimal By KACI, Said; ACHOUCHE, Mohamed
  68. The Competitive Saving Motive: Concept, Evidence, and Implications By Wei , Shang-Jin; Zhang, Xiaobo
  69. The productivity gap among European countries. By Giorgio Calcagnini; Germana Giombini; Giuseppe Travaglini
  70. International Transmission of Bubble Crashes in a Two-Country Overlapping Generations By Lise Clain-Chamosset-Yvrard; Takashi Kamihigashi
  71. Slowdown in Emerging Markets: Rough Patch or Prolonged Weakness? By Tatiana Didier; M. Ayhan Kose; Franziska Ohnsorge; Lei Sandy Ye
  72. Regional Inflation and Consumption Behaviors By Nagayasu, Jun
  73. The macroeconomics of radical uncertainty By Roos, Michael W. M.
  74. Nowcasting in Real Time Using Popularity Priors By Monokroussos, George
  75. Nowcasting Indonesia By Luciani, Matteo; Pundit, Madhavi; Ramayandi, Arief; Veronese , Giovanni
  76. Analysis of Financial Crisis Results on Dry Bulk Market & Financing By Sambracos, Evangelos; Maniati, Marina
  77. A Hat Trick for the FOMC By Bullard, James B.
  78. Digitization and Productivity: Measuring Cycles of Technological Progress By Shushanik Papanyan
  79. La inflación bajo una perspectiva monetaria: Un vistazo al período de la postguerra By Javier G. Gómez-Pineda
  80. Declining Trends in the Real Interest Rate and Inflation: Role of aging By FUJITA Shigeru; FUJIWARA Ippei
  81. Extractive Institutional Structure and Economic Development: Evidence from Nigeria By Khan, Karim
  82. Models and Games with Adaptation and Mitigation By Yuri Yatsenko
  83. Myanmar Human Capital Development, Employment, and Labor Markets By Tanaka, Sakiko; Spohr, Christopher; D’Amico, Sandra
  84. Macroprudential policy and forecasting using Hybrid DSGE models with financial frictions and State space Markov-Switching TVP-VARs By Stelios D. Bekiros; Alessia Paccagnini
  85. Can Central Banks Successfully Lean against Global Headwinds? By Malte Rieth
  86. Construction and Analysis of a Basic Macro-economic and Earthquake Disaster Model with a Supply Chain Framework and Constraints in Finance Lending Capacity By SATO Motohiro; OGURO Kazumasa
  87. The Changing Nature of Irish Wage Inequality from Boom to Bust By Holton, Niamh; O'Neill, Donal
  88. On the use of market-based probabilities for policy decisions By Armenter, Roc
  89. Autonomous demand and economic growth:some empirical evidence By Daniele Girardi; Riccarco Pariboni
  90. (Un-)Sustinability of public finances in German Laender: A panel time series approach By Burret, Heiko T.; Feld, Lars P.; Köhler, Ekkehard A.
  91. Forecasting Oil and Stock Returns with a Qual VAR using over 150 Years of Data By Rangan Gupta; Mark E. Wohar
  92. China’s Debt: Structure, Determinants and Sustainability By Sun, Lixin
  93. Stability of Distribution of Relative Sizes of Banks as an Argument for the Use of the Representative Agent Concept By Dmitry I. Malakhov; Nikolay P. Pilnik; Igor G. Pospelov
  94. Does Economic Policy Uncertainty Predict Exchange Rate Returns and Volatility? Evidence from a Nonparametric Causality-in-Quantiles Test By Mehmet Balcilar; Rangan Gupta; Clement Kyei; Mark Wohar
  95. The Quantity Theory of Money Revisited: The Improved Short-Term Predictive Power of Household Money Holdings with Regard to Prices By Jean-Charles BRICONGNE
  96. Exact Present Solution with Consistent Future Approximation: A Gridless Algorithm to Solve Stochastic Dynamic Models By Den Haan, Wouter; Kobielarz, Michal L.; Rendahl, Pontus
  97. On the Information Flow from Credit Derivatives to the Macroeconomy By Paul Mizen; Veronica Veleanu
  98. European Fiscal Policy During the Crisis: An Irish Perspective By McQuinn, Kieran
  99. Impacto regional da política monetária no Brasil: uma abordagem Bayesiana By Fábio Martins Serrano; Márcio Issao Nakane
  100. The Effect of Public Health Expenditure on Infant Mortality: Evidence from a Panel of Indian States, 1983-84 to 2011-12 By Barenberg, Andrew J.; Basu, Deepankar; Soylu, Ceren
  101. The International Monetary Fund: 70 Years of Reinvention By Reinhart, Carmen M.; Trebesch, Christoph
  102. Liquidity provision: lessons from a natural experiment By Vicente Bermejo; José M. Abad
  103. Challenges of the Japanese Economy: From the viewpoint of international macroeconomics (Japanese) By ITO Takatoshi; SHIMIZU Junko

  1. By: David Rosnick; Mark Weisbrot
    Abstract: This paper examines Spain’s recent economic history, both before and after its recession, with a focus on employment, contributions to GDP growth, and the current account balance. The paper notes that Spain has pursued a set of economic policies since 2011 based on internal currency devaluation, labor market reform, fiscal consolidation, and structural and deregulatory reforms aimed at boosting growth through increased efficiency. It concludes that the economic recovery that began in the second half of 2013 is not the result of austerity policies, and is unlikely to rescue Spain from mass unemployment in the foreseeable future.
    Keywords: austerity, Spain, unemployment, euro, European Central Bank, International Monetary Fund, current account balance, labor force participation, construction, eurozone, recession
    JEL: E E2 E24 E5 E58 F N N9 N94
    Date: 2015–12
  2. By: Marine Charlotte André; Meixing Dai
    Abstract: Using a New Keynesian model, we examine the accountability issue in a delegation framework where private agents form expectations through adaptive learning while the central bank is rational and optimally sets monetary policy under discretion. Learning gives rise to an incentive for the central bank to accommodate less the effect of inflation expectations and cost-push shocks on inflation and induces thus a deviation of endogenous variables from rational expectations equilibrium. To help the central bank to better manage the intratemporal tradeoff, the government should nominate a liberal central banker, i.e., set a negative optimal inflation penalty according to the value of learning coefficient. By reducing the deviation of the feedback effects of inflation expectations and cost-push shocks on inflation and the output gap from the corresponding ones under rational expectations, the optimal inflation penalty allows the economy to be more efficient and improves the social welfare. The main conclusions are valid under both constant- and decreasing-gain learning.
    Keywords: Adaptive learning, optimal monetary policy, accountability, inflation penalty, rational expectations.
    JEL: E42 E52 E58
    Date: 2015
  3. By: Klara Halova; Roman Horvath
    Abstract: We examine how unconventional monetary policy of the European Central Bank influences macroeconomic stability in Central and Eastern European economies. We estimate various panel vector autoregressions using monthly data from 2008-2014. Using the shadow policy rate and central bank assets as measures of unconventional policies, we find that output and prices in Central and Eastern Europe temporarily increase following an expansionary unconventional monetary policy shock by the European Central Bank. Using both impulse responses and variance decompositions, we find that the effect of unconventional policies on output is much stronger than the effect on inflation. In addition, our results provide evidence that unconventional policy tends to reduce market uncertainty and domestic interest rates but that the effect on the real exchange rate is not significant.
    Keywords: Unconventional Monetary Policy, ECB, Central and Eastern Europe, Panel Vector Autoregression
    JEL: E52 E58
    Date: 2015–10
  4. By: Gjelsvik, Marit Linnea (Statistics Norway); Nymoen, Ragnar (Dept. of Economics, University of Oslo); Sparrman, Victoria (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: Inflation modelling; pattern wage bargaining; inflation targeting; dynamic econometrics; cointegration; small open economy
    JEL: C52 E24 E31 E37 J31
    Date: 2015–10–08
  5. By: Koki Oikawa (Waseda University); Kozo Ueda (School of Political Science and Economics, Waseda University and Centre for Applied Macroeconomic Analysis (CAMA))
    Abstract: In this study, we illustrate a tradeoff between the short-run positive and long-run negative effects of monetary easing by using a dynamic stochastic general equilibrium model embedding endogenous growth with creative destruction and sticky prices due to menu costs. While a monetary easing shock increases the level of consumption because of price stickiness, it lowers the frequency of creative destruction (i.e., product substitution) because inflation reduces the reward for innovation via menu cost payments. The model calibrated to the U.S. economy suggests that the adverse effect dominates in the long run.
    Keywords: Schumpeterian; new Keynesian; non-neutrality of money
    JEL: E31 E58 O33 O41
    Date: 2015–11
  6. By: Francesco Saraceno; Roberto Tamborini
    Abstract: How can the quantitative easing (QE) programme launched in March 2015 by the ECB be successful in the Eurozone (EZ)? What will be its impact on the member countries? And how will it relate to countries' fiscal policies? To address these questions, we use a simple extension of the three-equation New Keynesian model. We modify the benchmark model in two respects: 1) we (re)-introduce an LM money supply and demand equation to capture the fact that the ECB operates at the zero lower bound and hence cannot use a standard Taylor rule; and 2) we extend the model to a two-country framework. The model supports the ECB official view that the channel whereby QE is meant to operate is the reversal of deflationary expectations. It also highlights that instrumental to this goal is the elimination of persistent output gaps, both at the EZ and at the country level, and hence the reduction of country-specific interest-rate spreads − the "unofficial" objective of the programme. We show that QE, if large enough, can succeed for the EZ as a whole. The ECB nevertheless cannot also close individual countries' output gaps, unless specific and unrealistic conditions are met. In this case fiscal accommodation at the country level should also intervene. We show that QE can enhance the effectiveness of fiscal policy, and therefore conclude that the coordination of fiscal and monetary policies is of paramount importance
    Keywords: Monetary Policy, ECB, Deflation, Zero-Lower-Bound, Fiscal Policy
    JEL: E3 E4 E5
    Date: 2015
  7. By: Hiroshi Ugai (School of International and Public Policy, Hitotsubashi University)
    Abstract: This paper examines the effects of the Quantitative and Qualitative Monetary Easing Policy (QQE <2013-current>) of the Bank of Japan (BOJ) by transmission channels in comparison with those of the Comprehensive Monetary Easing Policy (CE) and the subsequent monetary easing policies (2010-2012), based on the event study using financial market data. As for the QQE under normal market conditions, depreciation of foreign exchange rate in the context of portfolio balance channel functions quite strongly, while as for the CE, signaling channel through the commitment and credit easing channel at the dysfunctional markets work. The direct inflation expectation channel is weak for both QQE and CE, although the QQE has adopted various ways to exert a direct and strong influence on inflation expectation. It can be conjectured that the gradual rise in inflation expectation comes mainly from other channels like the depreciation of the yen. The most crucial characteristic of the QQE is to maximize the potential effects of easing policy by explicitly doubling and later tripling the purchased amount of JGBs and then the monetary base proportionally. The amount of JGB purchases by the BOJ surpasses the issuance amount of JGBs, thereby reducing the outstanding amount of JGBs in the markets. Shortage of safety assets would increase the convenience yield, which itself would reduce the economic welfare and not permeate the yields of other risky assets theoretically. This paper then examines the impact of reduction in JGBs on yield spreads between corporate bonds and JGBs based on money-in-utility type model applied to JGBs, and finds that at least severe scarcity situations of JGBs as safe assets are avoided, since the size of Japan’s public debt outstanding is the largest in the world. Even so, the event study shows no clear evidence that the decline in the yield of long-maturity JGBs induced by the QQE permeates the yields of corporate bonds. Recently demands for JGBs have been increasing from both domestic and foreign investors as collaterals after the Global Financial Crisis and from financial institutions that have to correspond to strengthened global liquidity regulation, while the Government of Japan is planning to consolidate the public debts. These recent changes as well as market expectation for future path of JGB amounts should also be taken account of to examine the scarcity of safe assets in case of further massive purchases of JGBs.
    Keywords: Quantitative easing, Credit easing, Inflation expectation, Safety asset
    JEL: E43 E44 E52
    Date: 2015–07
  8. By: Aleksandra Hałka
    Abstract: The outbreak of the global financial crisis triggered changes in thinking about the way monetary policy is conducted, in particular about the desired central banks’ reaction function. However, a change in thinking does not necessarily mean that central banks really implemented these modifications. Therefore, I investigate whether four selected European central banks in small open economies – ˇCesk´a N´arodn´ı Banka, Magyar Nemzeti Bank, Narodowy Bank Polski and Sveriges Riksbank, have adjusted their reaction function to the new paradigm of how monetary policy should be conducted. To address this problem I use a logit model to see first, how the relative importance of inflation and GDP forecasts in the process of setting interest rates evolved over time, second, how the forecast horizon which central banks take into consideration when setting the interest rate has changed, and finally whether they conduct more accommodative monetary policy. The outcomes indicate that all banks after the Lehman Brother’s collapse became more flexible in the way they conduct monetary policy. In order to maintain the stability of the whole economy they are ready to accept an extended period or greater deviations of inflation from the target, although each one in its own way – through extension of the forecasting horizon, the increase of the GDP’s importance, permanent shift of the monetary policy stance to more accommodative one or a mixture of these factors.
