nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒02‒04
97 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Monetary and Macroprudential Policy in a Currency Union By Jakob Palek; Benjamin Schwanebeck
  2. The role of oil prices and monetary policy in the Norwegian economy since the 1980s By Q. Farooq Akram; Haroon Mumtaz
  3. Comparing the Transmission of Monetary Policy Shocks in Latin America: A Hierarchical Panel VAR By Pérez, Fernando
  4. Secular Drivers of the Global Real Interest Rate By Lukasz Rachel; Thomas Smith
  5. Monetary policy, financial dollarization and agency costs By Vega, Marco
  6. Interest Rates Rules By Ceri Davies; Max Gillman; Michal Kejak
  7. Crisis, contagion and international policy spillovers under foreign ownership of banks By Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
  8. The evasive predictive ability of core inflation By Jose Luis Nolazco; Pablo Pincheira; Jorge Selaive
  9. Policy and Macro Signals as Inputs to Inflation Expectation Formation By Paul Hubert; Becky Maule
  10. Optimal monetary and fiscal policy at the zero lower bound in a small open economy By Bhattarai, Saroj; Egorov, Konstantin
  11. The final countdown: the effect of monetary policy during "Wait-for-It" and reversal periods By Ozdagli, Ali K.
  12. Taming macroeconomic instability: Monetary and macro prudential policy interactions in an agent-based model By Lilit Popoyan; Mauro Napoletano; Andrea Roventini
  13. Estimating a Phillips Curve for South Africa: A Bounded Random Walk Approach By Alain Kabundi, Eric Schaling and Modeste Some
  14. From the Investment Plan to the Capital Markets Union: European Financial Structure and Cross Border Risk-sharing By Jesper Berg; Laurent Clerc; Olivier Garnier; Erik Nielsen; Natacha Valla
  15. Monetary policy and exchange rate dynamics By Stavrakeva, Vania; Tang, Jenny
  16. TCross-Border Banking and Business Cycles in Asymmetric Currency Unions By Lena Dräger; Christian Proaño
  17. El canal de costos de la política monetaria: Evidencia para la economía peruana By Fernández, Ángel
  18. The Business Cycles Implications of Fluctuating Long Run Expectations By Dan Tortorice; ;
  19. Tracking the Slowdown in Long-Run GDP Growth By Juan Antolin-Diaz; Thomas Drechsel; Ivan Petrella
  21. Evaluating a Structural Model Forecast: Decomposition Approach By Frantisek Brazdik; Zuzana Humplova; Frantisek Kopriva
  22. Business cycles in the eastern Caribbean economies: the role of fiscal policy and interest rates By Carneiro,Francisco Galrao; Hnatkovska,Viktoria
  23. Solving OLG Models with Many Cohorts, Asset Choice and Large Shocks By Reiter, Michael
  24. Oil prices and global factor macroeconomic variables By Ratti, Ronald; Vespignani, Joaquin
  25. Consumer revolving credit and debt over the life cycle and business cycle By Fulford, Scott L.; Schuh, Scott
  26. Global or domestic? Which shocks drive inflation in European small open economies? By Aleksandra Hałka; Jacek Kotłowski
  27. The Dark Corners of the Labor Market By Vincent Sterk
  28. Economic policies and growth strategies after the crisis: different approaches in USA, Japan and EU By Pasquale Tridico
  29. Animal Spirits, the Stock Market, and the Unemployment Rate: Some Evidence for German Data By Ulrich Fritsche; Christian Pierdzioch
  30. How does labour market structure affect the response of economies to shocks? By Dabusinskas, Aurelijus; Konya, Istvan; Millard, Stephen
  31. The implications of liquidity expansion in China for the US dollar By Wensheng Kang; Ronald A. Ratti; Joaquin L. Vespignani
  32. The Transmission of Monetary Policy through Redistributions and Durable Purchases By Vincent Sterk; Silvana Tenreyro
  33. Wealth Inequality and Financial Development:Revisiting the Symmetry Breaking Mechanism By Zhang Haiping
  34. Implications of the Transformation of the State-Owned Banking System into System of Foreign-Owned Banks in New Member States for Macroeconomic and Financial Stability By Egert Juuse; Rainer Kattel
  35. Country Portfolios, Collateral Constraints and Optimal Monetary Policy By Ozge Senay; Alan Sutherland
  36. Country Portfolios, Collateral Constraints and Optimal Monetary Policy By Ozge Senay; Alan Sutherland
  37. Term-Structure Modelling at the Zero Lower Bound: Implications for Estimating the Term Premium By Tsz-Kin Chung; Cho-Hoi Hui; Ka-Fai Li
  38. Finland and Its Northern Peers in the Great Recession By Suni, Paavo; Vihriälä, Vesa
  39. Oil price forecastability and economic uncertainty By Stelios D. Bekiros; Rangan Gupta; Alessia Paccagnini
  40. Inadequate Retirement Account Balances for Families Nearing Retirement By Teresa Ghilarducci; Joelle Saad-Lessler; Bridget Fisher; Siavash Padpour
  41. Technological Progress, Time Perception and Environmental Sustainability By Evangelos V. Dioikitopoulos; Sugata Ghosh; Eugenia Vella
  42. Implicit rating: A potential new method to alert crisis on the interbank lending market By Berlinger, Edina
  43. An argument for positive nominal interest By Bloise, Gaetano; Polemarchakis, Herakles
  44. Dating Cyclical Turning Points for Russia: Formal Methods and Informal Choices By Sergey V. Smirnov; Nikolai V. Kondrashov; Anna V. Petronevich
  45. Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions By Nicolas Petrovsky-Nadeau; Etienne Wasmer
  46. A new survey of the U.S. bilateral repo market: a snapshot of broker-dealer activity By Baklanova, Viktoria; Caglio, Cecilia; Cipriani, Marco; Copeland, Adam
  47. International Jobs Report: Edition 2015 By Leo Abruzzese; Prakash Loungani; Romina Bandura; John Ferguson; Davide Furceri
  48. Determinants of non-resident government debt ownership By António Afonso; Jorge Silva
  49. The countercyclical capital buffer in spain: an analysis of key guiding indicators By Christian Castro; Ángel Estrada; Jorge Martínez
  50. Slowdown in emerging markets: rough patch or prolonged weakness? By Tatiana Didier; M. Ayhan Kose; Franziska Ohnsorge; Lei Sandy Ye
  51. Effects of US quantitative easing on emerging market economies By Bhattarai, Saroj; Chatterjee, Arpita; Park, Woong Yong
  52. Piecewise linear trends and cycles in primary commodity prices By Winkelried, Diego
  53. Wage-led growth in the EU15 member states: The effects of income distribution on growth, investment, trade balance, and inflation By Özlem Onaran; Thomas Obst
  54. Shopping Time By Nicolas Petrovsky-Nadeau; Etienne Wasmer; Shutian Zeng
  55. The Determinants of Country´s Risk Premium Volatility: Evidence from Panel VAR Model By Petra Palic; Petra Posedel Simovic; Maruska Vizek
  56. Predicting Belgium’s GDP using targeted bridge models By Christophe Piette
  57. Should the Fed Increase the Interest Rate to Promote Financial Stability? By Benjamin Eden
  58. Volatility and a Century of Energy Markets Dynamics By Apostolos Serletis; Libo Xu
  59. Series enlazadas de PIB y otros agregados de Contabilidad Nacional para España (1955-2014) By Angel De la Fuente
  60. Work-sharing for a sustainable economy By Klara Zwickl; Franziska Disslbacher; Sigrid Stagl
  61. The macroeconomic policy in a social-developmentalist strategy By Pedro Rossi; AndreÌ Biancarelli
  62. The effects of a stronger dollar on U.S. prices By Diez, Federico J.; Gopinath, Gita
  63. More Middle Class Workers Will Be Poor Retirees By Teresa Ghilarducci; Zachary KNauss
  64. TTIP - A Good Deal? By Werner Raza; Lance Taylor; Bernhard Troster; Rudi von Arnim
  65. Optimal Monetary Policy, Exchange Rate Misalignments and Incomplete Financial Markets By Ozge Senay; Alan Sutherland
  66. Optimal Monetary Policy, Exchange Rate Misalignments and Incomplete Financial Markets By Ozge Senay; Alan Sutherland
  67. Evaluando las Dinámicas de Precios en el Sector Inmobiliario: Evidencia para Perú By Vílchez, Diego
  68. Optimal Taxation and Indeterminacy in the Uzawa-Lucas Model with Sector-specific Externalities By Barañano Mentxaka, Ilaski; San Martín Lizarralde, Marta
  69. Budgetary Decomposition and Yield Spreads By António Afonso; João Tovar Jalles
  70. Are Minnesota Workers Ready for Retirement By Teresa Ghilarducci; Joelle Saad-Lessler; Kate Bahn
  71. Laying the Groundwork for More Efficient Retirement Savings By Teresa Ghilarducci; Christian E. Weller
  72. TFP Convergence in German States since Reunification: Evidence and Explanations By Michael C. Burda; Battista Severgnini; ;
  73. Islamic Banking, Credit and Economic Growth: Some Empirical Evidence By Guglielmo Maria Caporale; Mohamad Husam Helmi
  74. Are Washington Workers Ready for Retirement? By Teresa Ghilarducci; Joelle Saad-Lessler; Kate Bahn; Anthony Bonen
  75. On the role of public policies and wage formation for private investment in R&D:A long-run panel analysis By Tim Buyse; Freddy Heylen; Ruben Schoonackers
  76. Patterns of Foreign Direct Investment in Egypt—Descriptive Insights from a Novel Panel Dataset at the Governorate Level By Shima'a Hanafy
  77. Racially Disparate Effects of Raising the Retirement Age By Teresa Ghilarducci; Kyle Moore
  78. Veiled Repression: Mainstream Economics, Capital Theory, and the Distributions of Income and Wealth By Lance Taylor
  79. Risk Shifting with Fuzzy Capital Constraints By Simon Dubecq; Xavier Ragot; Benoit Mojon
  80. Liquidity traps, capital flows By ACHARYA, Suchant; BENGUI, Julien
  81. Are Prices Sticky and Does It Matter? By Wright, Randall; Wang, Liang
  82. A Reconciliation Proposal of Demand-driven Growth Models in Open Economies By Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
  83. The States of Reform By Teresa Ghilarducci; Alex Pavlakis
  84. Early observations on gradual monetary policy normalization By Rosengren, Eric S.
  85. Retirement Readiness in New York City: Trends in Plan Sponsorship, Participation, and Income Security By Teresa Ghilarducci; Joelle Saad-Lessler; Kate Bahn
  86. Now is the Time to Add Retirement Accounts to Social Security: The Guaranteed Retirement Account Proposal By Teresa Ghilarducci; Zachary Knauss; Bridget Fisher