    Keywords: product-level inflation, CEE economies, multi-level factor model.
    JEL: C25 E52 E58
    Date: 2015
  9. By: Konstantinos Theodoridis; Haroon Mumtaz
    Abstract: We use a simple New Keynesian model, with firm specific capital, non-zero steady-state inflation, long-run risks and Epstein-Zin preferences to study the volatility implications of a monetary policy shock. An unexpected increase in the policy rate by 150 basis points causes output and inflation volatility to rise around 10% above their steady-state standard deviations. VAR based empirical results support the model implications that contractionary shocks increase volatility. The volatility effects of the shock are driven by agents' concern about the (in) ability of the monetary authority to reverse deviations from the policy rule and the results are re-enforced by the presence of non-zero trend inflation.
    Keywords: DSGE, Non-Linear SVAR, New Keynesian, Non-Zero Steady State Inflation, Epstein-Zin preferences, Stochastic Volatility
    JEL: E30 E40 E52 C11 C13 C15 C50
    Date: 2015
  10. By: Söderberg, Johan (Dept. of Economics, Stockholm University)
    Abstract: The implications for optimal monetary policy of introducing seasonality in the frequency of price change in the baseline New Keynesian model are studied. In the resulting model, both the parameters of the Phillips curve and the weight on inflation stabilization in the welfare criterion vary seasonally. I show that for a plausible calibration, even a modest degree of seasonality in the frequency of price change gives rise to large seasonal differences in the equilibrium responses of the output gap and inflation to cost-push shocks. The effects on welfare, however, are small under both discretionary and commitment policy.
    Keywords: Price Setting; Staggering; Seasonality; Optimal Monetary Policy
    JEL: E31 E32
    Date: 2015–12–18
  11. By: Fernando Uscátegui; Mike Woodcock; Carlos Méndez
    Abstract: Monetary policy has been important as a tool at maintaining dynamic stability on inflation rate, an increasing growth rate and several changes in financial variables. The trend in those macroeconomic variables could be accounted for a straightforward or roundabout change in monetary policy tools. Hence, in this paper, we will present a historical trend about macroeconomic variables which change with monetary policy effects and we will use multivariate time series analysis which could give us empiric evidence to explain the impact of monetary policy in these variables. First, there will be a brief introduction about the importance of the subject will be made. Second, it will take place the description of the variables and a brief state of art for each variable analyzing the current literature in the subject. Third, it will be carried out all the subjects regarding the construction of two econometric models, VAR model and M-GARCH model, anyone not interested in this part is encourage to skip that section and continue reading the next section. Finally, it will be shown the final remarks and the conclusion of this paper.
    Keywords: Monetary policy, Risk balance, macroeconomic variables, VAR modeling, MGARCH modeling
    JEL: E43 E44 E47 E5 C39 C58
    Date: 2015–12–29
  12. By: Tsoulfidis, Lefteris
    Abstract: This paper argues that Keynes’s analysis of the marginal efficiency of capital is consistent with the principle of effective demand and is, in this sense, characteristically different from the related classical or neoclassical conceptualisations. Furthermore, the notion of the marginal efficiency of capital is used not only as an explanation of the short term fluctuations in the level of economic activity but also as an interpretation of more serious long term fluctuations such as that of the great depression. Finally, some of Keynes’s economic policy proposals are critically evaluated.
    Keywords: Marginal efficiency of capital, effective demand, great depression, interest rate, overinvestment
    JEL: B10 B12 B14 B51 E32 E4 E6 E65 N20
    Date: 2008
  13. By: Claudio, Morana
    Abstract: The paper investigates the determinants of the US$/€ exchange rate since its introduction in 1999, with a special focus on the recent subprime mortgage and sovereign debt financial crises. The econometric model is grounded on the asset pricing theory of exchange rate determination, which posits that current exchange rate fluctuations are determined by the entire path of current and future revisions in expectations about fundamentals. In this perspective, we innovate the literature by conditioning on Fama-French and Charart risk factors, which directly measures changing market expectations about the economic outlook, as well as on new financial condition indexes and a large set of macroeconomic variables. The macro-finance augmented econometric model has a remarkable in-sample and out of sample predictive ability, largely outperforming a standard autoregressive specification neglecting macro-financial information. We also document a stable relationship between the US$/€-Charart momentum conditional correlation (CCW) and the euro area business cycle, potentially exploitable also within a system of early warning indicators of macro-financial imbalances. Comparison with available measures of economic sentiments shows that CCW yields a more accurate assessment, signaling a progressive weakening in euro area economic conditions since June 2014, consistent with the sluggish and scattered recovery from the sovereign debt crisis and the new Greek solvency crisis exploded in late spring/early summer 2015.
    Keywords: US$/€ exchange rate, asset pricing theory of exchange rate determination, macroeconomic and financial determinants, risk factors, subprime mortgage financial crisis, sovereign debt crisis, early warning indicators of macroeconomic and financial stress
    JEL: E32 E44 G01 G15 C22
    Date: 2015–12–28
  14. By: Krug, Sebastian
    Abstract: The extensive harm caused by the financial crisis raises the question of whether policymakers could have done more to prevent the build-up of financial imbalances. This paper aims to contribute to the field of regulatory impact assessment by taking up the revived debate on whether central banks should "lean against the wind" or not. Currently, there is no consensus on whether monetary policy is, in general, able to support the resilience of the financial system or if this task should better be left to the macroprudential approach of financial regulation. We aim to shed light on this issue by analyzing distinct policy regimes within an agent-based computational macro-model with endogenous money. We find that policies make use of their comparative advantage leading to superior outcomes concerning their respective intended objectives. In particular, we show that "leaning against the wind" should only serve as first line of defense in the absence of a prudential regulatory regime and that price stability does not necessarily mean financial stability. Moreover, macroprudential regulation as unburdened policy instrument is able to dampen the build-up of financial imbalances by restricting credit to the unsustainable high-leveraged part of the real economy. In contrast, leaning against the wind seems to have no positive impact on financial stability which strengthens proponents of Tinbergen's principle arguing that both policies are designed for their specific purpose and that they should be used accordingly.
    Keywords: Financial Stability,Monetary Economics,Macroprudential Policy,Financial Regulation,Central Banking,Agent-Based Macroeconomics
    JEL: E44 E50 G01 G28 C63
    Date: 2015
  15. By: Gabrisch, Hubert
    Abstract: The nearly exclusive explanation for current account imbalances in the euro area blames real economy differences between countries, prominently the competitiveness of the participating states. This essay questions the common opinion that wage policy is crucial for rebalancing the European economies. This essay attempts to unfurl the real economy processes from the perspective of money and finance. This essay identifies an interregional asset-price-interest mechanism at work in the monetary union: A general change in the state of confidence provokes asset prices and the effective long-run interest rate to change and to affect aggregate demand and trade flows. A change in competitive positions of countries follows as the second-round effect. The policy implications prefer a downscaling of the financial sector against government interventions into wage formation.
    Keywords: Financial flows, liquidity-preference, trade imbalances, competitiveness, euro area
    JEL: E1 E4 F1 F3 G1
    Date: 2015–12–15
  16. By: Keister, Todd (Rutgers University and Paris School of Economics); Martin, Antoine (Federal Reserve Bank of New York); McAndrews, James J. (Federal Reserve Bank of New York)
    Abstract: In a floor system of monetary policy implementation, the central bank remunerates bank reserves at or near the market rate of interest. Some observers have expressed concern that operating such a system will have adverse fiscal consequences for the public sector and may even require the government to subsidize the central bank. We show that this is not the case. Using the monetary general equilibrium model of Berentsen et al. (2014), we show how a central bank that supplies reserves through open market operations can always generate non-negative net income, even when using a floor system to implement the Friedman rule.
    Keywords: monetary policy implementation; central bank operations; interest on reserves
    JEL: E42 E52 E58
    Date: 2015–12–01
  17. By: Dräger, Lena; Proaño, Christian R.
    Abstract: Against the background of the emergence of macroeconomic imbalances within the European Monetary Union (EMU), we investigate in this paper the macroeconomic consequences of cross-border banking in monetary unions such as the euro area. For this purpose, we incorporate in an otherwise standard two-region monetary union DSGE model a global banking sector along the lines of Gerali et al. (2010), accounting for borrowing constraints of entrepreneurs and an internal constraint on the bank's leverage ratio. We illustrate in particular how rule-of-thumb lending standards based on the macroeconomic performance of the dominating region within the monetary union can translate into destabilizing spill-over effects into the other region, resulting in an overall higher macroeconomic volatility. Thereby, we demonstrate a channel through which the financial sector may have exacerbated the emergence of macroeconomic imbalances within the EMU. This effect may be partly mitigated if the central bank reacts to loan rate spreads, at least relative to the case with constant lending standards.
    Keywords: cross-border banking,euro area,monetary unions,DSGE,monetary policy
    JEL: F41 F34 E52
    Date: 2015
  18. By: Carlstrom, Charles T. (Federal Reserve Bank of Cleveland); Fuerst, Timothy S. (Federal Reserve Bank of Cleveland)
    Abstract: This paper studies macro credit policies within the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The focus is on borrower-based restrictions on lending such as loan-to-value (LTV) ratios. We find that the efficacy of cyclical taxes on LTV ratios depends upon the nature of the underlying loan contract. If the loan contract contains equity-like features such as indexation to aggregate conditions, then there is little role for cyclical taxation. But if the loan contract is not indexed to aggregate conditions, then there are substantial gains to procyclical taxes on LTV ratios.
    Keywords: credit policy; loan-to-value ratios; borrower-based lending restrictions
    JEL: C68 E44 E61
    Date: 2015–12–21
  19. By: Cloyne, James; Ferreira, Clodomiro; Surico, Paolo
    Abstract: In response to an interest rate change, mortgagors in the U.K. and U.S. adjust their spending significantly (especially on durable goods) but outright home-owners do not. While the dollar change in mortgage payments is nearly three times larger in the U.K. than in the U.S., these magnitudes are much smaller than the overall change in expenditure. In contrast, the income change is sizable and similar across both household groups and countries. Consistent with the predictions of a simple heterogeneous agents model with credit- constrained households and multi-period fixed-rate debt contracts, our evidence suggests that the general equilibrium effect of monetary policy on income isquantitatively more important than the direct effect on cashflows.
    JEL: E21 E32 E52
    Date: 2015–12
  20. By: Humpage, Owen F. (Federal Reserve Bank of Cleveland); Mukherjee, Sanchita (University of California at Santa Cruz (UCSC))
    Abstract: Using IV-GMM techniques and real-time data, we estimate a forward looking, Taylor-type reaction function incorporating dummy variables for even-keel operations and a variable for foreign official pressures on the U.S. gold stock during the Great Inflation. We show that when the Federal Reserve undertook even-keel operations to assist U.S. Treasury security sales, the FOMC tended to delay monetary-policy adjustments and to inject small amounts of reserves into the banking system. The operations, however, did not contribute significantly to the Great Inflation, because they occurred during periods of both monetary ease and monetary tightness, at least in the FOMC’s view. Consequently, the average federal funds rate during months containing even-keel events was no different than the average federal funds rate in other months, suggesting that even keel had no effect on the thrust of monetary policy. We also show that prospective gold losses had no effect on the FOMC’s monetary-policy decisions in the 1960s and early 1970s.
    Keywords: Even Keel; Taylor Rule; Federal Reserve; U.S. Treasury
    JEL: E5 F3 N1
    Date: 2015–12–21
  21. By: Felipe, Jesus (Asian Development Bank); Sotocinal, Noli (Asian Development Bank); Bayudan-Dacuycuy, Connie (Ateneo de Manila University)
    Abstract: The literature on the finance–growth nexus highlights the importance of the financial cycle for the estimation of potential output of an economy. We estimate potential output growth for the G-5 countries, as well as for 10 high- and middle-income Asian economies, using a multivariate model that includes financial factors. We find that the latter have a positive and statistically significant effect on the output gap of the G-5 and high-income Asian economies, but not on that of the middle-income Asian economies. We also find that average potential growth of the economies included in the study is lower in 2008–2014 than in 2000–2007.