  87. The Inefficiencies of Existing Retirement Savings Incentives By Teresa Ghilarducci; Christian E. Weller
  88. Assessing the economy's progress By Rosengren, Eric S.
  89. The Myth of Self-Financing: The Trade-Offs Behind the Hudson Yards Redevelopment Project By Bridget Fisher
  90. Assessing Indonesia's Normative Influence: Wishful Thinking or Hidden Strength By Mathew Davies and Susan Harris-Rimmer
  91. The role of bank credit in business financing in Poland By Anna Białek-Jaworska; Natalia Nehrebecka
  92. Retirement Readiness in New York City: Trends in Plan Sponsorship, Participation, and Preparedness By Teresa Ghilarducci; Joelle Saad-Lessler; Michael Papadopoulos
  93. Does Bank Branch Competition Alleviate Household Credit Constraints?Evidence from Korean Household Data By Saeyeon Oh; Jungsoo Park
  94. What can Big Data tell us about the passthrough of big exchange rate changes? By Lewis, John
  95. Transmisión de Choques de Política Monetaria de Estados Unidos sobre América Latina: Un Enfoque GVAR By Flores, Jairo
  96. Determinants of FDI Location in Egypt—Empirical Analysis Using Governorate Panel Data By Shima'a Hanafy
  97. Sources of Real Exchange Rate Fluctuations in New EU Member Countries By Rajmund Mirdala

  1. By: Jakob Palek (University of Kassel); Benjamin Schwanebeck (University of Kassel)
    Abstract: The financial crisis proved strikingly that stabilizing the price level is a necessary but not a sufficient condition to ensure macroeconomic stability. The obvious candidate for addressing systemic risk is macroprudential policy. In this paper we study the optimal monetary and macroprudential policy mix in a currency union in the case of different kinds of aggregate and idiosyncratic shocks. The monetary and macroprudential instruments are modelled as independent tools. With a union-wide macroprudential tool, full absorption on the aggregate level is possible, but welfare losses due to fluctuations in relative variables prevail. With country-specific macroprudential tools, full absorption of shocks is always possible. But it is only optimal as long as there is no inefficient labor allocation. Comparing different policy regimes, we get the following ranking in terms of welfare: discretion outperforms strict inflation targeting which outperforms a (euro-area based) Taylor Rule.
    Keywords: financial frictions, credit spreads, borrowing constraint, monetary policy, macroprudential policy, optimal policy mix, currency union
    JEL: E32 E44 E58
    Date: 2015
  2. By: Q. Farooq Akram (Norges Bank (Central Bank of Norway)); Haroon Mumtaz (Queen Mary College)
    Abstract: We use a TVP-VAR model to investigate possible changes in the time series properties of key Norwegian macroeconomic variables since the 1980s. The sample period is characterised by deregulation, globalization, sizable petroleum revenues, a switch from exchange rate to infl?ation targeting and adoption of a policy rule for the use of petroleum revenues.We fi?nd that the long-run means of CPI and core in?flation rates declined signifi?cantly until the mid-1990s and have since then remained close to the ifln?ation target of 2.5% from 2001 onwards. The persistence in especially CPI infl?ation has fallen during the infl?ation targeting period while the volatility of both infl?ation rates and the nominal effective exchange rate has increased. We document an increase in the correlations between money market rates and the in?flation rates as well as the output gap during the in?flation targeting period and a steady decline towards zero in the correlations between money market rates and nominal exchange rate changes. There is evidence of an increase in the correlations between oil prices and the other macroeconomic variables over time. Our counterfactual analysis suggests oil shocks to have been important for output gap and in?flation volatility while monetary policy shocks have been important for driving infl?ation persistence and the correlation of money market rates with macroeconomic variables.
    Keywords: Time-varying coefficients, stochastic volatility, persistence, great moderation, inflation targeting
    JEL: C51 E31 E32 E52 E58
    Date: 2015–12–31
  3. By: Pérez, Fernando (Banco Central de Reserva del Perú)
    Abstract: This paper assesses and compares the effects of monetary policy shocks across Latin American countries that put in practice the Inflation Targeting scheme (Brazil, Chile, Colombia, Mexico and Peru). An estimated Hierarchical Panel VAR allows us to use the data efficiently and, at the same time, exploit the heterogeneity across countries. Monetary shocks are identified through an agnostic procedure that imposes zero and sign restrictions. We find a real short run effect of monetary policy on output (with a peak around 12-15 months); a significant medium run response of prices with the absence of the so-called price puzzle and a hump-shaped response of the exchange rate, i.e. weak evidence of the so-called delayed overshooting puzzle phenomenon. Nevertheless, we find some degree of heterogeneity on the impact and propagation of monetary shocks across countries. In particular, we find stronger effects on output and prices in Brazil and Peru relative to Chile, Colombia and Mexico and a stronger reaction of the exchange rate in Brazil, Chile and Colombia relative to Mexico and Peru. Finally, we present a weighted-averaged impulse response after a monetary shock, which is representative for the region. *Note: Winning article in the 2015 Rodrigo Gómez Central Bank Award, organized by the Center for Latin American Monetary Studies (CEMLA). The article will be published by this institution.
    Keywords: Panel Vector Autoregressions, Sign Restrictions, Bayesian Hierarchical models
    JEL: E43 E51 E52 E58
    Date: 2015–12
  4. By: Lukasz Rachel (Department of Economics, London School of Economics (LSE); Centre for Macroeconomics (CFM); Bank of England); Thomas Smith (Bank of England)
    Abstract: Long-term real interest rates across the world have fallen by about 450 basis points over the past 30 years. The co-movement in rates across both advanced and emerging economies suggests a common driver: the global neutral real rate may have fallen. In this paper we attempt to identify which secular trends could have driven such a fall. Although there is huge uncertainty, under plausible assumptions we think we can account for around 400 basis points of the 450 basis points fall. Our quantitative analysis highlights slowing global growth as one force that may have pushed down on real rates recently, but shifts in saving and investment preferences appear more important in explaining the long-term decline. We think the global saving schedule has shifted out in recent decades due to demographic forces, higher inequality and to a lesser extent the glut of precautionary saving by emerging markets. Meanwhile, desired levels of investment have fallen as a result of the falling relative price of capital, lower public investment, and due to an increase in the spread between risk-free and actual interest rates. Moreover, most of these forces look set to persist and some may even build further. This suggests that the global neutral rate may remain low and perhaps settle at (or slightly below) 1% in the medium to long run. If true, this will have widespread implications for policymakers — not least in how to manage the business cycle if monetary policy is frequently constrained by the zero lower bound.
    Keywords: Equilibrium interest rate, long-term yields, globalsaving and investment, global trend
    JEL: E02 E10 E20 E40 E50 E60 F00 F41 F42 F47 J11 O30 O40
    Date: 2015–12
  5. By: Vega, Marco (Banco Central de Reserva del Perú)
    Abstract: This paper models an emerging economy with financial dollarization features within an optimizing, stochastic general equilibrium setup. One key result in this framework is that unexpected nominal exchange rate depreciations are positively correlated with the probability of default by borrower firms and turn out to be a powerful mechanism to affect aggregate consumption. Throughout the monetary policy evaluation exercises performed, the sign of the unexpected depreciation is positively correlated to the real value of assets and negatively correlated to aggregate consumption. This result supports the idea that unexpected exchange rate depreciations are contractionary and not expansionary if dollarization and agency costs in the financial sector are considered.
    Keywords: Phillips Curve, Monetary Policy, Financial Dollarization, Financial Intermediation, Agency Costs, Small Open Economy
    JEL: E31 E44 F41 G21
    Date: 2015–12
  6. By: Ceri Davies (Birmingham University); Max Gillman (Department of Economics, University of Missouri-St. Louis); Michal Kejak (CERGE-EI Prague)
    Abstract: The paper uses a monetary economy to derive a ‘Taylor rule’ along the dynamic path and within the business cycle frequency of simulated data, a Fisher equation within the low frequency of simulated data, and predictions of Lucas-like policy changes that shift balanced growth path equilibria and expectations. The inflation coefficient is always greater than one when the velocity of money exceeds one, thus exhibiting robust Taylor principle behavior in a monetary economy. Successful estimates of the magnitude of the coefficient on inflation and the rest of the interest rate equation are presented using Monte Carlo simulated data for both business cycle and medium term frequencies. Policy analysis shows the biases in interest rate predictions as depending on whether changes in structural parameters and expectations about variables are correctly included.
    Keywords: Taylor rule, Fisher equation, velocity, expectations, misspecification bias, policy evaluation.
    JEL: E13 E31 E43 E52
    Date: 2016–01
  7. By: Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
    Abstract: This paper checks how international spillovers of shocks and policies are modified when banks are foreign owned. To this end we build a twocountry macroeconomic model with banking sectors that are owned by residents of one (big and foreign) country. Consistently with empirical findings, we find that foreign ownership of banks amplifies spillovers from foreign shocks. It also strenghtens the international transmission of monetary and macroprudential policies. We next replicate the financial crisis in the euro area and show how, by preventing bank capital outflow in 2009, the Polish regulatory authorities managed to reduce its contagion to Poland. We also show that under foreign bank ownership such policy is strongly prefered to a recapitalization of domestic banks.
    Keywords: foreign-owned banks, monetary and macroprudential policy, international spillovers, DSGE models with banking
    JEL: E32 E44 E58
    Date: 2016
  8. By: Jose Luis Nolazco; Pablo Pincheira; Jorge Selaive
    Abstract: We explore the ability of traditional core inflation –consumer prices excluding food and energy–to predict headline CPI annual inflation. We analyze a sample of OECD and non-OECD economies using monthly data from January 1994 to March 2015. Our results indicate that sizable predictability emerges for a small subset of countries.
    Keywords: Chile , Economic Analysis , Working Paper
    JEL: E31 E17 E37 E52 E58
    Date: 2016–01
  9. By: Paul Hubert (OFCE); Becky Maule (Bank of England)
    Abstract: How do private agents interpret central bank actions and communication? To what extent do the effects of monetary shocks depend on the information disclosed by the central bank? This paper investigates the effect of monetary shocks and shocks to the Bank of England’s inflation and output projections on the term structure of UK private inflation expectations, to shed light on private agents’ interpretation of central bank signals about policy and the macroeconomic outlook. We proceed in three steps. First, we correct our dependent variables – market-based inflation expectation measures – for potential risk, liquidity and inflation risk premia. Second, we extract exogenous shocks following Romer and Romer (2004)’s identification approach. Third, we estimate the linear and interacted effects of these shocks in an empirical framework derived from the information frictions literature. We find that private inflation expectations respond negatively to contractionary monetary policy shocks, consistent with the usual transmission mechanism. In contrast, we find that inflation expectations respond positively to positive central bank inflation or output projection shocks, suggesting private agents put more weight on the signal that they convey about future economic developments than about the policy outlook. However, when shocks to central bank inflation projections are interacted with shocks to output projections of the same sign, they have no effect on inflation expectations, suggesting that private agents understand the functioning of the central bank reaction function and put more weight on the policy signal when there is no trade-off. We also find that the effects of contractionary monetary shocks are amplified when they are accompanied by positive shocks to central bank inflation projections. The coordination of policy decisions and macroeconomic projections thus appears important for managing inflation expectations.