    Keywords: economic growth; financial factors; output gaps; potential output growth
    JEL: E32 G00 O11 O16 O47
    Date: 2015–10–07
  22. By: Guner, Nezih; Parkhomenko, Andrii; Ventura, Gustavo
    Abstract: We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our findings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% – more than half of the observed gap between the U.S. and Italy. We find that crosscountry variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S.
    Keywords: distortions; management practices; managers; productivity differences; size; skill investments
    JEL: E23 E24 J24 M11 O43 O47
    Date: 2015–12
  23. By: Guner, Nezih (MOVE, Barcelona); Parkhomenko, Andrii (Universitat Autònoma de Barcelona); Ventura, Gustavo (Arizona State University)
    Abstract: We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our findings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% – more than half of the observed gap between the U.S. and Italy. We find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S.
    Keywords: managers, management practices, distortions, size, skill investments, productivity differences
    JEL: E23 E24 J24 M11 O43 O47
    Date: 2015–12
  24. By: Hansen, Stephen; McMahon, Michael
    Abstract: We explore how the multi-dimensional aspects of information released by the FOMC has effects on both market and real economic variables. Using tools from computational linguistics, we measure the information released by the FOMC on the state of economic conditions, as well as the guidance the FOMC provides about future monetary policy decisions. Employing these measures within a FAVAR framework, we find that shocks to forward guidance are more important than the FOMC communication of current economic conditions in terms of their effects on market and real variables. Nonetheless, neither communication has particularly strong effects on real economic variables.
    Keywords: communication; monetary policy; Vector Autoregression
    JEL: E52 E58
    Date: 2015–12
  25. By: Wiczer, David (Federal Reserve Bank of St. Louis)
    Abstract: In this paper, I quantify the contribution of occupation-specific shocks and skills to unemployment duration and its cyclical dynamics. I quantify specific skills using microdata on wages, estimating occupational switching cost as a function of the occupations' difference in skills. The productivity shocks are consistent with job finding rates by occupation. For the period 1995-2013, the model captures 69.5% of long-term unemployment in the data, while a uniform finding rate delivers only 47.2%. In the Great Recession, the model predicts 72.9% of the long-term unemployment that existed in the data whereas a uniform finding rate would predict 57.8%.
    Keywords: Occupational Choice; Human Capital; Unemployment Duration
    JEL: E24 E32 J24 J64
    Date: 2015–12–02
  26. By: Taisuke Nakata (Federal Reserve Board); Sebastian Schmidt (European Central Bank)
    Abstract: In an economy with an occasionally binding zero lower bound (ZLB) constraint, the anticipation of future ZLB episodes creates a trade-off for discretionary central banks between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. Appointing Rogoff’s (1985) conservative central banker mitigates this deflationary bias away from the ZLB and enhances welfare by improving allocations both at and away from the ZLB.
    Keywords: Deflationary Bias, Inflation Conservatism, Inflation Targeting, Liquidity Traps, Zero Lower Bound
    JEL: E52 E61
    Date: 2014–10
  27. By: Riccarco Pariboni
    Abstract: Within Post-Keynesian macroeconomic theory, the contribution by Marglin and Bhaduri (Marglin and Bhaduri, 1990; Bhaduri and Marglin, 1990) on the relationship between income distribution and growth has progressively asserted itself as a benchmark model, a reference point that has originated and still gives rise to plenty of theoretical and empirical works. Given this popularity, in the related literature it is often claimed that the only open question left is an empirical one - to assess econometrically whether a particular economy is wage or profit-led. In this essay, I will argue that some theoretical issues, related to this model and to the literature inspired by it, can nonetheless be raised. In particular, the treatment of investment appears to be the least convincing aspect of the approach a là Marglin-Bhaduri. More specifically, it seems possible to raise some doubts about an independent long-run influence of the profit rate or of the profit share on investment, influence that is not in general justified or explained in detail by this literature and that to some extent is simply taken for granted. It will be shown that, if the Marglin-Bhaduri model is integrated with an explicit consideration of the autonomous components of demand, income distribution does not exert any permanent influence on the rate of growth of the economy and on the rate of accumulation. Matching this result with the usual assumption, made in Post-Keynesian models of growth and distribution, that capacity utilization is the adjusting variable in equilibrating investment and savings leads to paradoxical results that question the plausibility of an accumulation function like the one used in the Marglin-Bhaduri model.
    Keywords: Income distribution, Investment function, Growth, Marglin-Bhaduri
    JEL: B51 E11 E12 O41
    Date: 2015–08
  28. By: Munechika Katayama; Kwang Hwan Kim
    Abstract: The sectoral co-movement of output and hours worked is a prominent feature of business cycle data. However, most two-sector neoclassical models fail to generate this sectoral comovement. We construct and estimate a two-sector neoclassical DSGE model that generates the sectoral co-movement in response to both anticipated and unanticipated shocks. The key to our modelfs success is a significant degree of inter-sectoral labor immobility, which we estimate using data on sectoral hours worked. Furthermore, we demonstrate that imperfect inter-sectoral labor mobility provides a better explanation for the sectoral co-movement than some alternative model emphasizing the role of labor-supply wealth e?ects.
    Keywords: Sectoral Co-movement; Labor Immobility; Non-separable Preferences; Unanticipated; Shocks; News Shocks.
    JEL: E32 E13
    Date: 2015–12
  29. By: Aleksandra Hałka; Karol Szafranek
    Abstract: For the last two years inflation has been systematically falling across countries in the European Union and lately it exhibits rising deflationary pressures. Recent studies suggest that apart from global determinants influencing broad inflation measures, e.g. plummeting commodity prices, core inflation components are subjected to the rising influence of globalization. Our analysis focuses on two aspects: the extent of the HICP components infected with deflation and the spillovers of headline, core, non-energy goods as well as services inflation between the euro area and distinguished small open economies. In order to answer the question of inflation broadness we calculate the percentages of HICP components which dynamics fall into certain thresholds and introduce a simple measure - the Discrepancy Index showing the relative strength of deflationary and inflationary groups. To address the problem of quantifying the inflation spillovers across distinguished economies we use the Diebold and Yilmaz (2012) spillover indices. Results indicate that the share of deflationary groups for most countries has been consistently rising since 2010 with the Discrepancy Index approximating its all-time lows in the fourth quarter of 2014. Simultaneously we show that the spillover index for non-energy industrial goods and services inflation has lately risen considerably with the measure for headline inflation remaining elevated and for core inflation dropping. The euro area remains a net inflation transmitter in most cases.
    Keywords: inflation, spillovers, VAR, disaggregation, small open economy, euro area.
    JEL: C32 C53 E31 E37
    Date: 2015
  30. By: Antonakakis, Nikolaos (Vienna University of Economics and Business); Gogas, Periklis (Democritus University of Thrace, Department of Economics); Papadimitriou, Theophilos (Democritus University of Thrace, Department of Economics); Sarantitis, Georgios (Democritus University of Thrace, Department of Economics)
    Abstract: In this study, we examine the issue of business cycle synchronization from a historical perspective in 27 developed and developing countries. Based on a novel complex network approach, the Threshold-Minimum Dominating Set (T-MDS), our results reveal heterogeneous patterns of international business cycle synchronization during fundamental globalization periods since the 1870s. In particular, the proposed methodology reveals that worldwide business cycles de-coupled during the Gold Standard, though they were synchronized during the Great Depression. The Bretton Woods era was associated with a lower degree of synchronization as compared to that during the Great Depression, while worldwide business cycle synchronization increased to unprecedented levels during the latest period of floating exchange rates and the Great Recession.
    Keywords: Business cycle synchronization; Globalisation; Complex networks
    JEL: E32 N10
    Date: 2015–12–14
  31. By: Rangan Gupta (Department of Economics, University of Pretoria); Charl Jooste (Department of Economics, University of Pretoria)
    Abstract: We study the effects of unconventional monetary policy shocks on output, inflation and uncertainty using a sign restricted panel VAR over the monthly period of 2008:1-2015:1. Our sample includes primarily OECD countries (Canada, Germany, France, Italy, Japan, Spain, UK and US) that reached the interest rate zero lower bound in response to the recent financial crisis. Central bank balance sheets are used to gauge the size of unconventional monetary policy reactions to the crisis. We control for the degree of uncertainty by estimating the economic response to balance sheet shocks in two economic states: high versus low uncertainty. We use sign restrictions to identify our shocks, but remain agnostic regarding price and output responses to balance sheet shocks. We show that the mean group response of prices and output increases in response to monetary policy. The results, however, vary by country and are sensitive to the degree of uncertainty. Prices and output do not necessarily increase uniformly across countries.
    Keywords: Unconventional monetary policy, Economic policy uncertainty, Macroeconomic effects, OECD countries
    JEL: C33 E58
    Date: 2015–11
  32. By: Greenwood, Robin; Hanson, Samuel G; Vayanos, Dimitri
    Abstract: We present a model of the yield curve in which the central bank can provide market participants with forward guidance on both future short rates and on future Quantitative Easing (QE) operations, which affect bond supply. Forward guidance on short rates works through the expectations hypothesis, while forward guidance on QE works through expected future bond risk premia. If a QE operation is expected to be undone in the near term, then its announcement will have a hump-shaped effect on the yield and forward-rate curves; otherwise the effect may be increasing with maturity. Humps associated to QE announcements typically occur at maturities longer than those associated to short-rate announcements, even when the effects of the former are expected to last over a shorter horizon. We use our model to re-examine the empirical evidence on QE announcements in the US.
    Keywords: central banks; forward guidance; limited arbitrage; quantitative easing; yield curve
    JEL: E43 E52 G12 H63
    Date: 2015–12
  33. By: Miura, Shinji
    Abstract: Saving brings an economic loss. The author intends to publish a paper, which gives a foundation of this paradox of thrift by connecting money circulation analysis and welfare economics in the case where saving is limited to hoarding. As an introduction of the intended paper, this paper provides a simple explanation for hoarding loss using some graphs. Under certain conditions, the representative agent hoards money in order to increase utility, but the hoarding actually decreases it against agent’s rational intention. This irrationality of rationality occurs because the agent maximizes their utility while lowering the budget of the entire relevant term. This conclusion is derived from the agent making the decision with an ignorance of the whole expenditure reflux. Since the interest of a selfish agent is limited to their private range, the agent ignores the objective truth.
    Keywords: Money Circulation; Welfare Economics; Under-Consumption; Paradox of Thrift; Intertemporal Choice
    JEL: D60 E21 E40
    Date: 2015–12–27
  34. By: Kuvshinov, Dmitry; Müller, Gernot; Wolf, Martin
    Abstract: During the post-crisis period, economic performance has been highly heterogenous across the euro area. While some economies rebounded quickly after the 2009 output collapse, others are undergoing a protracted further decline as part of an extensive deleveraging process. At the same time, inflation has been subdued throughout the whole of the euro area and intra-euro-area exchange rates have hardly moved. We interpret these facts through the lens of a two-country model of a currency union. We find that deleveraging in one country generates deflationary spillovers which cannot be contained by monetary policy, as it becomes constrained by the zero lower bound. As a result, the real exchange rate response becomes muted, and the output collapse---concentrated in the deleveraging economies.
    Keywords: currency union; deflationary spillovers; deleveraging; downward wage rigidity; paradox of flexibility; real exchange rate; zero lower bound
    JEL: E42 F41
    Date: 2015–12
  35. By: Cúrdia, Vasco; Woodford, Michael
    Abstract: We extend the basic (representative-household) New Keynesian [NK] model of the monetary transmission mechanism to allow for a spread between the interest rate available to savers and borrowers, that can vary for either exogenous or endogenous reasons. We find that the mere existence of a positive average spread makes little quantitative difference for the predicted effects of particular policies. Variation in spreads over time is of greater significance, with consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation. Nonetheless, we find that the target criterion—a linear relation that should be maintained between the inflation rate and changes in the output gap—that characterizes optimal policy in the basic NK model continues to provide a good approximation to optimal policy, even in the presence of variations in credit spreads. Such a flexible inflation target" can be implemented by a central-bank reaction function that is similar to a forward-looking Taylor rule, but adjusted for changes in current and expected future credit spreads
    Keywords: credit spreads; flexible inflation targeting; policy rules; quadratic loss function; target criterion
    JEL: E44 E52
    Date: 2015–12
  36. By: Nagore García, Amparo (LISER (CEPS/INSTEAD)); van Soest, Arthur (Tilburg University)
    Abstract: Using administrative records data from the Spanish Social Security Administration, we analyse the nature and stability of job matches starting in two different years: during the economic boom in 2005, and during the recession in 2009. We compare the individual and job and firm characteristics in the two samples and estimate Mixed Proportional Hazard Models distinguishing job-to-job, job-to-unemployment, and other transitions. We find that job-to-job transitions are pro-cyclical, while unemployment transitions are counter-cyclical. Individuals most affected by the economic crisis tend to be young males, living in regions with high unemployment rates, with low qualifications and working in manual occupations (particularly construction), and (especially Spanish speaking) immigrants. The positive relation between job stability and firm size is stronger during the recession.