    Keywords: Monetary policy; Information processing; Signal extraction; Market-based inflation expectations; Central bank projections
    JEL: E52 E58
    Date: 2016–01
  10. By: Bhattarai, Saroj (University of Texas at Austin); Egorov, Konstantin (Pennsylvania State University)
    Abstract: We investigate open economy dimensions of optimal monetary and fiscal policy at the zero lower bound (ZLB) in a small open economy model. At positive interest rates, the trade elasticity has negligible effects on optimal policy. In contrast, at the ZLB, the trade elasticity plays a key role in optimal policy prescriptions. The way in which the trade elasticity shapes policy depends on the government's ability to commit. Under discretion, the increase in government spending at the ZLB depends critically on the trade elasticity. Under commitment, the difference between future and current policies, both for domestic inflation and government spending, is smaller when the trade elasticity is higher.
    JEL: E31 E52 E58 E61 E62 E63 F41
    Date: 2016–01–01
  11. By: Ozdagli, Ali K. (Federal Reserve Bank of Boston)
    Abstract: After a long period of loose monetary policy triggered by the Great Recession, some central banks are signaling that they will raise their policy rates soon. Previous research, for example, Bernanke and Kuttner (2005) and Ozdagli (2014), has shown that asset prices react more strongly to monetary policy target surprises on the dates of such a policy reversal announcement. However, we know very little about the channels that generate these effects and whether the cross-sectional differences among firms and sectors play a significant role in transmitting a reversal decision to the economy, a question of primary interest for investors and policymakers.
    Keywords: monetary policy; stock prices; liftoff; gradualism; forward guidance
    JEL: E44 E52 E58
    Date: 2015–09–01
  12. By: Lilit Popoyan (Laboratory of Economics and Management (Pisa) (LEM)); Mauro Napoletano (OFCE); Andrea Roventini (Department of economics)
    Abstract: We develop an agent-based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different monetary policy rules.The aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability. Simulation results show that a triple-mandate Taylor rule, focused on output gap, inflation and credit growth, and a Basel III prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations. Moreover, we consider the dfferent levers of Basel III andtheir combinations. We find that minimum capital requirements and counter-cyclical capital buffers allow to achieve results close to the Basel III first-best with a much more simplifiedregulatory framework. Finally, the components of Basel III are non-additive: the inclusionof an additional lever does not always improve the performance of the macro prudentialregulation
    Keywords: Macro prudential policy; Basel III regulation; Financial stability; Monetary policy; Agent-based computational economics
    JEL: C63 E52 E6 G1 G21 G28
    Date: 2015–12
  13. By: Alain Kabundi, Eric Schaling and Modeste Some
    Abstract: In this paper we estimate a Phillips curve for South Africa using a bounded random walk model. Central bank credibility, the slope of the Phillips curve, the natural rate of unemployment and the central bank’s in‡ation target band are time-varying. We …find that the slope of the Phillips curve has ‡attened since the mid 2000s - particularly after the Great Recession - which is in line with the …findings in most advanced countries. Our results do not lend support to the hypothesis that the ability of the SARB to hit its in‡flation target has decreased. With respect to the faith in the IT regime as measured by the degree to the extent of which in‡flation expectations are anchored to the target our results indicate that the SARB’s credibility has decreased from 1994 to 2001, remained constant from 2001 to 2008, and eventually increased around 2008. This pattern is different from that of advanced countries where expectations have become better anchored relatively early in the IT regime. Moreover, we …find that the increased stability of infl‡ation expectations after 2008 –which coincides with the Great Financial crisis - is not only a result of good policy but also of “good luck”.
    Keywords: Monetary policy, Inflation targeting, inflation expectations
    JEL: C51 E52 E58
    Date: 2015
  14. By: Jesper Berg; Laurent Clerc; Olivier Garnier; Erik Nielsen; Natacha Valla
    Abstract: Following the financial crisis, Europe is suffering from a significant investment deficit. It has long been appreciated that growth will suffer in Europe over the medium term unless the shortfall in investment is addressed, but considerable disagreement on how to achieve this, and in particular on the role public investment should play. In addition, mobilising finance to increase investment in Europe requires both a good understanding of Europe’s financial structure, and a fine knowledge of the composition of cross-border financial imbalances. In this paper, we take stock of the state of play regarding investment, financial structures and cross-border imbalances. We contend that any initiative meant to provide a sound basis for long-term, stable investment flows has to acknowledge the fact that Europe is engaged in a debt-deflation deleveraging phase, with accompanying disintermediation, the full extent of which is as yet unknown. We then draw policy conclusions that would allow for a sustainable investment revival, insisting on the need to have an overall strategic vision for the main EU policy initiatives - the Investment Plan, the Capital Markets Union, and the €1,100bn new money issued by the ECB within its Large Asset Purchase Programme.
    Keywords: ECB;Capital Markets Union;Policy Srategy;Securitization;Covered Bonds;Financial Structure;Quantitative Easing;Cross-border Capital Flows
    JEL: E42 E44 E52 E58 E63
    Date: 2015–12
  15. By: Stavrakeva, Vania (London Business School); Tang, Jenny (Federal Reserve Bank of Boston)
    Abstract: Financial markets regard exchange rate movements as conveying information about future expected policy rates. This paper explores the empirical link between conventional and unconventional monetary policy surprises and exchange rate fluctuations at a quarterly frequency. It examines these links using the currencies of ten developed economies calculated against four base currencies: the U.S. dollar, the British pound, the Deutschmark/euro, and the Japanese yen. Two periods are studied: 1990:Q1–2008:Q4, when the U.S. dollar hit the zero lower bound (ZLB) in December 2008, and the ZLB period between 2009:Q1 and 2015:Q1. The authors decompose exchange rate movements using a standard no-arbitrage asset pricing equation and two alternate interest rate forecasting models—a standard Taylor rule and a yield factor model. This decomposition reveals how contemporaneous unanticipated monetary policy surprises and changes in the expected future paths of policy are linked to exchange rate changes directly through relative interest rates as well as indirectly through expected excess returns and expected long-run exchange rate levels. The authors also use this decomposition to measure the fractions of the estimated effects of conventional and unconventional monetary policy surprises on exchange rate changes that are due to each component of the exchange rate change.
    JEL: E43 F31 G12 G15
    Date: 2015–10–29
  16. By: Lena Dräger; Christian Proaño
    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: 2016
  17. By: Fernández, Ángel (Banco Central de Reserva del Perú)
    Abstract: El presente documento evalúa la importancia del canal de costos para la economía peruana. Se estima la Curva de Phillips Neokeynesiana aumentada con el canal de costos a lo Tillman (2009a) vía el método de momentos generalizados usando ventanas móviles y se encuentra que este canal existe durante el régimen que usa a la tasa de interés como instrumento de política. Además, la relevancia de este canal aumenta en los periodos en los cuales la volatilidad de la tasa de interés interbancaria es baja. Esta dinámica se debe a que la fracción de los costos financieros respecto a los costos totales de las firmas es variante en el tiempo. Finalmente, el canal de expectativas refuerza el canal de demanda y el canal de tipo de cambio para reducir la inflación ante un aumento de la tasa de interés de política monetaria.
    Keywords: Curva de Phillips Neokeynesiana, canal de costos, política monetaria
    JEL: E31 E42 E52
    Date: 2015–12
  18. By: Dan Tortorice (Brandeis University); ;
    Abstract: I consider a real-business cycle, DSGE model where consumption is a function of the present discounted value of wage and capital income. The agent is uncertain if these income variables are stationary or non-stationary and puts positive probability on both representations. The agent uses Bayesian learning to update his probability weights on each model and these weights vary over time according to how well each model ts the data. The model exhibits an improved t to the data relative to the rational expectations benchmark. The model requires half the level of exogenous shocks to match the volatility of output and still matches the relative volatilities of key business cycle variables. The model lowers the contemporaneous correlation of consumption and wages with output and generates positive autocorrelation in model growth rates. Impulse responses exhibit persistent responses and consistent with survey evidence forecast errors are positively serially correlated. Finally, in contrast to the existing literature, the model endogenously generates observed time varying volatility and long run predictability of business cycle variables, especially for investment.
    Keywords: Business Cycles; Investment; Learning
    JEL: E32 E22 D83
    Date: 2016–01
  19. By: Juan Antolin-Diaz (Department of Macroeconomic Research, Fulcrum Asset Management); Thomas Drechsel (Centre for Macroeconomics (CFM); Economics Department London School of Economics (LSE)); Ivan Petrella (Bank of England; Department of Economics, Mathematics and Statistics Birkbeck College; Centre for Economic Policy Research (CEPR))
    Abstract: Using a dynamic factor model that allows for changes in both the long-run growth rate of output and the volatility of business cycles, we document a significant decline in long-run output growth in the United States. Our evidence supports the view that most of this slowdown occurred prior to the Great Recession. We show how to use the model to decompose changes in long-run growth into its underlying drivers. At low frequencies, a decline in the growth rate of labor productivity appears to be behind the recent slowdown in GDP growth for both the US and other advanced economies. When applied to real-time data, the proposed model is capable of detecting shifts in long-run growth in a timely and reliable manner.
    Keywords: Long-run growth, Business cycles, Productivity, Dynamic factor models, Real-time data
    JEL: C32 E01 E23 E32 O47
    Date: 2014–10
  20. By: Benjamin Eden (Vanderbilt University); Maya Eden (World Bank)
    Abstract: This paper studies the possibility of using financial regulation that prohibits the use of money substitutes as a tool for mitigating the adverse effects of deviations from the Friedman rule. We establish that when inflation is not too high regulation aimed at eliminating money substitutes improves welfare by economizing on transaction costs. The gains from regulation depend on the distribution of income and on the level of direct taxation. The area under the demand for money curve is equal to the welfare cost of inflation only when there are no direct taxes and no proportional intermediation costs: otherwise, the area under the demand curve overstates the welfare cost of inflation when money substitutes are not important and understates the welfare cost when money substitutes are important.
    Keywords: Welfare cost of inflation, Liquidity, Regulations of money substitutes
    JEL: E0
    Date: 2016–01–11
  21. By: Frantisek Brazdik; Zuzana Humplova; Frantisek Kopriva
    Abstract: When presenting the results of macroeconomic forecasting, forecasters often have to explain the contribution of data revisions, conditioning information, and expert judgment updates to the forecast update. We present a framework for decomposing the differences between two forecasts generated by a linear structural model into the contributions of the elements of the information set when anticipated and unanticipated conditioning is applied. The presented framework is based on a set of supporting forecasts that simplify the decomposition of the forecast update. The features of the framework are demonstrated by examining two forecast scenarios with the same initial prediction period but different forecast assumptions. The full capabilities of the decomposition framework are documented by an example forecast evaluation where the forecast from the Czech National Bank’s Inflation Report III/2012 is assessed with respect to the updated forecast from Inflation Report III/2013.
    Keywords: Data revisions, DSGE models, forecasting, forecast revisions
    JEL: C53 E01 E47
    Date: 2015–12
  22. By: Carneiro,Francisco Galrao; Hnatkovska,Viktoria
    Abstract: This paper analyzes the business cycle characteristics of the economies of the Organization of Eastern Caribbean States using a model of a small open economy subject to interest rate and fiscal expenditure shocks and financial frictions. The paper shows that macroeconomic aggregates in this region are quite volatile, with consumption exhibiting higher volatility than gross domestic product. The analysis also finds that in these economies real interest rates are highly volatile and strongly countercyclical with gross domestic product and other macroeconomic aggregates. Similarly, fiscal expenditures show significant volatility, but are pro-cyclical with gross domestic product. The results suggest two major directions for designing policies to help reduce the volatility experienced by the Organization of Eastern Caribbean States economies. First, Organization of Eastern Caribbean States countries should seek a greater openness to international financial markets, which could help them smooth out the effects of fundamental shocks, such as shocks to technology and terms of trade, and shocks associated with natural hazards. However, this removal of international financial barriers needs to be accompanied by improvements in domestic financial conditions, as this would reduce the vulnerability of these economies to country risk premium shocks. Second, the Organization of Eastern Caribbean States region should try harder to move toward a countercyclical fiscal policy stance, as this could help to stabilize the domestic risk premium and cushion the negative effects of interest rate shocks on economic activity, hence reducing volatility.
    Keywords: Debt Markets,Economic Conditions and Volatility,Economic Theory&Research,Access to Finance,Emerging Markets
    Date: 2016–01–27
  23. By: Reiter, Michael (Institute for Advanced Studies, Vienna)
    Abstract: The paper presents a computationally efficient method to solve overlapping generations models with asset choice. The method is used to study an OLG economy with many cohorts, up to 3 different assets, stochastic volatility, short-sale constraints, and subject to rather large technology shocks. On the methodological side, the main findings are that global projection methods with polynomial approximations of degree 3 are sufficient to provide a very precise solution, even in the case of large shocks. Globally linear approximations, in contrast to local linear approximations, are sufficient to capture the most important financial statistics, including not only the average risk premium, but also the variation of the risk premium over the cycle. However, global linear approximations are not sufficient to reliably pin down asset choices. With a risk aversion parameter of only 4, the model generates a price of risk, measured as the Sharpe ratio, that is almost half of what it is for US stocks. However, the asset price fluctuations and the equity premium are much smaller than in US data.
    Keywords: OLG models, asset choice, projection methods
    JEL: C63 C68 E21 G11
    Date: 2015–12
  24. By: Ratti, Ronald (School of Business, University of Western Sydney); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: This paper investigates the relationship between oil prices, and global output, prices, central bank policy interest rate and monetary aggregates with a global factor-augmented error correction model. We confirm the following stylized relationships: i) in line with the quantitative theory of money, at global level, money, output and prices are cointegrated; ii) positive innovation in global oil price is connected with global interest rate tightening; iii) positive innovation in global money, price level and output is connected with an increase in oil prices; iv) positive innovations in global interest rate are associated with a decline in oil prices; v) positive shocks to the trade weighted U.S. dollar are linked with reductions in oil price; vi) the U.S., Euro area and China are the main drivers of global macroeconomic factors.
    Keywords: Global interest rate, global monetary aggregates, oil prices, GFAVEC
    JEL: E44 E50 Q43
    Date: 2015
  25. By: Fulford, Scott L. (Boston College); Schuh, Scott (Federal Reserve Bank of Boston)
    Abstract: Despite the centrality of credit and debt in the financial lives of Americans, little is known about how U.S. consumers' access and utilization of credit changes in the short and long term, and how these changes are related to changes in U.S. consumers' debt. This paper uses data from the Federal Reserve Bank of New York Consumer Credit Panel (CCP), which contains a 5 percent sample of every credit account in the United States from 1999 to 2014 from the credit reporting agency Equifax. It examines how changing credit availability, debt, and utilization over the business cycle and the life cycle and across individuals relate to U.S. consumers' patterns of incurring, carrying, and paying off their debts. Much of this paper focuses on credit cards, since these have observable limits and are widely held, but the paper also briefly examines other forms of debt over the consumer life cycle.
    JEL: D14 D91 E21
    Date: 2015–10–01
  26. By: Aleksandra Hałka; Jacek Kotłowski
    Abstract: In the paper we investigate, which shocks drive inflation in small open economies. We proceed in two steps. First, we use the SVAR approach to identify the global shocks. In the second step we regress the disaggregated price indices for selected European economies - the Czech Republic, Poland and Sweden- on the global shocks controlling for the domestic variables. Our results show that in two out of three analyzed countries the fluctuations of inflation are to the largest extent determined by the cyclical movements of the domestic output gap with the commodity shock being also the important source of inflation variability while for the third country the contribution of the commodity shock dominates over the output gap in explaining inflation fluctuations. We find that the direct impact of the global demand shock on the price dynamics is negligible, while it affects the country’s inflation mainly through the domestic output gap. The role of the non-commodity global supply shock is less prominent, however, this shock, interpreted to some extent as a globalization shock, for most of the analyzed period lowers the prices of semi-durable and durable goods and therefore the inflation. Nonetheless, in the aftermath of the global financial crisis, this shock reversed what may be interpreted as a weakening of the globalization process.
    Keywords: Inflation, monetary policy, globalization, disaggregated price indices, output gap, exchange rate pass-through, SVAR models.
    JEL: C53 E31 E37 E52
    Date: 2016
  27. By: Vincent Sterk (Department of Economics University College London (UCL); Centre for Macroeconomics (CFM))
    Abstract: Standard models predict that episodes of high unemployment are followed by recoveries. This paper shows, by contrast, that a large shock may set the economy on a path towards very high unemployment, with no recovery in sight. First, I estimate a reduced-form model of flows in the U.S. labor market, allowing for the possibility of multiple steady states. Next, I estimate a non-linear search and matching model, in which multiplicity of steady states may arise due to skill losses upon unemployment, following Pissarides (1992). In both cases, estimates imply a stable steady state with around 5 percent unemployment and an unstable one with around 10 percent unemployment. The search and matching model can explain observed job finding rates remarkably well, due to its strong endogenous persistence mechanism.
    Keywords: Unemployment, multiple steady states, non-linear estimation
    JEL: E24 E32 J23
    Date: 2016–01
  28. By: Pasquale Tridico (dpt. Economia)
    Abstract: The objective of this paper is to investigate how the United States of America (US) and Japan managed relatively better than Europe to emerge from from the crisis, which caused a deep recession in 2009, and why instead Europe or more appropriately, the Euro Area (EA) of the European Union (EU), did not. I will examine the main policies implemented by the main fiscal and monetary authorities in the US, i.e., the Federal Reserve (Fed), and the Federal Government; in Japan: the Bank of Japan (BoJ) and the Japanese Government (focusing in particular on the so called “Abenomics”); and in Europe: the European Central Bank (ECB) and EA Member State Governments; and I will try to understand how in the US and Japan these policies caused sustainable recovery in terms of GDP growth and employment, while on the other hand they did not manage to bring about the same results in Europe. The paper will also propose a political agenda for the EA which would favour economic recovery and sustainable development in the next decade, similar to that witnessed by the other two countries (we refer to the Euro Area as a country, at least from an economic point of view, despite the strong weakness of this definition from a political point of view). In this context, the case of Japan (with the so called “Abenomics”), along with the recovery strategy embarked in the US are better examples that Europe should follow.
    Keywords: Economic policies, crisis, austerity, economic growth
    JEL: E5 H63 O4
  29. By: Ulrich Fritsche (Universität Hamburg (University of Hamburg)); Christian Pierdzioch (Helmut-Schmidt-Universität (Helmut-Schmidt-University))
    Abstract: Models recently studied by Farmer (2012, 2013, 2015) predict that, due to labor-market frictions and "animal spirits", stock-market fluctuations should Granger cause fluctuations of the unemployment rate. We performed several Granger-causality tests on more than half a century of data of German data to test this hypothesis. Confirming findings documented by Farmer (2015) for U.S. data, we found that the stock market Granger causes unemployment in the short run and the long run when we control for a deterministic trend in the unemployment rate. Results of a frequency-domain test show that, in the short run, feedback cannot be rejected, whereas the causality clearly runs from the stock market to the unemployment rate in the medium to long run.
    Keywords: Cointegration, Granger causality, frequency domain, animal spirits, stock market, unemployment rate
    JEL: E12 E44 C32
    Date: 2016–01
  30. By: Dabusinskas, Aurelijus (Lietuvos Bankas); Konya, Istvan (Centre for Economic and Regional Studies of the Hungarian Economy of Sciences and Central European University); Millard, Stephen (Bank of England)
    Abstract: The recent crisis in the Eurozone has led to much discussion about the structure of labour markets in different Eurozone economies. In particular, there has been much talk of the need for structural labour market reform in the Eurozone periphery. But, there are many aspects of labour market structure – eg, wage flexibility, flexibility in hiring and firing, generosity of welfare schemes, etc — and it is not clear a priori which aspects really matter. In this paper, we analyse how cross-country differences in labour market characteristics — in particular, wage and employment rigidities — shape the response of different countries to a variety of macroeconomic shocks. To address this question, we use a calibrated small open economy model in which we set the parameters governing the structural characteristics of the labour market based on three European countries: Estonia, Finland and Spain. We find that, given our labour market calibrations, we would expect output and unemployment to be much more adversely affected by the shocks associated with the financial crisis in countries with high job turnover rates.
    Keywords: Labour market structure; labour market flexibility
    JEL: E24
    Date: 2016–01–22
  31. By: Wensheng Kang; Ronald A. Ratti; Joaquin L. Vespignani
    Abstract: he value of the US dollar is of major importance to the world economy. Global liquidity has grown sharply in recent years with growing importance of China’s money supply to global liquidity. We develop out-of-sample forecasts of the US dollar exchange rate value using US and non-US global data on inflation, output, interest rates, and liquidity on the US, China and non-US/non-China liquidity. Monetary model forecasts significantly outperform a random walk forecast in terms of MSFE at horizons over 12 to 30 months ahead. A monetary model with sticky prices performs best. Rolling sample analysis indicates changes over time in the influence of variables in forecasting the US dollar. China’s liquidity has a distinct, significant and changing influence on the US dollar exchange rate. Post global financial crisis, increases in the growth rate in China’s M2 forecast a significantly higher value for the US dollar 12 months and 18 months ahead and significantly lower values for the US dollar 24 and 30 months ahead.