    Keywords: job tenure, business cycle, employment transitions, destination states, job-separation rate
    JEL: J64 C41 E32
    Date: 2015–12
  37. By: Feld, Lars P.; Köhler, Ekkehard A.
    Abstract: Has the 'Swiss interest rate anomaly' persisted after the financial crisis? Regarding the hypothesis that the Swiss interest rate anomaly results from systemic risk anticipation, we discuss whether Switzerland remains an interest rate island in the wake of the financial crisis. We find evidence for the demise of the interest rate bonus of the Swiss franc (CHF) vis-à-vis the Euro (EUR) after the Swiss National Bank (SNB) started to advocate an exchange rate floor with the Euro. After the compression of the bonus to insignificant levels, the uncovered interest parity (UIRP) holds again. We find evidence for a recent regime switch after the SNB has discontinued the exchange rate floor with the Euro.
    Keywords: Uncovered Interest Rate Parity (UIRP),Swiss Interest Rate Anomaly,Error Correction,Heteroscedasticity,Markov Regime Switching
    JEL: E42 E43 F43 G15
    Date: 2015
  38. By: Álvaro Zerda Sarmiento
    Abstract: Este documento presenta un análisis del comportamiento de la economía colombiana durante la última década y media, pero enmarcado en una perspectiva de largo plazo desde los años 90, cuando la dirigencia colombiana decidió darle un giro al patrón de acumulación, desde un modelo centrado en el mercado interno a uno enfocado hacia la competitividad en los mercados internacionales, siguiendo los dictados de las entidades multilaterales de crédito y de la academia neoliberal norteamericana. En particular el texto se centra en examinar las tendencias de la economía en los años 2000, marcadas por el énfasis en la apertura hacia mercados externos mediante la exportación de bienes primarios, fundamentalmente minero – energéticos. También se pasa revista a la coyuntura económica del país, que apunta hacia una tercera crisis de largo período, esta vez marcada por la crisis mundial del extractivismo.
    Keywords: Economía colombiana, Crisis económica, Desarrollo económico, Política económica, Coyuntura económica, Modelos económicos, Extractivismo.
    JEL: E2 E6 F4 O1
    Date: 2015–12–22
  39. By: Leonardo Nogueira Ferreira; Márcio Issao Nakane
    Abstract: The 2007-8 world financial crisis highlighted the deficiency of the regulatory framework in place at the time. Thenceforth many papers have been assessing the introduction of macroprudential policy in a DSGE model. However, they do not focus on the choice of the variable to which the macroprudential instrument must respond - the anchor variable. In order to fulfil this gap, we input different macroprudential rules into the DSGE with a banking sector proposed by Gerali et al. (2010), and estimate its key parameters using Bayesian techniques applied to Brazilian data. We then rank the results using the unconditional expectation of lifetime utility as of time zero as the measure of welfare: the larger the welfare, the better the anchor variable. We find that credit growth is the variable that performs best.
    Keywords: Macroprudential Policy; Basel III; Capital Buffer; Anchor Variable
    JEL: E3 E5
    Date: 2015–12–02
  40. By: B. Camara; F.-D. Castellani; H. Fraisse; L. Frey; C. Héam; L. Labonne; V. Martin
    Abstract: The French Supervisory Authority got involved into macro stress testing exercises stress since the first Financial Stability Assessment Program (“FSAP”) led by the IMF in France in 2004. Along “bottom up” exercises led at the national or international level, the ACPR has developed a “top down” stress testing model. This model was primarily focused on credit risks. Over the years, its risk coverage has substantially been extended and this article provides an update. Some risks make explicitly part of a dedicated analysis –for example the risks related to banks’ retail activities. More attention is now given to contagion effects, sectorial shocks and concentration risks. Financial institutions other than banks are considered. More granular data allow for a more refined analysis.
    Keywords: Stress Testing, Systemic Risk, Macroprudential Policy.
    JEL: G21 G28
    Date: 2015
  41. By: Arora, Vipin
    Abstract: Have you paid cash to fill up your gas tank lately? Probably not—and I argue this is one reason why the U.S. economy appears to have become less sensitive to changes in the price of oil. When gas prices rise drivers have increasingly been able to borrow—and firms able to offer incentives—making immediate reductions in the purchases of groceries, electronics, cars, and other goods smaller than in the past. This alters the relationship between oil prices and U.S. economic activity, but does not eliminate it—the money must be paid back after all.
    Keywords: oil price, economic activity, credit, consumption
    JEL: C00 E20 E51 E60 Q43
    Date: 2015–12
  42. By: Anaya, Pablo; Hachula, Michael; Offermanns, Christian
    Abstract: A growing literature stresses the importance of the 'global financial cycle', a common global movement in asset prices and credit conditions, for emerging market economies (EMEs). It is argued that one of the key drivers of this global cycle is monetary policy in the U.S., which is transmitted through international capital flows. In this paper, we add to this discussion and investigate empirically whether U.S. unconventional monetary policy (UMP) between 2008 and 2014 is related to financial conditions in EMEs, and, whether it is transmitted through portfolio flows. We find that a U.S. UMP shock significantly increases portfolio flows from the U.S. to EMEs for almost two quarters. The rise in inflows is accompanied by a persistent increase in several real and financial variables in EMEs. Moreover, we find that, on average, EMEs reacted with an easing of their own monetary policy stance in response to an expansionary U.S. shock.
    Keywords: unconventional monetary policy,International capital flows,global financial cycle,global VAR,trilemma vs. dilemma
    JEL: C54 E52 F42
    Date: 2015
  43. By: Giacomini, Raffaella; Skreta, Vasiliki; Turén, Javier
    Abstract: We formulate a theory of expectation updating that fits the dynamics of accuracy and disagreement in a new survey dataset where agents can update at any time while observing each other's expectations. Agents use heterogeneous models and can be inattentive but, when updating, they follow Bayes' rule and assign homogeneous weights to public information. Our empirical findings suggest that agents do not herd and, despite disagreement, they place high faith in their models, whereas during a crisis they lose this faith and undergo a paradigm shift. This simple, "micro-founded" theory could enhance the explanatory power of macroeconomic and finance models.
    Keywords: Bayesian learning; Disagreement; Expectation formation; Forecast accuracy; Herding; Heterogeneous agents; Information rigidities
    JEL: D80 D83 E27 E37
    Date: 2015–12
  44. By: Battaile,William G.; Hernandez,Fernando Leonardo; Norambuena,Vivian
    Abstract: Sub-Saharan African countries as a group showed a considerable reduction in public and external indebtedness in the early 2000s as a result of debt relief programs, higher economic growth, and improved fiscal management for some countries. More recently, however, vulnerabilities in some countries are on the rise, including a few with very rapid debt accumulation. This paper looks at the heterogeneous experiences across Sub-Saharan African countries and the detailed dynamics that have driven changes in public debt since the global financial crisis. Borrowing to support fiscal deficits since 2009, including through domestic markets and Eurobond issuance, has driven a net increase in public debt for all countries except oil exporters benefitting from buoyant commodity prices and fragile states receiving post-2008 Highly Indebted Poor Country relief. Current account deficits and foreign direct investment inflows drove the external debt dynamics, with balance of payments problems associated with very rapid external debt accumulation in some cases. Pockets of increasing vulnerabilities of debt financing profiles and sensitivity of debt burden indicators to macro-fiscal shocks require close monitoring. Specific risks that policy makers in Sub-Saharan Africa need to pay attention to going forward include the recent fall in commodity prices, especially oil, the slowdown in China and the sluggish recovery in Europe, dependence on non-debt-creating flows, and accounting for contingent liabilities.
    Keywords: External Debt,Access to Finance,Economic Theory&Research,Bankruptcy and Resolution of Financial Distress,Debt Markets
    Date: 2015–12–21
  45. By: Proaño, Christian R.; Lojak, Benjamin
    Abstract: This paper studies the dynamics of sovereign risk, fiscal policy and the macroeconomy in a two-country monetary union framework under the assumption of a heterogeneous perception of the determinants of sovereign risk by the government and the market participants. The macroeconomic volatility resulting from various types of fiscal policy rules aimed at the stabilization of sovereign debt are investigated through numerical simulations. Among other things, these simulations show that an extreme focus on debt stabilization can be counterproductive if the financial markets care more about the country's output gap.
    Keywords: behavioral macroeconomics,sovereign risk,fiscal policy rules,monetary unions,macroeconomic stability
    Date: 2015
  46. By: Katsurako Sonoda (Bank of Japan); Nao Sudo (Bank of Japan)
    Keywords: Short-term interest rates; Macroprudential instrument; Boom-and-Bust Cycle
    JEL: E20 J11
    Date: 2015–12–21
  47. By: Sebastian Edwards; Francis A. Longstaff; Alvaro Garcia Marin
    Abstract: In 1933, the U.S. unilaterally restructured its debt by declaring that it would no longer honor the gold clause in Treasury securities. We study the effects of the abrogation of the gold clause on sovereign debt markets, the Treasury's ability to issue new debt, investors' willingness to hold Treasury bonds, and on the Treasury's borrowing costs. We find that the restructuring was followed by a flight to quality in the sovereign market. Despite this, there was little effect on the Treasury's ability to sell new debt or the willingness of investors to roll over restructured debt. The Treasury incurred a marginally higher cost of capital by issuing new bonds without the gold clause.
    JEL: E43 E44 E65
    Date: 2015–11
  48. By: Khraief, Naceur (University of Sousse); Shahbaz, Muhammad (COMSATS Institute of Information Technology); Heshmati, Almas (Jönköping University, Sogang University); Azam, Muhammad (Universiti Utara Malaysia)
    Abstract: This paper revisits the dynamics of unemployment rate for 29 OECD countries over the period of 1980-2013. Numerous empirical studies of the dynamics of unemployment rate are carried out within a linear framework. However, unemployment rate can show nonlinear behaviour as a result of business cycles or some idiosyncratic factors specific to labour market (Cancelo, 2007). Thus, as a testing strategy we first perform Harvey et al. (2008) linearity unit root test and then apply the newly ESTAR nonlinear unit root test suggested by Kruse (2011). This test has higher power than conventional unit root tests when time series exhibits nonlinear behaviour. Our empirical findings provide significant evidence in favour of unemployment rate stationarity for 25 countries. For robustness purpose, we have also used panel unit root tests without and with structural breaks. The results show that unemployment hysteresis hypothesis is strongly rejected when taking into account the cross-sectional and structural break assumptions. Thus, unemployment rates are expected to return back to their natural levels without executing any costly macroeconomic labour market policies by the OECD's governments.
    Keywords: unemployment, unit root, labour market policy, OECD
    JEL: C23 E24 J48 J64 N30
    Date: 2015–12
  49. By: Zeyyad Mandalinci (Queen Mary University of London)
    Abstract: This paper carries out a comprehensive forecasting exercise to assess out-of-sample forecasting performance of various econometric models for inflation across three dimensions; time, emerging market countries and models. The competing forecasting models include univariate and multivariate, fixed and time varying parameter, constant and stochastic volatility, small and large dataset, with and without bayesian variable selection models. Results indicate that the forecasting performance of different models change notably both across time and countries. Similar to some of the recent findings of the literature that focus on developed countries, models that account for stochastic volatility and time-varying parameters provide more accurate forecasts for inflation than alternatives in emerging markets.
    Keywords: Forecasting, Bayesian Analysis, Emerging Markets, Forecast Comparison
    JEL: E37 C11 E31
    Date: 2015–12
  50. By: Sun, Lixin; Huang, Yuqin
    Abstract: In this paper, employing several econometric techniques, we construct a financial stress index (CNFSI) and a financial conditions index (CNFCI) to measure the instability of China’s financial system. The indices are based on the monthly data collected from China’s inter-bank markets, stock markets, foreign exchange markets and debt markets. Using two indices, we identify the episodes of systemic financial stress, and then evaluate the indices. The empirical results suggest that the CNFSI performs better than the CNFCI. Furthermore, we propose four leading indicators for monitoring China’s financial instability, and provide a primary early warning system for China’s macroprudential regulations.
    Keywords: financial stress index, financial conditions index, China’s financial system, leading indicators, early warning system
    JEL: C43 E44 G18
    Date: 2013
  51. By: Jean-Pierre Allegret; Audrey Sallenave
    Abstract: IAn extended literature analyzes the accumulation foreign exchange holding observed in many developing and emerging countries since the 2000s. Empirical studies on the self-insurance motive suggest that high-reserves economies are more resilient to financial crises and to international capital inflows volatility. They show also that pre-crisis foreign reserve accumulation explains post-crisis growth. However, some papers suggest that the relationship between international reserves holding and reduced vulnerability is nonlinear, meaning that reserve holding is subject to diminishing returns. This paper deserves more attention to the potential nonlinear relationship between the foreign reserves holding and macroeconomic resilience to shocks. For a sample of 9 emerging economies, we assess to what extent the accumulation of international reserves allows to mitigate negative impacts of external shocks on the output gap. While a major part of the literature focuses on the global financial crisis, we investigate this question by considering two sub-periods: 1995-2003 and 2004-2013. We implement threshold VAR (TVAR) model in which the structure is allow to change if the threshold variable crosses a certain estimated threshold. We find that the effectiveness of reserve holding to improve the resilience of domestic economies to shocks has increased over time. Hence, the diminishing returns of foreign reserve holding stressed in the previous literature must be qualified.
    Keywords: Reserve accumulation, Threshold VAR model, Output gap, External shocks, Emerging countries.
    JEL: E52 F30 F41
    Date: 2015
  52. By: Pawel Baranowski (Faculty of Economics and Sociology, University of Lodz); Zbigniew Kuchta (Faculty of Economics and Sociology, University of Lodz)
    Abstract: In this paper, we estimate Erceg, Henderson and Levin’s [2000] sticky price and sticky wage dynamic stochastic general equilibrium (DSGE) model while allowing for wage or price Calvo parameters regime switching and compare this with the constant parameters model. Our results suggest that the model with price and wage rigidity switching is strongly favored by the data. However, we do not find significant evidence in support of independent Markov chains. Moreover, we identify historical periods when price and wage stickiness were low and show that during such periods, the economy reacts more strongly to structural shocks.
    Keywords: nominal rigidities, Markov-switching DSGE models, Bayesian model comparison, regime switching.
    JEL: C11 E31 E32 J30 P22
    Date: 2015–12
  53. By: Nikolaos Antonakakis (Department of Economics and Finance, University of Portsmouth; Department of Business and Management, Webster Vienna Private University and Department of Economics, Johannes Kepler University); Rangan Gupta (Department of Economics, University of Pretoria); Aviral Kumar Twari (Faculty of Management, IBS Hyderabad, IFHE University, India)
    Abstract: The relationship between stock prices and the trade balance can be either negative or positive, depending on the signs of the wealth effect channel and the exchange rate channel. While previous studies examined this relationship in a time-invariant framework, we employ a time-varying approach so as to examine the dynamic correlations of trade balance and stock prices in the United States over the period 1792-2013. The results of our empirical analysis, which remain robust to alternative specifications, reveal that correlations between the trade balance and stock prices in the United States are indeed not constant, but evolve heterogeneously overtime. In particular, the correlations are, in general, significantly positive between 1800 and 1870, while significantly negative thereafter. The policy implications of these findings are then discussed..
    Keywords: Conditional correlation, GARCH, Trade-Balance and Stock Price Comovement, US Economy
    JEL: E3 C5 N1
    Date: 2015–12
  54. By: Oet, Mikhail V. (Federal Reserve Bank of Cleveland); Ong, Stephen J. (Federal Reserve Bank of Cleveland)
    Abstract: This paper studies and connects market organization and activity in the US collateralized interbank market using an assumption-neutral approach. We apply cluster analysis to aggregate activity factors suggested by prior studies to support two market organizations: three-tier and core-periphery. We find that four bank-specific factors and one economic conditions factor explain interbank activity for both alternative organizations. We also find evidence that the interbank market organization affects institutions’ borrowing and lending. While both organizations moderate interbank activity, the three-tier structure detects distinct market operations which are not represented in the core-periphery structure.
    Keywords: collateralized interbank market; market organization; tiering; interbank activity factors; cluster analysis; latent factor analysis
    JEL: C30 C38 E44 G10 G21
    Date: 2015–12–14
  55. By: Klaus Schmidt-Hebbel; José Carlos Tello
    Abstract: This paper develops a dynamic general-equilibrium political-economy model for the optimal size and composition of public spending. An analytical solution is derived from majority voting for three government spending categories: public consumption goods and transfers (valued by households), as well as productive government services (complementing private capital in an endogenous-growth technology). Inequality is reflected by a discrete distribution of infinitely-lived agents that differ by their initial capital holdings. In contrast to the previous literature that derives monotonic (typically negative) relations between inequality and growth in one-dimensional voting environments, this paper establishes conditions, in an environment of multi-dimensional voting, under which a non-monotonic, inverted U-shape relation between inequality and growth is obtained. This more general result – that inequality and growth could be negatively or positively related – could be consistent with the ambiguous or inconclusive results documented in the empirical literature on the inequality-growth nexus. The paper also shows that the political-economy equilibrium obtained under multi-dimensional voting for the initial period is time-consistent.
    JEL: D72 E62 H11 H31
    Date: 2014
  56. By: Roman Horvath (Charles University, Prague); Dominika Katuscakova
    Abstract: We examine how the transparency of the European Central Bank’s monetary policy affects the amount of trust that the citizens of the European Union have in this institution. We use nearly half a million individual responses from the European Commission’s Eurobarometer survey from 2000-2011 and estimate probit regressions with sample selection. We find that transparency exerts a non-linear effect on trust. Transparency increases trust, but only up to a certain point; too much transparency harms trust. This result is robust to controlling for a number of macroeconomic conditions, financial stability transparency measures, and economic and socio-demographic characteristics of respondents, including examining respondents in European Union countries that do not use the euro and addressing clustering issues.
    Keywords: European Central Bank, trust, transparency, survey
    JEL: E52 E58
    Date: 2015–10
  57. By: Ashley, Richard (Department of Economics-Virginia Polytech Institute and State University (Virginia Tech)); Verbrugge, Randal (Federal Reserve Bank of Cleveland)
    Abstract: Standard theory predicts persistence dependence in numerous economic relationships. (For example, persistence dependence is precisely the kind of nonlinear relationship posited in the Permanent Income Hypothesis; persistence dependence is the inverse of “frequency dependence” in a relationship.) Until recently, however, it was challenging to achieve credible inference about persistence dependence in an economic relationship using available methods. However, recently developed econometric tools (Ashley and Verbrugge, 2009a) allow one to elegantly quantify the variation in a time-series relationship across persistence levels, even when the data must be first-differenced because they are I(1), or nearly so. We apply these tools to study the velocity of money. Standard theory predicts that velocity should be positively correlated with the nominal interest rate: A high nominal interest rate raises the opportunity cost of holding wealth in liquid form, prompting agents to economize on money holdings. But as Cochrane (2012) pointed out, the velocity-interest rate linkage appears to be weak upon first-differencing. We argue that the root cause of this phenomenon is a particularly intuitive form of nonlinear dependence in the relationship: The strength of the relationship depends on the persistence level of a particular interest rate fluctuation. In particular, this relationship is substantially (and statistically significantly) stronger at low frequencies—i.e., at high interest rate fluctuation persistence levels. Because we allow for persistence dependence in the estimated relationship, this strong association is apparent despite the first-difference transformation applied to these data.
    Keywords: money demand; frequency-dependence; spectral regression
    JEL: C22 C32 E00 E31 E5
    Date: 2015–12–15
  58. By: Ferrarini , Benno (Asian Development Bank); Ramayandi, Arief (Asian Development Bank)
    Abstract: Our previous assessment of debt sustainability in developing Asia, conducted in 2011, found that the region’s fiscal outlook was mostly benign. In this study we update the debt sustainability assessment, taking stock of the latest data and including a larger number of countries. With the benefit of hindsight, we assess the accuracy of our earlier debt ratio forecasts and the underlying macroeconomic assumptions. By and large, we find that standard debt sustainability analysis (DSA) represents a valid forecasting tool, able to predict debt ratios fairly accurately under reasonable assumptions and circumstances. Further, our fan chart analysis confirms the importance for stochastic analysis to integrate standard DSA, in order to capture heightened macroeconomic volatility, which we observe for some countries in the region. Looking forward to 2020, debt ratio projections confirm that the outlook remains benign for the region as a whole, country heterogeneity notwithstanding. On the issue of DSA methods and implementation, we emphasize the importance of macroeconomic forecast accuracy and suggest that volatility be captured by risk analysis tools that would optimally flank the standard DSA framework.
    Keywords: debt-to-GDP ratio; fan charts; public debt sustainability; sovereign debt
    JEL: E62 H63 H68
    Date: 2015–12–14
  59. By: Ludwig, Johannes
    Abstract: While recently more and more research has focused on the aggregate response of consumption to income shocks, little is known about how this response differs for households at different ends of the income distribution. This paper investigates how consumption reacts to transitory and permanent shocks to disposable income for households with an income above or below the median. Panel data on income and consumption from the PSID between 1998 and 2012 is used to estimate consumption insurance parameters. Although households below the median are found to be exposed to larger transitory and permanent income shocks, they can buffer permanent shocks to income significantly better compared to households above the median. The latter, though, are better insured against transitory income shocks. In general, the poorer households are, the more similarly they react to the two kinds of income shocks.
    Abstract: Während sich viele Studien mit der durchschnittlichen Reaktion des Konsums auf Einkommensschocks befassen, ist wenig darüber bekannt, ob und wie sich diese Reaktion für Haushalte unterscheidet, die sich an unterschiedlichen Positionen in der Einkommensverteilung befinden. Diese Arbeit untersucht, wie Haushalte oberhalb und unterhalb des Medians ihren Konsum nach transitorischen und permanenten Schocks des verfügbaren Einkommens anpassen. Paneldaten des PSID zu Einkommen und Konsum für die Jahre von 1998 bis 2012 werden verwendet, um Konsumversicherungsparameter zu schätzen. Obwohl Haushalte unterhalb des Medians größeren transitorischen und permanenten Einkommensschocks ausgesetzt sind, gelingt es ihnen signifikant besser als Haushalten oberhalb des Medians, permanente Schocks abzufedern. Letztere sind aber besser in der Lage, transitorische Einkommensschocks zu bewältigen. Insgesamt zeigt sich, dass Haushalte umso ähnlicher auf beide Arten von Einkommensschocks reagieren, je ärmer sie sind.
    Keywords: consumption response to income shocks,consumption insurance
    JEL: D12 D31 E21
    Date: 2015
  60. By: Miura, Shinji
    Abstract: The equation of exchange is well-known as a quantitative expression of money circulation, but it has a defect in that the relation between the velocity of money and the situation of economic agents is not clear. This paper attempts to found the velocity which pays attention to movement of money. For that purpose, this paper shows a money circulation equation in which agents of the whole society are unified. If this equation has a unique solution, the velocity of money is reduced to the expenditure rate of the whole society. Thereby, the defect of the equation of exchange can be remedied. Our attempt can be interpreted as connecting the velocity of money with the multiplier analysis. Success or failure of the trial depends on its solvability. This solvability problem of the money circulation equation is closely related to the missing problems of the monetary budget constraint. This paper also attempts to explain the missing problems in the case of the budget constraint of the whole society. This paper explains that a time irreversible disposal solves those problems by using an analogy.
    Keywords: Equation of Exchange; Money Circulation; Budget Constraint
    JEL: C2 E4
    Date: 2015–10–10
  61. By: Levrero, Enrico Sergio
    Abstract: This paper examines Friedman’s writings in the years 1941-1943 and compares them with those after the war with a view to assessing differences and similarities. Albeit a first assessment, Friedman’s “Keynesian illness” in his ‘Washington phase’ will appear to have been less ‘serious’ and deep than he himself feared.
    Keywords: Friedman; inflationary gap; price inflation; spending tax; quantity theory of money
    JEL: B22 B31 E31 E51
    Date: 2015–12–28
  62. By: Chen, Yunmin (Institute of Economics, Academia Sinica); Chien, YiLi (Federal Reserve Bank of St. Louis); Yang, C.C. (Institute of Economics, Academia Sinica)
    Abstract: Assuming a neoclassical production technology, this paper characterizes constrained efficient intertemporal wedges for the macro aggregate as well as the micro individual allocation of dynamic Mirrleesian economies. We first construct “Pareto-Negishi weights” from the multipliers on a sequence of temporary incentive constraints. For a fairly general stochastic process of idiosyncratic productivity shocks, we show that the evolution of the Pareto-Negishi weight associated with agents’ consumption is a nonnegative martingale. This powerful property enables us to deliver three contributions to the literature. First, we demonstrate that several celebrated constrained efficient intertemporal results of the individual allocation in the literature can be all attributed to originating from the nonnegative martingale property of consumption Pareto-Negishi weights. Second, we address optimal distortion for the aggregate allocation and establish that the constrained efficient intertemporal wedge for aggregate saving will be negative or positive, depending on whether the intertemporal elasticity of substitution is elastic or inelastic. This result is another application of the nonnegative martingale property. Third, we show how the nonnegative martingale property is modified in the presence of additional frictions and shed new light on incorporating different types of constraints documented in the literature.