    Keywords: China’s liquidity, trade-weighted US dollar, forecasting US dollar exchange rate
    JEL: E41 E51 F31 F41
    Date: 2016–01
  32. By: Vincent Sterk (University College London); Silvana Tenreyro (London School of Economics)
    Abstract: This paper studies a redistribution channel for the transmission of monetary policy. Using a tractable OLG setting in which the government is a net debtor, we show that standard open market operations (OMO) conducted by Central Banks have significant revaluation effects that alter the level and distribution of wealth in the economy and the real interest rate. Specifically, expansionary OMO generate a negative wealth effect (the private sector as a whole is a net creditor to the government), increasing households’ incentives to save for retirement and pushing down the real interest rate. This, in turn, leads to a substitution towards durables, generating a temporary boom in the durable good sector. With search and matching frictions, a form of productive investment is added to the model and the fall in interest rates causes an increase in labour demand, raising aggregate employment. The mechanism can mimic the empirical responses of key macroeconomic variables to monetary policy interventions. The model shows that different monetary interventions (e.g., OMO versus helicopter drops) can have sharply different effects on activity.
    Date: 2016–01
  33. By: Zhang Haiping (Singapore Management University)
    Abstract: In an overlapping generations model with financial frictions and the fixed investment size requirement, Matsuyama (2004, Econometrica) shows that, in the absence of integrated financial markets, the world economy has a unique steady state, which is symmetric and stable in the sense that inherently identical countries converge to the same income level in the long run, regardless of their initial income level; financial globalization may \break" this symmetric steady state and lead to cross-country income polarization. He calls this phenomenon \symmetry breaking" and points out that financial underdevelopment is one of the necessary conditions. We revisit this result by introducing wealth inequality and the minimum in- vestment requirement into his framework. Increasing wealth inequality strictly reduces the possibility of symmetry breaking; if wealth inequality exceeds a threshold value, symmetry breaking does not arise at all, regardless of the level of financial development. Thus, wealth inequality is an equally important factor as financial development in determining the possibility of symmetry breaking. We also address some practical issues in this framework, e.g., the conditions of financial integration, the domestic financial crisis and capital controls, and the world interest rate shocks and income volatility
    Keywords: Financial Frictions, Financial Globalization, Minimum Investment Requirements, Symmetry Breaking, Wealth Inequality
    JEL: E44 F41
    Date: 2015–09
  34. By: Egert Juuse (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology); Rainer Kattel (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology)
    Abstract: All studied CEECs represent heterogeneous entities with different starting positions in their transition to market economies as well as chosen paths that have constrained or enabled the emergence of macro-economic and financial fragility, associated with the dominance of foreign-owned banks in the transition economies of CEE region. The implications of foreign ownership for macro-economic stability have to be presented and interpreted with caution. When drawing conclusions on the effects of different ownership structure, one has to bear in mind that in the case of CEECs, specific historical context needs to be acknowledged, as several problems and obstacles in achieving the macroeconomic stability with the state-ownership in the banking sector were related to the transition process from socialist production regime to the introduction of market economy institutions. In the 2000s, on the other hand, the activities of foreignowned banks took place in the context of increasing global liquidity and asset prices’ boom that was taking place in the Western world. Hence, ownership as such has not mattered so much for the macro-economic stability in the CEECs, but rather internal developments, that is, transition to market economy with associated challenges in the 1990s that rendered these economies unstable, and external factors, such as international capital flows in the 2000s that incurred imbalances through the activities of the banking sector.
    Keywords: Central and Eastern Europe, banking, foreign direct investments, transition economies, financial fragility, Europeanization
    JEL: E44 F34 G21 G28 P20 P29 P33 P52
    Date: 2015–02–01
  35. By: Ozge Senay (University of St. Andrews); Alan Sutherland (University of St Andrews and CEPR)
    Abstract: Recent literature shows that, when international financial trade is absent, optimal policy deviates significantly from strict inflation targeting, but when there is trade in equities and bonds, optimal policy is close to strict inflation targeting. A separate line of literature shows that collateral constraints can imply that cross-border portfolio holdings act as a shock transmission mechanism which significantly undermines risk sharing. This raises an important question: does asset trade in the presence of collateral constraints imply a greater role for monetary policy as a risk sharing device? This paper finds that the combination of asset trade with collateral constraints does imply a potentially large welfare gain from optimal policy (relative to inflation targeting). However, the welfare gain of optimal policy is even larger when there is no international asset trade (but collateral constraints bind within each country). In other words, the risk sharing role of asset trade tends to reduce the welfare gains from policy optimisation even when collateral constraints act as a shock transmission mechanism. This is true even when there are large and persistent collateral constraint shocks.
    Keywords: Optimal monetary policy, Financial market structure, Country Portfolios, Collateral constraints
    JEL: E52 E58 F41
    Date: 2016–01–29
  36. By: Ozge Senay (University of St. Andrews); Alan Sutherland (University of St Andrews and CEPR)
    Abstract: Recent literature shows that, when international financial trade is absent, optimal policy deviates significantly from strict inflation targeting, but when there is trade in equities and bonds, optimal policy is close to strict inflation targeting. A separate line of literature shows that collateral constraints can imply that cross-border portfolio holdings act as a shock transmission mechanism which significantly undermines risk sharing. This raises an important question: does asset trade in the presence of collateral constraints imply a greater role for monetary policy as a risk sharing device? This paper finds that the combination of asset trade with collateral constraints does imply a potentially large welfare gain from optimal policy (relative to inflation targeting). However, the welfare gain of optimal policy is even larger when there is no international asset trade (but collateral constraints bind within each country). In other words, the risk sharing role of asset trade tends to reduce the welfare gains from policy optimisation even when collateral constraints act as a shock transmission mechanism. This is true even when there are large and persistent collateral constraint shocks.
    Keywords: Optimal monetary policy, Financial market structure, Country Portfolios, Collateral constraints
    JEL: E52 E58 F41
    Date: 2016–01–29
  37. By: Tsz-Kin Chung (Tokyo Metropolitan University); Cho-Hoi Hui (Hong Kong Monetary Authority); Ka-Fai Li (Hong Kong Monetary Authority)
    Abstract: Although the affine Gaussian term-structure model has been a workhorse model in term-structure modelling, it remains doubtful whether it is an appropriate model in a low interest rate environment because of its inability to preclude negative interest rates. This paper uses an alternative quadratic Gaussian-term structure model which is well known to be as tractable as the affine model and yet is suitable for interest rates close to zero. Compared with the quadratic model under the zero lower bound, we illustrate how the estimated term premium can be biased upward under the affine model. In contrast to the affine model, our numerical study shows that the quadratic model renders the estimated term premium less likely to be affected by the persistence of the data near the zero lower bound.
    JEL: C32 E43 E44 E52
    Date: 2015–10
  38. By: Suni, Paavo; Vihriälä, Vesa
    Abstract: Abstract The report focuses on the relative macroeconomic performance since the global financial crisis of six Northern European countries with a special emphasis on Finland. While fiscal and monetary policies have definitely impacted on macroeconomic outcomes in the six countries examined, as a whole they do not appear to be the key driving forces of the differences observed between the countries. The initial vulnerabilities, the nature of shocks and the resilience of the economies appear more important in explaining the differences. In particular, the weakness of growth in Finland can best be explained by a series of exceptional negative shocks in combination with a too weak capacity of the economy to improve its cost competitiveness in the absence of exchange rate flexibility.
    Keywords: Macro economy, fiscal policy, monetary union, competitiveness, Finland
    JEL: F47 E63 E65 P52
    Date: 2016–01–15
  39. By: Stelios D. Bekiros; Rangan Gupta; Alessia Paccagnini
    Abstract: Information on economic policy uncertainty does matter in predicting the change in oil prices. We compare the forecastability of standard, Bayesian and time-varying VAR against univariate models. The time-varying VAR model outranks all alternative models over the period 2007:1–2014:2.
    Keywords: Oil prices; Economic policy uncertainty; Forecasting
    JEL: C22 C32 C53 E60 Q41
    Date: 2015–07
  40. By: Teresa Ghilarducci; Joelle Saad-Lessler; Bridget Fisher; Siavash Padpour (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Americans nearing retirement do not have enough savings to support their standard of living in retirement. Over 28% of American families ages 50-64 have nothing saved for retirement. The average total balance in all retirement accounts is $150,000, an amount considered inadequate for retirement security.
    Keywords: Retirement, 401(k)
    JEL: H55 J26 J32 D63 E21
    Date: 2015–06
  41. By: Evangelos V. Dioikitopoulos (Department of Management, King's College London); Sugata Ghosh (Department of Economics amd Finanace, Brunel University London); Eugenia Vella (Department of Economics, University of Sheffield)
    Abstract: This paper explores the relationship among technological progress, environment and growth by combining endogenous efficiency of public abatement with endogenous discounting. Our model can feature two different balanced growth paths corresponding to different levels of environmental quality, which remains constant in the long-run although the economy grows. The multiple equilibria point to a non-monotonic relationship among technological progress, growth and the environment, as observed in the data. A Ramsey planner can implement the good equilibrium; however, under a positive technology shock, the economy achieves higher long-run growth at the cost of lower environmental quality (even if agents value the environment highly). This finding could help us explain why some advanced economies may not succeed in cleaning the environment effectively.
    Keywords: Time preference; growth; environmental quality; Fiscal policy; technological progress
    JEL: D90 E21 E62 H31 O44 Q28
    Date: 2016
  42. By: Berlinger, Edina
    Abstract: A new measure called “implicit rating” is introduced which might be a component of an early warning system. The proposed methodology relies on the aggregation of experts’ knowledge hidden in the transactional data of the interbank market of unsecured loans. Banks are simultaneously assessing the creditworthiness of each other which is reflected in the partner limits and in the interest rates. In the Hungarian interbank market the overall trading volume and the average interest rate did not show any negative trends before the crisis of 2008, however the average implicit partner limit started to decrease several months earlier, hence it might serve as a stress indicator.