    Keywords: Intertemporal wedges; Nonnegative martingale; Inverse Euler equation; Immiseration
    JEL: D82 E21 H21
    Date: 2015–12–21
  63. By: Jan Tore Klovland (Norwegian School of Economics and Norges Bank); Lars Fredrik Øksendal (Norges Bank and Norwegian School of Economics)
    Abstract: Before 1893 the regional branches of Norges Bank set their own bank rates. We discuss how bank rate autonomy could be reconciled with the fixed exchange rate commitments of the silver and gold standard. Although the headquarters of the bank was in Trondhjem, we find that the Christiania branch played the key role in providing leadership in bank rate policy. Foreign interest rate impulses were important for bank rate decisions, but there was also some leeway for responding to idiosyncratic shocks facing the Norwegian economy.
    Keywords: bank rate, gold standard, monetary policy
    JEL: E58 N23
    Date: 2015–12–23
  64. By: Stefano Bosi; David Desmarchelier
    Abstract: Since Heal (1982), there is a theoretical consensus about the occurrence of limit cycles (through a Hopf bifurcation) under a positive effect of pollution on consumption demand (compensation effect) and about the impossibility under a negative effect (distaste effect). However, recent empirical evidence advocates for the relevance of distaste effects. Our paper challenges the conventional view on the theoretical ground and reconciles theory and evidence. The Environmental Kuznets Curve (pollution first increases in the capital level then decreases) plays the main role. Indeed, the standard case à la Heal (limit cycles only under a compensation effect) only works along the upward-sloping branch of the curve while the opposite (limit cycles only under a distaste effect) holds along the downward-sloping branch. Welfare effects of taxation also change according to the slope of the EKC.
    JEL: E32 O44
    Date: 2015–11–19
  65. By: Allan H. Meltzer
    Abstract: This paper discusses the contributions of Karl Brunner and the enormous influence of his insights and analysis. It considers his work on economic policy--and monetary policy in particular--as well as his ideas for broadening the utility maximizing hypothesis of textbooks by describing how individuals search and grope as they confront incomplete information and uncertainty. It shows how, early on, he highlighted information, institutions and uncertainty as well as the importance of microanalysis in macroeconomics. Karl Brunner explained that nominal monetary impulses changed real variables by changing the relative price of assets to output prices. And he concluded that economic fluctuations occurred because of an unstable public sector—especially the monetary sector—that disturbs a more stable private sector, a policy lesson forgotten or never learned by many central banks.
    Date: 2015–10
  66. By: Klaus Schmidt-Hebbel; Raimundo Soto; Ibrahim A. Elbadawi
    Abstract: Reforms of fiscal institutions and fiscal rules are motivated by several objectives: strengthening fiscal solvency and sustainability, contributing to macroeconomic stabilization, and making fiscal policy more resilient to government corruption and private-sector lobby. These objectives are shared by most fiscal policy makers worldwide. So why do some countries adopt fiscal rules while others do not? This question boils down to identifying the conditions under which some countries decide to adopt fiscal rules and maintain them over time. In particular, which political and institutional conditions are behind the decision of policy makers to tie their own hands? Are fiscal rules more likely to be associated to particular monetary and exchange-rate regimes, or to deeper financial market development and more openness? Is it more likely for countries to keep fiscal rules in place when they exhibit stronger fiscal policy performance –or does the opposite hold true? Are richer countries more likely to adopt fiscal rules? These are the empirical questions addressed by this paper. There are very few studies that identify institutional and economic variables explaining why countries adopt and maintain fiscal rules. This paper extends previous knowledge in two dimensions. First, the model used here is much broader in its specification, focusing on five categories of potential determinants for the choice of de jure fiscal rules, addressing the particular questions raised above. Second, the sample size is larger, comprising an annual-data panel sample of 94 countries (of which 35 have adopted fiscal rules) and spanning 34 years (1975-2008). The empirical estimation is performed using models selected after a detailed discussion of econometric issues relevant to this choice. The base-line results are subject to several robustness checks, presenting alternative results for different time samples, country samples, and categories of fiscal rules.
    JEL: E61 E62 E63
    Date: 2014
  67. By: KACI, Said; ACHOUCHE, Mohamed
    Abstract: Résumé : Dans ce papier, on utilise un modèle de contrôle optimal pour apprécier l’effet permanent des dépenses publiques sur le revenu national et ses composantes en Algérie. Les trajectoires optimales, que forment les séquences des variables étudiées, sont établies via une simulation sur un modèle à base d’un algorithme élaboré par Kendrick (1982). Les principaux résultats caractérisent une dynamique de long terme qui n’est soutenable qu’avec des efforts affirmés en termes de dépenses publiques; i.e une soutenabilité qui doit s’inscrire dans l’ambition de renforcer le tissu de l’offre en vue d’une dynamique de croissance endogène.
    Abstract: In this paper, an optimal control model is used to analyze the permanent effect of public expenditure on national income and its components in Algeria. Optimal paths of these variables are designed by using the algorithm developed by Kendrick (1982). The dynamics of long-run outcome of the simulations require generally an effort of sustainability by public spending; i.e a sustainability that should strengthen the supply for establishes an endogenous growth dynamic.
    Keywords: dépenses publiques, croissance économique, modèle de contrôle optimal, Algérie.
    JEL: C61 E21 H50 O40
    Date: 2015–12–22
  68. By: Wei , Shang-Jin (Asian Development Bank); Zhang, Xiaobo (Peking University)
    Abstract: This short essay surveys recent literature on the competitive saving motive and its broader economic implications. The competitive saving motive is defined as saving to improve one's status relative to other competitors for dating and marriage partners. Here are some of the key results of the recent literature: (i) cross-country evidence show that greater gender imbalances tend to correspond with higher savings rates; (ii) household-level evidence suggest that: (a) families with unmarried sons in rural regions with more skewed sex ratios tend to have higher savings rates, while savings rates of families with unmarried daughters appear uncorrelated with gender imbalances; and (b) savings rates of families in cities tend to rise with the local sex ratio; (iii) rising sex ratios contribute nearly half of the rise in housing prices in the People’s Republic of China; and (iv) families with sons in regions of greater sex ratios are more likely to become entrepreneurs and take risky jobs to earn more income.
    Keywords: competition; current account; saving; sex ratio
    JEL: D14 E21 F30 I10 J12 J20
    Date: 2015–11–26
  69. By: Giorgio Calcagnini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Germana Giombini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo); Giuseppe Travaglini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo)
    Abstract: This paper aims at analyzing Total Factor Productivity (TFP) in four European countries (France, Germany, Italy and the Netherlands) between 1950 and 2011. It uses the common trend - common cycle approach to decompose series in trends and cycles. We find that the four economies share three common trends and a common cycle. Further, we show that in the case of Italy and the Netherlands trend and cycle innovations have a negative relationship that supports the ‘opportunity cost’ approach to productivity growth, and that trend innovations are generally larger than cycle innovations. Finally, while we do not explore what drives the three common trends, we show that countries’ differences in TFP performance in recent years may be due to the so-called “deep”determinants in growth literature such as the presence of efficient mechanisms of creation and transmission of knowledge, international integration, and efficient markets and institutions.
    Keywords: Total factor productivity, Cointegration analysis, Market imperfections
    JEL: D24 D43 E02 E23
    Date: 2015
  70. By: Lise Clain-Chamosset-Yvrard (Aix-Marseille University (Aix-Marseille School of Economics) and CNRS-GREQAM & EHESS, France); Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: We study the international transmission of bubble crashes by analyzing stationary sunspot equilibria in a two-country overlapping generations exchange economy with stochastic bubbles. We consider two cases of sunspot shocks. In the first case, we assume that only the foreign country receives a sunspot shock, while in the second, we assume that both countries independently receive sunspot shocks. In the first case, a bubble crash in the foreign country is always accompanied by a bubble crash in the home country. In the second case, a bubble crash in the foreign country can have a positive or negative effect on the home bubble. We also show that there exists a unique locally isolated stationary sunspot equilibrium, and that it is locally unstable.
    Keywords: International transmission, Stochastic bubbles, Stationary sunspot equilibria, Financial integration
    JEL: D91 E44 F30
    Date: 2015–12
  71. By: Tatiana Didier (World Bank, Operations and Strategy Group); M. Ayhan Kose (World Bank, Development Prospects Group; Brookings Institution; CEPR; CAMA); Franziska Ohnsorge (World Bank, Development Prospects Group); Lei Sandy Ye (World Bank, Development Prospects Group)
    Abstract: Emerging markets (EM) face their fifth consecutive year of slowing growth and a possibly longer period of sluggish performance than previously thought. This paper presents a comprehensive analysis of the nature of and the appropriate policy responses to the growth slowdown in EM. It reports three main results. First, the slowdown is synchronous and protracted, affecting a sizable number of EM, especially large ones. Second, it has been driven by both external factors, including weak world trade, low commodity prices, and tightening financial conditions; and domestic factors, including slowdown in productivity growth, bouts of policy uncertainty, and an erosion of policy buffers. Both structural and cyclical factors have contributed to the slowdown. Third, the room for accommodative cyclical fiscal and monetary policies is limited in many EM, lending urgency to putting in place structural reforms to upgrade governance structures, improve business environments, raise human and physical capital, and manage demographic pressures.
    Keywords: emerging markets, growth slowdown, policy space, monetary policy, fiscal policy, structural reforms.
    JEL: E60 F43 O4 O43
    Date: 2015–12
  72. By: Nagayasu, Jun
    Abstract: This paper analyzes empirically interaction between the inflation rates across regions using consumption data on services and the geographical location of regions in Japan. The service sector has been expanding rapidly in terms of its contribution to the total economic activity in advanced countries, and further demographic changes have accelerated its speed in Japan over recent decades. After providing a theoretical relationship between regional inflation and consumption of non-tradable goods, we find evidence that different consumption patterns of services across regions explain heterogeneity in regional inflation in Japan.
    Keywords: Regional inflation; non-tradable goods; services; demographic changes; spatial models
    JEL: E3 F3 R1
    Date: 2015–12–01
  73. By: Roos, Michael W. M.
    Abstract: Macroeconomics must take radical uncertainty into account, if it aims at contributing to the solution of serious real-world problems such as climate change. Allowing for radical uncertainty must happen at two levels: the level of modeling and the level of the scientifi c discipline. I argue that the complexity approach which sees the economy as a complex adaptive system is better suited to deal with radical uncertainty than the mainstream DSGE approach. I review a number of agent-based models that are promising starting points to incorporate radical uncertainty into macroeconomics. Discussing the examples of the fi nancial crisis and climate change, I establish why methodological monism is dangerous and why macroeconomics needs more pluralism and openness towards other scientifi c approaches. Radical uncertainty and the complexity approach have important implications for macroeconomic policy and the advice that economists can give to policy makers. Under radical uncertainty it does not make sense to look for optimal policies.
    Abstract: Die Makroökonomik muss radikale Unsicherheit berücksichtigen, wenn sie zur Lösung ernster realer Probleme wie dem Klimawandel beitragen will. Die Berücksichtigung von radikaler Unsicherheit muss auf zwei Ebenen erfolgen: der Modellierungsebene und der Ebene der wissenschaftlichen Disziplin. Ich argumentiere in diesem Papier, dass der Komplexitätsansatz, der die Wirtschaft als komplexes adaptives System versteht, besser dafür geeignet ist, mit radikaler Unsicherheit umzugehen, als der DSGE-Ansatz der Mainstream-Makroökonomik. Es folgt ein Überblick über eine Reihe von agentenbasierten Modellen, die ein vielversprechender Startpunkt sind, um radikale Unsicherheit in die Makroökonomik einzubeziehen. Durch eine Diskussion der Finanzkrise und des Klimawandels zeige ich, warum methodologischer Monismus gefährlich ist und weshalb die Makroökonomik mehr Pluralismus und Offenheit gegenüber anderen wissenschaftlichen Ansätzen benötigt. Radikale Unsicherheit und der Komplexitätsansatz haben wichtige Implikationen für die makroökonomische Politik und die Empfehlungen, die Ökonomen politischen Entscheidungsträgern geben können. Unter radikaler Unsicherheit ist es nicht sinnvoll, nach optimalen Politiken zu suchen.
    Keywords: complexity economics,agent-based modeling,complex adaptive systems,non-linear dynamics,climate change,pluralism
    JEL: B41 B52 B59 C63 E12 E60
    Date: 2015
  74. By: Monokroussos, George
    Abstract: This paper proposes a Bayesian nowcasting approach that utilizes information coming both from large real-time data sets and from priors constructed using internet search popularity measures. Exploiting rich information sets has been shown to deliver significant gains in nowcasting contexts, whereas popularity priors can lead to better nowcasts in the face of model and data uncertainty in real time, challenges which can be particularly relevant during turning points. It is shown, for a period centered on the latest recession in the United States, that this approach has the potential to deliver particularly good real-time nowcasts of GDP growth.
    Keywords: Nowcasting, Gibbs Sampling, Factor Models, Kalman Filter, Real-Time Data, Google Trends, Monetary Policy, Great Recession.
    JEL: C11 C22 C53 E37 E52
    Date: 2015–11–01
  75. By: Luciani, Matteo (Board of Governors of the Federal Reserve System); Pundit, Madhavi (Asian Development Bank); Ramayandi, Arief (Asian Development Bank); Veronese , Giovanni (Banca d'Italia)
    Abstract: We produce predictions of the current state of the Indonesian economy by estimating a Dynamic Factor Model on a dataset of 11 indicators (also followed closely by market operators) over the time period 2002 to 2014. Besides the standard difficulties associated with constructing timely indicators of current economic conditions, Indonesia presents additional challenges typical to emerging market economies where data are often scant and unreliable. By means of a pseudo-real-time forecasting exercise we show that our model outperforms univariate benchmarks, and it does comparably with predictions of market operators. Finally, we show that when quality of data is low, a careful selection of indicators is crucial for better forecast performance.
    Keywords: Dynamic Factor Models; emerging market economies; nowcasting
    JEL: C32 C53 E37 O53
    Date: 2015–12–15
  76. By: Sambracos, Evangelos; Maniati, Marina
    Abstract: The maritime industry provides an efficient method of transporting large volumes of basic commodities and finished products, with more than one-third of all international seaborne trade consisting of dry bulk cargo. Historically, the period that preceded the global financial crisis was characterized by accelerated growth, which culminated with the historic high point in the dry bulk freight market recorded during the second quarter of 2008. However, since mid-2008, the dry bulk sector presents high volatility, reflecting both lower demand for maritime transport and increase of the expected capacity.Within this framework, commercial banks, being the main source of financing for the shipping market, which is characterised by high capital and operating costs, have significantly reduced the volume of loans granted in the industry. The latter is of particular importance considering the recent regulatory framework for banks apllied by the Basel III that limits the exposure of banks in sectors, like dry bulk shipping, that present high risk rate.
    Keywords: Finance, Shipping Market, Risks, Basel Accord(s)
    JEL: E32 G15 G32 R40
    Date: 2015–05
  77. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: At Ball State University in Muncie, Ind., St. Louis Fed President James Bullard assessed the Federal Open Market Committee's forecasts running up to 2015 and discussed implications for monetary policy. He said that the forecasts look to have missed on all three key variables—real GDP growth, unemployment and inflation—and that the misses are such that they continue to pull the committee in different directions on monetary policy.
    Date: 2015–12–07
  78. By: Shushanik Papanyan
    Abstract: This paper investigates the dynamics of technological progress as the underlying trend in productivity growth. We employ a multi-factor approach to measuring the long-term productivity trend, where this trend encompasses everything that permanently raises output per hour
    Keywords: Digital economy , Economic Analysis , Global , Research , USA , Working Paper
    JEL: C32 E32 O3 O4 O51
    Date: 2015–12
  79. By: Javier G. Gómez-Pineda (Banco de la República de Colombia)
    Abstract: El artículo estudia la inflación en Colombia durante la posguerra y su relación con el crecimiento del dinero en el largo plazo. El artículo aborda el tema de los desplazamientos de la velocidad de circulación del dinero por medio de una estimación de la demanda de dinero en donde la monetización de la economía sigue un proceso estocástico, específicamente una tendencia lineal local. En el artículo se evalúa la predictibilidad de la velocidad de circulación del dinero por medio de una medición de su error de pronóstico. Los resultados muestran que la velocidad no fue predecible debido a la magnitud del error de pronóstico. La principal implicación de política es que la implementación de la estrategia monetaria de control de la inflación y la balanza comercial fue difícil debido a que la velocidad fue inestable y poco predecible. De todas formas, el dinero sirvió de ancla para la inflación en el largo plazo, aunque ajustado, expost, por los desplazamientos de la velocidad. Classification JEL:N1, N16, E5, E4
    Keywords: Enfoque monetario, demanda de dinero, velocidad, programas de ajuste, inflación
    Date: 2015–12
  80. By: FUJITA Shigeru; FUJIWARA Ippei
    Abstract: This paper explores a causal link between the aging of the labor force and declining trends in the real interest rate and inflation in Japan. We develop a new Keynesian search/matching model that features heterogeneities in age and firm-specific skill levels. Using the model, we examine the long-run implications of the sharp drop in labor force entry in the 1970s. We show that the changes in the demographic structure driven by the drop induce significant low-frequency movements in per-capita consumption growth and the real interest rate. They also lead to similar movements in the inflation rate when the monetary policy rule follows the standard Taylor rule, failing to recognize the time-varying nature of the natural rate of interest. The model suggests that the aging of the labor force accounts for roughly 40% of the decline in the real interest rate observed between the 1980s and 2000s in Japan.
    Date: 2015–12
  81. By: Khan, Karim
    Abstract: The institutional perspective of cross-country differences in economic outcomes gives contrasting explanations on the persistence of extractive institutions in developing countries. Colonization, social fragmentation and the existence and use of natural resources are the most frequently discussed causes in the available literature. In this study, we analyze all the three explanations together by providing a case study of Nigeria. Nigeria is characterized by colonial legacy, social divide revealed by ethnicity and religion, and huge windfalls from oil. Based on our analysis, we argue that the lack and incoherence of formal institutional order is the main factor for Nigerian underdevelopment. Ethnic politics has shaped the formal institutional framework as a central stage for the disbursement of patronage and other types of the largesse. Colonial legacy has reinforced the effect of ethnicity by failing to provide a national ideology; and instead, providing a regional structure to rule. Similarly, the windfalls from oil have intensified the effect of ethnicity by invoking civil conflicts, arising mainly from the distribution of common pool. Thus, no single factor on its own can explain the persistence of extractive institutions; rather, it is the combination of exogenous and endogenous factors that collectively shape institutions.
    Keywords: Extractive Institutions, Economic Development, Colonization, Social Fragmentation, Natural resources, Nigeria
    JEL: E0 E01 O43 O55
    Date: 2015–12
  82. By: Yuri Yatsenko
    Abstract: The paper discusses and explores several prospective economic-environmental models with separate investments into mitigation and adaptation. The offered model generates essential implications about associated long-term environmental policies such as the optimal adaptation/mitigation ratio. The author focuses on an analytic model of two countries in competitive and collaborative cases.
    Keywords: environmental adaptation, mitigation, optimal investment, long-term climate policy
    JEL: Q52 Q C61 E22
    Date: 2015–11–19
  83. By: Tanaka, Sakiko (Asian Development Bank); Spohr, Christopher (Asian Development Bank); D’Amico, Sandra (BDLINK Cambodia)
    Abstract: Improvement in human capital is essential for rapid, sustainable, and inclusive economic growth in Myanmar. Investments in health and education—including technical and vocational education and training—are essential to engineer a productive labor force that can contribute to and benefit from growth opportunities, while equipping the country’s young population to participate in the country’s dramatic socioeconomic transformation. This paper focuses on developing human capital, with an emphasis on health and education in the context of employment growth and an employment-enabling environment. While awaiting the release of up-to-date data and the outcome of broad ongoing legislative reforms, the paper draws on extensive analysis of available data, including the Integrated Household Living Condition Survey 2009–2010, nationally led assessments, and consultations with the government and a variety of stakeholders to provide a snapshot of important recent developments that are helping to shape the transformation.
    Keywords: education; employment; health; Myanmar; technical and vocational education and training (TVET)
    JEL: E24 I15 I25 O15
    Date: 2015–12–15
  84. By: Stelios D. Bekiros; Alessia Paccagnini
    Abstract: We focus on the interaction of frictions both at the firm level and in the banking sector in order to examine the transmission mechanism of the shocks and to reflect on the response of the monetary policy to increases in interest rate spreads, using DSGE models with financial frictions. However, VAR models are linear and the solutions of DSGEs are often linear approximations; hence they do not consider time variation in parameters that could account for inherent nonlinearities and capture the adaptive underlying structure of the economy, especially in crisis periods. A novel method for time-varying VAR models is introduced. As an extension to the standard homoskedastic TVP-VAR, we employ a Markov-switching heteroskedastic error structure. Overall, we conduct a comparative empirical analysis of the out-of-sample performance of simple and hybrid DSGE models against standard VARs, BVARs, FAVARs, and TVP-VARs, using data sets from the U.S. economy. We apply advanced Bayesian and quasi-optimal filtering techniques in estimating and forecasting the models.
    Keywords: Financial frictions; Time-varying coefficients; Quasi-optimal filtering
    Date: 2015–10
  85. By: Malte Rieth
    Abstract: Despite expansionary central bank action, inflation remains low in the euro area. How much can we expect from the additional stimulus in face of anaemic global growth and declining oil prices? More generally, have central banks lost the ability to steer inflation in a globalised world where external factors have powerful effects on domestic inflation? This roundup summarises the evidence in the literature and concludes that central banks retain influence on domestic inflation.
    Date: 2015
  86. By: SATO Motohiro; OGURO Kazumasa
    Abstract: To perform an analysis on the interaction between an earthquake disaster and economic growth and fiscal policy, we build a basic macro-economic model that incorporates a complex supply chain framework.In particular, 1) Modelling the multi-layered production process (supply chain) that separates intermediate goods and final products, and 2) Reflecting the constraints in finance (credit) lending capacity to business enterprises. With regard to the latter, the loan amount is set at the constant rate of intermediate companies’ retained earnings (profit) in a simplified financial accelerator model. 1) Short-term effect from post-disaster disruption in the supply chain (a decrease in productivity of intermediate goods in the model), 2) Short-term to medium-term effect from lowered lending capacity by financial institutions, and 3) Medium-to long-term effect associated with rising interest rates accompanying the accumulation of public debt.
    Keywords: public debt, earthquake disaster, economic growth, fiscal policy, supply chain, credit restriction JEL Classification:D40, G21, L10, H60, R30, Q54
    Date: 2015–12
  87. By: Holton, Niamh (Nevin Economic Research Institute); O'Neill, Donal (National University of Ireland, Maynooth)
    Abstract: The dramatic change in economic conditions in Ireland over the last 10 years provides an opportunity to examine the impact of large macroeconomic shocks on inequality. We analyse wage inequality in Ireland from the height of an economic boom, through a very deep recession, to the start of a recovery. In keeping with previous work we find that dispersion in wages increased towards the height of the boom, driven largely by rising returns to skills. However, the economic crisis of 2008-2013 was accompanied by a significant reduction in earnings dispersion. Although the improving characteristics of the work force increased wages for everyone over this period, these increases were offset by falling returns to skills. Only workers in the lowest decile were unaffected by the declining returns, resulting in wage growth at the bottom of the distribution and a decline in inequality during the recession.
    Keywords: inequality, composition bias, returns to skill
    JEL: J31
    Date: 2015–12
  88. By: Armenter, Roc (Federal Reserve Bank of Philadelphia)
    Abstract: This paper seeks to delimit conditions so that market-based probabilities provide all the information the policymaker needs to arrive at the best possible decision. Although there are practical considerations regarding how to derive market-based probabilities from financial prices, the author confines the discussion to a theoretical analysis that assumes no impediment to obtaining the market-based probabilities.