    Keywords: financial crisis, credit rationing, counterparty risk, partner limits, risk adjusted interest rate, network analysis
    JEL: D85 E42 G01 G15 G21
    Date: 2016–01–20
  43. By: Bloise, Gaetano (Department of Economics, Yeshiva University, and Department of Economics, University of Rome); Polemarchakis, Herakles (Department of Economics, University of Warwick)
    Abstract: In a dynamic economy, money provides liquidity as a medium of exchange.A central bank that sets the nominal rate of interest and distributes its profit to shareholders as dividends is traded in the asset market. A nominal rates of interest that tend to zero, but do not vanish, eliminate equilibrium allocations that do not converge to a Pareto optimal allocation.
    Keywords: nominal rate of interest ; dynamic efficiency
    JEL: D60 E10
    Date: 2015
  44. By: Sergey V. Smirnov (National Research University Higher School of Economics); Nikolai V. Kondrashov (National Research University Higher School of Economics); Anna V. Petronevich (National Research University Higher School of Economics)
    Abstract: This paper establishes a reference chronology for the Russian economic cycle from the early 1980s to mid-2015. To detect peaks and troughs, we tested nine monthly indices as reference series, three methods of seasonal adjustments (X-12-ARIMA, TRAMO/SEATS, and CAMPLET), and four methods for dating cyclical turning points (local min/max, Bry-Boschan, Harding-Pagan, and Markov-Switching model). As these more or less formal methods led to different estimates, any sensible choice was possible only on the grounds of informal considerations. The final set of turning points looks plausible and separates expansions and contractions in an explicable manner, but further discussions are needed to establish a consensus between experts
    Keywords: Economic Cycle, Turning Points, Recession, Russia
    JEL: E32
    Date: 2016
  45. By: Nicolas Petrovsky-Nadeau (Tepper School of Business); Etienne Wasmer (Département d'économie)
    Abstract: Goods market frictions drastically change the dynamics of the labor market, both in terms of persistence and volatility. In a model with three imperfect markets – goods, labor, and credit – we find that credit and goods market imperfections are substitutable in raising volatility. Goods market frictions are unique in generating persistence. Two key mechanisms in the goods market generate large hump-shaped responses to productivity shocks: countercyclical goods market tightness and prices alter future profit flows and raise persistence; procyclical search effort of consumers and firms raises amplification. Goods market frictions are thus key in understanding labor market dynamics.
    Keywords: Goods market search; Labor market dynamics; Propagation; Credit market frictions
    Date: 2015–05
  46. By: Baklanova, Viktoria (Office of Financial Research); Caglio, Cecilia (Federal Reserve Board of Governors); Cipriani, Marco (Federal Reserve Bank of New York); Copeland, Adam (Federal Reserve Bank of New York)
    Abstract: We provide aggregate statistics on U.S. dealers’ bilateral repurchase agreements and economically equivalent securities lending activities. The data were collected from the U.S.-affiliated securities dealers of nine bank holding companies under a voluntary pilot program run by the Office of Financial Research and the Federal Reserve System with input from the Securities and Exchange Commission. We find that the majority of this activity involves the delivery or receipt of U.S. Treasuries, with equities a distant second. The most common maturity is one day. Finally, rates are widely dispersed across asset classes.
    Keywords: bilateral repo; short-term funding; financial market
    JEL: E44 G12 G24
    Date: 2016–01–01
  47. By: Leo Abruzzese; Prakash Loungani; Romina Bandura; John Ferguson; Davide Furceri
    Abstract: The International Jobs Report offers an analysis of labor market conditions since the end of the 2008-09 global recession. It also provides forecasts of GDP and employment by the IMF and the International Labor Organization (and by a private-sector company, The Economist Intelligence Unit), to spur discussion and debate. Future editions will update and expand on this analysis, opening a window on to a global labor market that is improving, but not nearly fast enough to help the tens of millions of workers who are still without jobs. This report also introduces, on an experimental basis, a new barometer of employment, the Global Jobs Index (GJI). Developed by the IMF and the EIU, the index provides quarterly estimates of global employment. Although most advanced economies publish monthly employment reports, usually promptly, many emerging markets do not. The GJI has been designed to make estimates of employment levels in 64 large economies—including China and India. For countries where quarterly employment data are not available, the employment level is derived by estimating the relationship between national employment and gross domestic product (GDP) in each of the economies. The country estimates are then aggregated into a global total. The forwardlooking features of the GJI will be rolled out later in 2015.
    Keywords: global unemployment, Recession,labor market, forecasts, Global Jobs Index, growth, emerging markets, workers, crisis, economies
    Date: 2015–01
  48. By: António Afonso; Jorge Silva
    Abstract: We examine the determinants of non-resident government debt ownership, accounting for domestic and external factors and financial variables during the period 2000Q2-2014Q4, focussing on a small euro area open economy: Portugal. Our results show that better fiscal positions, higher systematic stress in Europe, and higher shares of MFI cross-border holdings of public debt, increase the share of non-resident held debt, and rising sovereign yields decrease that ratio. Key Words – sovereign debt, central bank, financial markets, monetary and financial institutions, Portugal.
    JEL: C22 E44 F34 G15 H63
    Date: 2016–01
  49. By: Christian Castro (Banco de España); Ángel Estrada (Banco de España); Jorge Martínez (Banco de España)
    Abstract: This paper analyses a group of quantitative indicators to guide the Basel III countercyclical capital buffer (CCB) in Spain. Using data covering three stress events in the Spanish banking system since the early 1960s, we describe a number of conceptual and practical issues that may arise with the Basel benchmark buffer guide (i.e. the credit-to-GDP gap) and study alternative specifications plus a number of complementary indicators. In this connection, we explore ways to deal with structural changes that may lead to some shortcomings in the indicators. Overall, we find that indicators of credit ‘intensity’ (where we propose the ratio of changes in credit to GDP), private sector debt sustainability, real estate prices and external imbalances can usefully complement the credit-to-GDP gap when taking CCB decisions in Spain.
    Keywords: countercyclical capital buffer, credit-to-GDP gap, guiding indicators, build-up phase, credit intensity, real estate prices, external imbalances, private sector debt sustainability, macroprudential policy
    JEL: E58 G01 G21 G28 G32
    Date: 2016–01
  50. By: Tatiana Didier; M. Ayhan Kose; Franziska Ohnsorge; Lei Sandy Ye
    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: 2016–01
  51. By: Bhattarai, Saroj (University of Texas at Austin); Chatterjee, Arpita (University of New South Wales); Park, Woong Yong (University of Illinois at Urbana-Champaign)
    Abstract: We estimate international spillover effects of US Quantitative Easing (QE) on emerging market economies. Using a Bayesian VAR on monthly US macroeconomic and financial data, we first identify the US QE shock with non-recursive identifying restrictions. We estimate strong and robust macroeconomic and financial impacts of the US QE shock on US output, consumer prices, long-term yields, and asset prices. The identified US QE shock is then used in a monthly Bayesian panel VAR for emerging market economies to infer the spillover effects on these countries. We find that an expansionary US QE shock has significant effects on financial variables in emerging market economies. It leads to an exchange rate appreciation, a reduction in long-term bond yields, a stock market boom, and an increase in capital inflows to these countries. These effects on financial variables are stronger for the “Fragile Five” countries compared to other emerging market economies. We however do not find significant effects of the US QE shock on output and consumer prices of emerging markets.
    JEL: C31 E44 E52 E58 F32 F41 F42
    Date: 2015–11–01
  52. By: Winkelried, Diego (Universidad del Pacífico)
    Abstract: We extend the methodology put forward in Yamada and Yoon (2014, Journal of International Money and Finance, 42(C), 193-207) to analyze the trend and cyclical behavior of relative primary commodity prices. These authors propose the use of the so-called l1-filter that renders piecewise linear trends of the underlying data. Our focus is on the calibration of such filter and its implications for the empirical analysis of primary commodity prices, especially the interpretation given to the resulting trend. We also illustrate how suitably calibrated filters may be used to compute piecewise linear (super) cycles, whose turning points are easily to identify.
    Keywords: Commodity prices, piecewise linear trends, Hodrick-Prescott filter, super cycles
    JEL: C22 E30 O13 Q02
    Date: 2015–12
  53. By: Özlem Onaran (University of Greenwich); Thomas Obst
    Abstract: This paper estimates a multi-country demand-led growth model for EU15 countries. A decrease in the share of wages in national income in isolation leads to lower growth in Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom, whereas it stimulates growth in Austria, Belgium, Denmark and Ireland. However, a simultaneous decline in the wage share leads to an overall decline in EU15 GDP; hence EU15 as a whole is a wage-led economy. Furthermore, Austria and Ireland also experience negative effects on growth when they decrease their wage share along with their trading partners. The results indicate that a decline in the wage share has had significant negative effects on growth in the EU15 countries and supports the case of wage coordination. We present different wage-led recovery scenarios taking into account further effects of a change in the wage share on prices, nominal unit labour costs, investment, and net exports.
    Keywords: Wage share, Growth, European Multiplier, Demand Regime
    JEL: E12 E22 E25
    Date: 2016–01
  54. By: Nicolas Petrovsky-Nadeau (Tepper School of Business); Etienne Wasmer (Département d'économie); Shutian Zeng
    Abstract: There is a renewed interest in macroeconomic theories of search frictions in the goods market that help solve quantitative puzzles on amplification and persistence of GDP, sales, inventory and advertisement. This requires a deeper understanding of the cyclical properties of the intensive margins of search in this market. Using the American Time Use Survey we construct an indicator of shopping time. It includes both searching and purchasing goods and is based on 25 time use categories (out of more than 400 categories). We find that average time spent shopping declined in the aggregate over the period 2008-2010 compared to 2005-2007. The decline was largest for the unemployed who went from spending more time shopping for goods than the employed to roughly the same, or even less, time. Cross-state and individual regressions indicate procyclical consumer shopping time in the goods market. This evidence poses a challenge for models in which price comparisons are a driver of business cycles.
    Keywords: Goods market search; Time allocation; American Time Use Survey; Business cycles
    JEL: D12 E32 J22
    Date: 2015–05
  55. By: Petra Palic (The Institute of Economics, Zagreb); Petra Posedel Simovic (Zagreb School of Economics and Management); Maruska Vizek (The Institute of Economics, Zagreb)
    Abstract: We use data for 24 European countries, spanning from 1994 to 2015, in order to examine how changes in macroeconomic conditions influence the country’s risk premium volatility proxied by sovereign spreads variance. In the first part of the empirical analysis we estimate the univariate generalised autoregressive conditional heteroskedasticity (GARCH) model in order to obtain the conditional variance of sovereign bond spreads. We show that the increase of this variance coincides with economic and financial crisis occurring either in the country or globally. In the second part of the empirical analysis we estimate panel vector autoregression (panel VAR) model in order to model the interplay among macroeconomic fundamentals (inflation, output gap, public debt and interest rates) and the country´s risk premium volatility. We show that overheating of the economy, along with the unexpected increase in public debt, inflation and interest rates increase the country´s risk premium volatility. We also show that sudden increase in country´s risk premium volatility depresses the economy, exerts deflationary pressures on consumer prices, and is followed by strong and permanent increase in public debt.