    Keywords: Policy; Market-based probabilities; Policymaker;
    Date: 2015–12–14
  89. By: Daniele Girardi; Riccarco Pariboni
    Abstract: According to the Sraffian supermultiplier model, economic growth is driven by the autonomous components of aggregate demand (exports, public spending and autonomous consumption). This paper tests empirically some major implications of the model. For this purpose, we calculate time-series of the autonomous components of aggregate demand and of the supermultiplier for the US, France, Germany, Italy and Spain and describe their patterns in recent decades. We observe that changes in output and in autonomous demand are tightly correlated, both in the long and in the short-run. The supermultiplier is substantially higher and more stable in the US, while in the European countries it is lower and strongly decreasing. Consistently with theory, we find that where the supermultiplier is reasonably stable - i.e., in the US since the 1960s - autonomous demand and output share a common long-run trend (i.e, they are cointegrated). The estimation of a Vector Error-Correction model (VECM) on US data suggests that autonomous demand exerts a long-run effect on GDP, but also that there is simultaneous causality between the two variables. We propose an explanation based on the idea that autonomous demand is socially and historically determined. We then estimate the multiplier of autonomous spending through a panel instrumental-variables approach, finding that a one dollar increase in autonomous demand raises output by 1.6 dollars over four years. A further implication of the model that we test against empirical evidence is that increases in autonomous demand growth tend to be followed by increases in the investment share. Through Granger-causality tests and instrumental variables analysis, we find that this is the case in all five countries. An additional 1% increase in autonomous demand raises the investment share by 0.57 percentage points of GDP in the long-run
    Keywords: Growth, Effective Demand, Supermultiplier
    JEL: E11 E12 B51 O41
    Date: 2015–08
  90. By: Burret, Heiko T.; Feld, Lars P.; Köhler, Ekkehard A.
    Abstract: This paper provides evidence that most German states (Laender) have unsustainable public finances by exploiting a newly compiled database covering the years 1950-2011. Although the Laender are closely intertwined we are the first to apply 'second generation' panel techniques that control for correlation among the Laender. A unique identification strategy for the selection of relevant sub-panels improves the robustness of the tests.
    Keywords: Fiscal Sustainability,Federalism,Panel Cointegration,Cross Dependence
    JEL: E62 H62 H77 H72
    Date: 2015
  91. By: Rangan Gupta (Department of Economics, University of Pretoria); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, USA, and School of Business and Economics, Loughborough University, UK.)
    Abstract: The extant literature suggests that oil price, stock price and economic activity are all endogenous and the linkages between these variables are nonlinear. Against this backdrop, the objective of this paper is to use a Qualitative Vector Autoregressive (Qual VAR) to forecast (West Texas Intermediate) oil and (S&P500) stock returns over a monthly period of 1884:09 to 2015:08, using an in-sample period of 1859:10-1884:08. Given that there is no data on economic activity at monthly frequency dating as far back as 1859:09, we measure the same using the NBER recession dummies, which in turn, can be easily accommodated in a Qual VAR as an endogenous variable. In addition, the Qual VAR is inherently a nonlinear model as it allows the oil and stock returns to behave as nonlinear functions of their own past values around business cycle turning points. Our results show that, for both oil and stock returns, the Qual VAR model outperforms the random walk model (in a statistically significant way) at all the forecasting horizons considered, i.e., one- to twelve-months-ahead. In addition, the Qual VAR model, also outperforms the AR and VAR models (in a statistically significant manner) at medium- to long-run horizons for oil returns, and short- to medium-run horizons for stock returns.
    Keywords: Vector Autoregressions, Business Cycle Turning Points, Forecasting, Oil and Stock Prices
    JEL: C32 C53 E32 G10 G17 Q41
    Date: 2015–12
  92. By: Sun, Lixin
    Abstract: In this paper, we analyse the evolution of China’s debt structure in terms of a new comprehensive debt dataset and then identify the determinants of China’s debt structure using stepwise multivariate regression; furthermore, employing a fiscal space framework and DSR approach, we assess the sustainability of China’s domestic and external debt. The empirical results suggest that first, China’s GDP growth rate, the borrowing costs and the financial markets’ development are key common determining factors for China’s debt structure; second, the highly indebted local governments and non-financial corporations could lead to potential risks for China’s financial stability. Nevertheless, China’s debt by sector is sound and sustainable in the near and medium term.
    Keywords: Debt Structure; Debt Sustainability; Public and Private Debt; China’s Economy
    JEL: E62 H63 H74
    Date: 2015–08
  93. By: Dmitry I. Malakhov (National Research University Higher School of Economics); Nikolay P. Pilnik (National Research University Higher School of Economics); Igor G. Pospelov (National Research University Higher School of Economics)
    Abstract: We propose a new theoretical model of the large-scale banking system of an open economy. It is shown that distribution of relative sizes of individual banks is stable over time and does not depend on the volume of deposits. Our findings provide an additional argument in favor of use of the representative agent concept in banking sector modeling. Empirical testing shows that using generalized versions of Pareto and Normal distribution, distributions of relative sizes can be approximated with high accuracy and, moreover, distributions are stable over time. Moreover, banks move wothin this distribution, thus distribution of the general population of banks is stable over time
    Keywords: size distribution of banks, representative agent, general equilibrium
    JEL: E10 L11 G21
    Date: 2015
  94. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Turkey ; Department of Economics, University of Pretoria, South Africa and IPAG Business School, Paris, France); Rangan Gupta (Department of Economics, University of Pretoria and IPAG Business School, Paris, France); Clement Kyei (Department of Economics, University of Pretoria); Mark Wohar (Department of Economics, University of Nebraska-Omaha, USA and Loughborough University, UK)
    Abstract: Recent studies have analysed the ability of measures of uncertainty to predict movements in macroeconomic and financial variables. The objective of this paper is to employ the recently proposed nonparametric causality-in-quantiles test to analyse the predictability of returns and volatility of sixteen U.S. dollar-based exchange rates (for both developed and developing countries) over the monthly period of 1999:01-2012:03, based on information provided by a news-based measure of relative uncertainty, i.e., the differential between domestic and U.S. uncertainties. The causality-in-quantile approach allows us to test for not only causality-in-mean (1st moment), but also causality that may exist in the tails of the joint distribution of the variables. In addition, we are also able to investigate causality-in-variance (volatility spillovers) when causality in the conditional-mean may not exist, yet higher order interdependencies might emerge. We motivate our analysis by employing tests for nonlinearity. These tests detect nonlinearity, as well as the existence of structural breaks in the exchange rate returns, and in its relationship with the EPU differential, implying that the Granger causality tests based on a linear framework is likely to suffer from misspecification. The results of our nonparametric causality-in-quantiles test indicate that for seven exchange rates EPU differentials have a causal impact on the variance of exchange rate returns but not on the returns themselves at all parts of the conditional distribution. We also find that EPU differentials have predictive ability for both exchange rate returns as well as the return variance over the entire conditional distribution for four exchange rates.
    Keywords: Economic Policy Uncertainty, Exchange Rate Returns, Volatility; Nonparametric Quantile Causality, Developed and Emerging Markets
    JEL: C32 C53 E60 F31
    Date: 2015–12
  95. By: Jean-Charles BRICONGNE
    Keywords: , Quantity theory of money , household money holdings , inflation , forecasting
    Date: 2015
  96. By: Den Haan, Wouter; Kobielarz, Michal L.; Rendahl, Pontus
    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
  97. By: Paul Mizen; Veronica Veleanu
    Abstract: We investigate the information flow from credit default swap (CDS) spreads to macroeconomic activity in the United States and twelve European countries. We show that single-name CDS contracts across maturities and sectors provide significant information that anticipates future contractions. The more heavily traded 5-year maturity contracts and the iTraxx European/Markit North American CDS indexes show stronger results, indicating that these forward-looking and highly liquid instruments confer an economically and statistically significant financial signal for future economic activity. Focusing only on the most liquid CDS contracts, we then examine whether better liquidity in the CDS market is accompanied by a higher level of informed trading. A longer sample of US and previously unexplored European country-level data shows information flow intensifies as we approach credit events, and that the number of credit events provides a useful signal in itself of future economic downturns. Finally, we decompose the CDS premium into a liquidity and a residual component (proxying credit and other market risks), and find evidence that liquidity plays a greater role in explaining future macro outcomes over the sample period.
    Keywords: credit default swaps, liquidity, credit risk, economic activity
    Date: 2015
  98. By: McQuinn, Kieran
    Keywords: qec/fiscal policy/Policy/crisis
    Date: 2015–09
  99. By: Fábio Martins Serrano; Márcio Issao Nakane
    Abstract: Este artigo tem como objetivo (i) estimar a resposta das Unidades Federativas brasileiras a um choque de política monetária e, caso as mesmas respondam de forma assimétrica, (ii) compreender os determinantes de tal heterogeneidade. Para tanto, faz-se uso de técnicas de econometria Bayesiana, assim como em Francis, Owyang, e Sekhposyan (2012). Tais técnicas visam contornar o problema de dimensionalidade inerente aos modelos que englobam um número elevado de variáveis, além de permitir modelar formalmente a incerteza existente na escolha do conjunto de covariadas adequado. A resposta das Unidades Federativas foi estimada através de um VAR Bayesiano. A evidência encontrada sugere que as Unidades Federativas brasileiras respondem de forma assimétrica às inovações de política monetária. As regiões Sul e Sudeste apresentam as maiores contrações em resposta ao choque, enquanto a região Norte não apresentou sensibilidade. Para o estudo dos determinantes das assimetrias regionais, utilizou-se o Bayesian Model Averaging. Apesar do grande grau de incerteza acerca dos determinantes da heterogeneidade encontrada, Estados com maior porcentagem de empregos provenientes da indústria de transformação tendem a ser mais sensíveis às variações exógenas de política monetária. O resultado encontrado aponta para a relevância do canal de juros na determinação das assimetrias no nível estadual
    Keywords: Bayesian Econometrics; Regional Economics; Monetary Policy
    JEL: C11 E52 R10
    Date: 2015–12–01
  100. By: Barenberg, Andrew J.; Basu, Deepankar; Soylu, Ceren (Department of Economics, University of Massachusetts, Amherst)
    Abstract: Using a panel data set of Indian states between 1983-84 and 2011-12, this paper studies the impact of public health expenditure on the infant mortality rate (IMR), after controlling for other relevant covariates like per capita income, female literacy, and urbanization. We find that public expenditure on health care reduces IMR. Our baseline specification shows that an increase in public health expenditure by 1 percent of state-level GDP is associated with a reduction in the IMR by about 8 infant deaths per 1000 live births. We also find that female literacy and urbanization reduces the IMR.
    Keywords: infant mortality rate, public health expenditure, female literacy, India
    JEL: E12 E20
    Date: 2015
  101. By: Reinhart, Carmen M.; Trebesch, Christoph
    Abstract: A sketch of the International Monetary Fund’s 70-year history reveals an institution that has reinvented itself over time along multiple dimensions. This history is primarily consistent with a “demand driven” theory of institutional change, as the needs of its clients and the type of crisis changed substantially over time. Some deceptively “new” IMF activities are not entirely new. Before emerging market economies dominated IMF programs, advanced economies were its earliest (and largest) clients through the 1970s. While currency problems were the dominant trigger of IMF involvement in the earlier decades, banking crises and sovereign defaults became they key focus since the 1980s. Around this time, the IMF shifted from providing relatively brief (and comparatively modest) balance-of-payments support in the era of fixed exchange rates to coping with more chronic debt sustainability problems that emerged with force in the developing nations and now migrated to advanced ones. As a consequence, the IMF has engaged in “serial lending”, with programs often spanning decades. Moreover, the institution faces a growing risk of lending into insolvency, most widespread among low income countries in chronic arrears to the official sector, but most evident in the case of Greece since 2010. We conclude that these practices impair the IMF’s role as an international lender of last resort.
    Keywords: currency crashes; financial crashes; IMF; international borrowing; lender of last resort; sovereign default
    JEL: E5 F33 F4 F55 G01 G15 G2 N0
    Date: 2015–12
  102. By: Vicente Bermejo; José M. Abad
    Abstract: We study the reaction of more than 60,000 firms to a large unexpected liquidity shock in Spain during a severe recessionary period. The Spanish central government repaid in 2012 almost 30bn euros (approximately 3% of GDP) of arrears that Territorial Administrations had been accumulating for years. We assess the economic impact of the plan using two alternative estimation strategies. First, we use a differences-in-differences (DID) approach that exploits heterogeneity in the size of the liquidity received by firms. Second, we take advantage of the plan's plausibly exogenous disbursement implementation and run a DID procedure using as control group some firms that were paid a year later. Overall, we find that a governmental liquidity injection during a recession increases corporate investment significantly: on average firms use 4% of cash transfers for investment. This effect is stronger for firms with lower default risk and higher investment opportunities. Firms with higher default risk are more prone to repay financial debt. On average, firms use 8% of cash transfers to repay financial debt.
    Keywords: Liquidity , Investment , Default risk , Arrears
    JEL: G31 G32 G38 E51
    Date: 2015–07
  103. By: ITO Takatoshi; SHIMIZU Junko
    Abstract: Abstract in English is not available.
    Date: 2015–11

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