    Keywords: sovereign bond markets, panel VAR, European Union
    JEL: C33 E44 F34 G15
    Date: 2015–12
  56. By: Christophe Piette (Research Department, NBB)
    Abstract: This paper investigates the usefulness, within the frameworks of the standard bridge model and the ‘bridging with factors’ approach, of a predictor selection procedure that builds on the elastic net algorithm. A pseudo-real time forecasting exercise is performed, in which estimates for Belgium’s quarterly GDP are generated using a monthly dataset of 93 potential predictors. While the simulation results indicate that specifying forecasting models using this procedure can lead to a slight improvement in terms of predictive accuracy over shorter horizons, the forecasting errors made by these ‘targeted’ models are not found to be significantly different from those based on the principal components extracted from the entire set of available indicators. In other words, the only advantage of following such an approach lies in the fact that it enables the forecaster to streamline the information set.
    Keywords: bridge models, nowcasting, variable selection
    JEL: C22 E37
    Date: 2016–01
  57. By: Benjamin Eden (Vanderbilt University)
    Abstract: I study the question in the title in an economy that may have overvalued assets that can pop and lead to financial instability. Assets with no fundamentals are not easily detected and can be distinguished from assets with fundamentals only if someone buys information about the underlying project. When information is not private, there is a strictly positive probability that no one will buy it and the bubble-like asset will have value. When the government increases the interest rate, assets with no fundamentals have no value but welfare goes down. Thus an increase in the interest rate may promote financial stability but reduce welfare.
    Keywords: Financial Stability, Bubbles, Monetary Policy, Informational Externalities
    JEL: E5 D0
    Date: 2016–01–26
  58. By: Apostolos Serletis (University of Calgary); Libo Xu (University of Calgary)
    Abstract: How similar is the price behavior of oil, natural gas, and coal? Are there any interactions among these three fuel prices and their volatilities? Using the Yatchew and Dimitropoulos (2015) annual data for the United States, over the period from 1870 to 2014, and state-of-the-art econometric methodology, we explore for spillovers and interactions among the three energy markets. In doing so, we use a range of univariate and multivariate volatility models. The key contribution to the literature is the estimation of a trivariate BEKK model that allows for the interdependence of oil, natural gas, and coal returns and volatilities, using the longest span prices that have ever been studied before.
    Date: 2016–01–28
  59. By: Angel De la Fuente
    Abstract: En este trabajo se elaboran series homogeneas de PIB, empleo y otros agregados de Contabilidad Nacional para el conjunto de España durante el periodo 1955-2014. Las series se construyen mediante el enlace de diversas bases de la CNE y de la Contabilidad Trimestral.
    Keywords: Análisis Macroeconómico , Documento de Trabajo , España , Investigación
    JEL: E01
    Date: 2016–01
  60. By: Klara Zwickl; Franziska Disslbacher; Sigrid Stagl
    Abstract: Achieving low unemployment in an environment of weak growth is a major policy challenge; a more egalitarian distribution of hours worked could be the key to solving it. Whether worksharing actually increases employment, however, has been debated controversially. In this article we present stylized facts on the distribution of hours worked and discuss the role of work-sharing for a sustainable economy. Building on recent developments in labor market theory we review the determinants of working long hours and its effect on well-being. Finally, we survey work-sharing reforms in the past. While there seems to be a consensus that worksharing in the Great Depression in the U.S. and in the Great Recession in Europe was successful in reducing employment losses, perceptions of the work-sharing reforms implemented between the 1980s and early 2000s are more ambivalent. However, even the most critical evaluations of these reforms provide no credible evidence of negative employment effects; instead, the overall success of the policy seems to depend on the economic and institutional setting, as well as the specific details of its implementation.
    Keywords: Work-sharing; Working hours; Labor Supply; Labor Demand; Environmental Sustainability
    JEL: D1 D3 E24 J08 J2
    Date: 2016–01
  61. By: Pedro Rossi; AndreÌ Biancarelli
    Abstract: The present paper aims to discuss the relationships between the macroeconomic policy fronts (exchange rate, monetary and fiscal) and an ideal development project, whose constituent elements were presented, in part, over the past presidential terms in Brazil, but whose contents need to be revisited, deepened and complemented. This strategy, here called as "social-developmentalist", has its social components contextualized and summarized in the first part of the paper. While the second part focuses on the institutional framework of each of these three policy fronts and assesses their recent conduct in Brazil, in the light of the preceding considerations.
    Date: 2014–05
  62. By: Diez, Federico J. (Federal Reserve Bank of Boston); Gopinath, Gita (Harvard University)
    Abstract: Since 2014:Q3, the U.S. dollar has experienced the third-fastest appreciation in over 30 years, with its nominal exchange and real exchange rate rising 15 percent against almost all foreign currencies (as measured by the Major Currencies Dollar Index). This sudden and rapid gain has engendered concerns about how a stronger dollar will affect U.S. export and import prices and ultimately, consumer prices and inflation in the United States. This paper assembles a rich database, spanning the period from 1985:Q1 through 2014:Q4, that combines several measures of prices and exchange rates in order to examine the likely outlook for U.S. import and export prices and consumer prices in the short run (one quarter) and over a 24-month period.
    Keywords: exchange rates; pass-through; inflation
    JEL: E31 F31 F41
    Date: 2015–12–01
  63. By: Teresa Ghilarducci; Zachary KNauss (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: The erosion of retirement income security in the United States is causing a decline in the living standards of millions of Americans when they retire. The number of 65-year-olds per year who are poor or near poor will increase by 146% between 2013 and 2022.
    Keywords: Retirement, 401(k), Projections
    JEL: H55 J26 J32 D63 E21
    Date: 2015–06
  64. By: Werner Raza; Lance Taylor; Bernhard Troster; Rudi von Arnim (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Since mid-2013, the United States and the European Union have been negotiating a so-called free trade agreement, by now labeled “Transatlantic trade and investment partnership” or TTIP in short. The authors suggest that TTIP is a bad deal for three reasons. First, the projected economic gains amount to not more than a rounding error. Second, none of these studies account for social, environmental or economic adjustment costs. Third, available documents suggest that TTIP is intended to be a “living agreement,” which could permanently bias the legislative process in favor of multinational corporations.
    Keywords: Trade, TPP, TTIP, Free Trade
    JEL: E21 H2 H30 D63
    Date: 2014–12
  65. By: Ozge Senay (University of St. Andrews); Alan Sutherland (University of St Andrews and CEPR)
    Abstract: Recent literature on monetary policy in open economies shows that, when international financial trade is restricted to a single non-contingent bond, there are significant internal and external trade-offs that prevent optimal policy from simultaneously closing all welfare gaps. This implies an optimal policy which deviates from inflation targeting in order to offset real exchange rate misalignments. These simple models are, however, not good representations of modern financial markets. This paper therefore develops a more general and realistic two-country model of incomplete markets, where, in the presence of a wide range of stochastic shocks, there is international trade in nominal bonds denominated in the currencies of the two countries and equity claims on profit streams in the two countries. The analysis shows that, as in the recent literature, optimal policy deviates from inflation targeting in order to offset exchange rate misalignments, but the welfare benefits of optimal policy relative to inflation targeting are quantitatively smaller than found in simpler models of financial incompleteness. It is nevertheless found that optimal policy implies quantitatively significant stabilisation of the real exchange rate gap and trade balance gap compared to inflation targeting.
    Keywords: Optimal monetary policy, Financial market structure, Country Portfolios
    JEL: E52 E58 F41
    Date: 2016–01–27
  66. By: Ozge Senay (University of St. Andrews); Alan Sutherland (University of St Andrews and CEPR)
    Abstract: Recent literature on monetary policy in open economies shows that, when international financial trade is restricted to a single non-contingent bond, there are significant internal and external trade-offs that prevent optimal policy from simultaneously closing all welfare gaps. This implies an optimal policy which deviates from inflation targeting in order to offset real exchange rate misalignments. These simple models are, however, not good representations of modern financial markets. This paper therefore develops a more general and realistic two-country model of incomplete markets, where, in the presence of a wide range of stochastic shocks, there is international trade in nominal bonds denominated in the currencies of the two countries and equity claims on profit streams in the two countries. The analysis shows that, as in the recent literature, optimal policy deviates from inflation targeting in order to offset exchange rate misalignments, but the welfare benefits of optimal policy relative to inflation targeting are quantitatively smaller than found in simpler models of financial incompleteness. It is nevertheless found that optimal policy implies quantitatively significant stabilisation of the real exchange rate gap and trade balance gap compared to inflation targeting.
    Keywords: Optimal monetary policy, Financial market structure, Country Portfolios
    JEL: E52 E58 F41
    Date: 2016–01–27
  67. By: Vílchez, Diego (Banco Central de Reserva del Perú)
    Abstract: Se emplea un procedimiento en dos etapas para analizar las dinámicas de largo plazo entre los precios reales de los departamentos y sus fundamentos. En este marco, primero se calcula índices de precios hedónicos utilizando información a nivel de transacción, y luego se estima un modelo de corrección de errores trimestral para el horizonte 1998-2014. Los determinantes de los precios utilizados para esta aplicación son: tasa de interés hipotecaria real, producto bruto interno real, y los volúmenes de transacción. Mediante una descomposición estructural del modelo se puede identificar y dar interpretación económica a los choques permanentes y transitorios que afectan al mercado inmobiliario. Además, se analiza distintos tramos de la distribución de precios para ver si existe una relación de largo plazo entre los sub-mercados. Finalmente, la forma reducida del modelo se emplea para generar proyecciones alternativas de precios.Los resultados de las estimaciones indicarían que los choques de ingreso y volumen de transacciones son los que tienen mayor poder explicativo sobre la dinámica de precios. Por otro lado, bajo supuestos razonables, las proyecciones sugieren que los precios reales enfrentarían un proceso desaceleración durante los próximos años.
    Keywords: Precios inmobiliarios, Índices hedónicos, Vectores autoregresivos
    JEL: R21 E31 C32
    Date: 2015–12
  68. By: Barañano Mentxaka, Ilaski; San Martín Lizarralde, Marta
    Keywords: endogenous, growth, externalities, optimal, policy, indeterminacy
    JEL: H21 E62
    Date: 2015–12
  69. By: António Afonso; João Tovar Jalles
    Abstract: With a panel VAR of 10 Euro area countries we study the budgetary determinants of government bond yield spreads vis-à-vis Germany between 1999Q1 and 2012Q4. We find that rising bid ask, VIX and debt differentials increase yield spreads; and improvements in the budget balance, higher growth prospects and depreciation lower the spreads. Moreover, rises in public wages or in social expenditure increase spreads, while increases in direct and indirect taxes lower the yield spreads. In the post-2007Q3 crisis period, rising expenditure components (except subsidies) increased spreads. Key Words – fiscal components, bond yields, Great Recession, PVAR, impulse responses.
    JEL: C23 E62 G01 H62
    Date: 2016–01
  70. By: Teresa Ghilarducci; Joelle Saad-Lessler; Kate Bahn (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Minnesota workers, like all American workers, need workplace retirement accounts to achieve an adequate retirement income. This report finds that only a bare majority of workers in Minnesota have access to retirement accounts at work, and the share of workers who do have these accounts is falling. Though it is tempting to attribute the lack of retirement readiness for Minnesota workers to a recession, the reason for the lack of pensions is structural - not enough people have retirement coverage at work and, when they do, the amounts saved are often inadequate.
    Keywords: Retirement, Social Security, Minnesota
    JEL: J26 H55 E21
    Date: 2014–03
  71. By: Teresa Ghilarducci; Christian E. Weller (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Better designed retirement savings incentives that target lower-income workers—for instance, those who do not work for an employer that offers retirement benefits—would make a real difference in workers’ retirement preparedness. In a joint issue brief with the Center for American Progress (CAP), CAP Senior Fellow Christian Weller and SCEPA Director Teresa Ghilarducci call for reforming the tax code to prioritize refundable tax credits over new tax deductions; emphasize progressive savings matches that offer relatively higher benefits to lower-income households; create savings incentives that are simple to use; and establish new savings options, such that gaining access to savings incentives depends less on employers offering retirement plans.
    Keywords: Retirement, Social Security, Tax, Saving
    JEL: H55 J26 J32 D63 E21
    Date: 2015–11
  72. By: Michael C. Burda; Battista Severgnini; ;
    Abstract: A quarter-century after reunication, labor productivity in eastern Germany continues to lag systematically behind the West. Denison-Hall-Jones point-in-time estimates point to large gaps in total factor productivity as the proximate cause, and auxiliary measurements which do not rely on capital stock data conrm a slowdown in TFP growth after 2000. Strikingly, capital intensity in eastern Germany, especially in industry, has overshot values in the West, casting doubt on the embodied technology hypothesis. Indeed, TFP growth is negatively associated with rates of expenditures on both total investment and plant and equipment. The best candidates for explaining the stubborn East-West TFP gap are the low concentration of managers in the East and the insucient R&D expenditure, rather than the concentration of rm headquarters and R&D personnel.
    Keywords: Productivity, regional convergence, German reunication
    JEL: D24 E01 E22 O33 O47
  73. By: Guglielmo Maria Caporale; Mohamad Husam Helmi
    Abstract: This paper examines the effects of Islamic banking on the causal linkages between credit and GDP by comparing two sets of seven emerging countries, the first without Islamic banks, and the second with a dual banking system including bothIslamic and conventional banks. Unlike previous studies, it checks the robustness of the results by applying both time series and panel methods; moreover, it tests for both long- and short-run causality. In brief, the findings highlight significant differences between the two sets of countries reflecting the distinctive features of Islamic banks. Specifically, the time series analysis provides evidence of long-run causality running from credit to GDP in countries with Islamic banks only. This is confirmed by the panel causality tests, although in this case short-run causality in countries without Islamic banks is also found.
    Keywords: Credit, growth, Islamic banking, causality tests
    JEL: C32 C33 G21 O11
    Date: 2016
  74. By: Teresa Ghilarducci; Joelle Saad-Lessler; Kate Bahn; Anthony Bonen (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: In addition to Social Security, Washington workers depend on the accessibility and affordability of employer-sponsored retirement plans to support them in retirement. This report reveals that Washington employers are offering fewer retirement plans to their employees today. The overall decline in plan sponsorship, coupled with the shift from DB to DC plans, represents a real threat to workers' retirement security. Left unchanged, Washington's residents will face increasing downward mobility in retirement.
    Keywords: Retirement, Social Security, Washington
    JEL: J26 H55 E21
    Date: 2014–04
  75. By: Tim Buyse (Ghent University and SHERPPA); Freddy Heylen (Ghent University and SHERPPA); Ruben Schoonackers (National Bank of Belgium, Research Department, Ghent University)
    Abstract: This paper studies the drivers of business funded and performed R&D in a panel of 14 OECD countries since 1981. More specifically, we investigate the effects of public R&D related policies and wage formation. Following Pesaran (Econometrica, 2006) and Kapetanios et al. (Journal of Econometrics, 2011), our empirical strategy allows for cross-sectionally correlated error terms due to the presence of unobserved common factors, which are otentially non-stationary. We find that tax incentives are effective. Public funding (subsidization) of R&D performed by firms can also be effective if subsidies are not too low, neither too high. R&D performed within the government sector and within institutions of higher education is basically neutral with respect to business R&D. We find no evidence for crowding out, nor for complementarity. The higher education sector may, however, indirectly be of great significance. Our results reveal human capital accumulation at the tertiary level as a key driver of business R&D in the OECD during the last decades. As to the impact of wage formation, using an indicator for wage pres- sure developed by Blanchard (Economic Policy, 2006), we find that wage moderation may contribute to innovation, but only in fairly closed economies and in economies with flexible labour markets. In highly open economies and economies with rigid labour markets rather the opposite holds. In these economies high wage pressure may enhance creative destruction and force firms to innovate as a competitive strategy. Our results show that a careful treatment of the properties of the data is crucial.
    Keywords: R&D, technology policy, wage formation, panel cointegration
    JEL: E22 J30 O31 O38 O57
    Date: 2016–01
  76. By: Shima'a Hanafy (University of Marburg)
    Abstract: This paper describes the main characteristics of Foreign Direct Investment (FDI) in Egypt using an unpublished dataset for FDI in 27 Egyptian governorates covering the period 1972–2009. Special attention is given to the geographical distribution of FDI, both at an aggregate and at the sectoral level. The paper is the first article of a larger empirical project on FDI in Egypt at the governorate level. Our dataset shows that FDI is unevenly distributed across Egyptian governorates. More than 60% of ‘non-petroleum greenfield FDI’ stock has been accumulated by two governorates, Cairo and Giza, and roughly 90% of FDI stock targets only 10 governorates. Tracing two spatial concentration indices of FDI inflows (Gini coefficient and coefficient of variation) over four decades, we find that the unequal geographical distribution of FDI decreased until the mid/late 1990s. This trend, however, did not continue when there was a substantial increase of FDI inflows in the 2000s. Moreover, we find differences in the degree of geographical concentration of FDI between various economic sectors. Service FDI shows the strongest concentration (mostly articulated in the ICT and finance sectors), while manufacturing FDI is the most geographically dispersed.
    Keywords: Foreign Direct investment, sectoral FDI, regional FDI, Egypt
    JEL: F21 E22 R12 O53 Z10
    Date: 2015
  77. By: Teresa Ghilarducci; Kyle Moore (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Advocates for raising the retirement age to 70 and beyond argue that since the "average" American is living longer, lifetime benefits are actually increasing. However, black seniors die sooner and are sick for a longer period of time than white seniors. This means that any policy to cut Social Security benefits by raising the normal retirement age will have a disparate and negative impact on Blacks. This study examines the size and growth of racial gaps in mortality and morbidity, and shows that while some groups have experienced lifetime benefit increases, others have not.
    Keywords: Retirement, Social Security, Race, Inequality
    JEL: H55 J26 J32 D63 E21
    Date: 2015–06
  78. By: Lance Taylor (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: The Cambridge UK vs USA capital theory debates of the 1960s showed that the workhorse mainstream growth model relies on unsustainable assumptions. Its standard interpretation is not consistent with the last four decades of data. Part of an estimated increase in the ratio of personal wealth to income in recent years is due to higher asset prices. The other side of the accounts reveals that financialization and growing business debt partially offset the greater net worth of households. Attempts to interpret growth in wealth principally as a consequence of capitalization of rents are misleading. An alternative growth model based on Cambridge ideas can help correct these misinterpretations.
    Keywords: Income distribution, wealth distribution, Cambridge controversies
    JEL: D3 E1
    Date: 2015–12
  79. By: Simon Dubecq (Banque centrale européenne); Xavier Ragot (OFCE); Benoit Mojon (Banque de France)
    Abstract: We construct a model where risk shifting can be moder-ated by capital requirements. Imperfect information about the level of capital per unit of risk, however, introduces uncertaintyabout the risk exposure of intermediaries. Over-estimation ofthe capital held by financial intermediaries, or the extent ofregulatory arbitrage, may induce households to wrongly infer from higher asset prices that the fundamentals of risky assets have improved. This mechanism can notably explain the lowrisk premia paid by U.S. financial intermediaries between 2000 and 2007 in spite of their increased exposure to risk through higher leverage. Moreover, the lower the level of the risk-free interest rate, the more risk is under-estimated
    Keywords: Risk shifting; Capital requirements
    JEL: G14 G21 E52
    Date: 2015–01
  80. By: ACHARYA, Suchant; BENGUI, Julien
    Abstract: This paper explores the role of capital flows and exchange rate dynamics in shaping the global economy's adjustment in a liquidity trap. Using a multi-country model with nominal rigidities, we shed light on the global adjustment since the Great Recession, a period where many advanced economies were pushed to the zero bound on interest rates. We establish three main results: (i) When the North hits the zero bound, downstream capital flows alleviate the recession by reallocating demand to the South and switching expenditure toward North goods. (ii) A free capital flow regime falls short of supporting efficient demand and expenditure reallocations and induces too little downstream (upstream) flows during (after) the liquidity trap. (iii) When it comes to capital flow management, individual countries' incentives to manage their terms of trade conflict with aggregate demand stabilization and global efficiency. This underscores the importance of international policy coordination in liquidity trap episodes.
    Keywords: Capital flows; International spillovers; Liquidity traps; Uncovered interest parity; Capital flow management; Policy coordination; Optimal monetary policy
    JEL: E52 F32 F42 F44
    Date: 2015
  81. By: Wright, Randall (Federal Reserve Bank of Minneapolis); Wang, Liang (University of Hawaii Manoa)
    Abstract: Many economists believe that prices are “sticky”—they adjust slowly. This stickiness, they suggest, means that changes in the money supply have an impact on the real economy, inducing changes in investment, employment, output and consumption, an effect that can be exploited by policymakers. {{p}} In this essay, we argue that price stickiness doesn’t necessarily generate an exploitable policy option. We describe a model in which money is neutral (that is, growth or reduction in money supply doesn’t impact real economic activity) even in a context of sluggish price adjustment.
    Date: 2016–01–26
  82. By: Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
    Abstract: This paper seeks to contribute to the literature on demand-driven Keynesian models of growth in open economies by developing a formal model that combines Dixon and Thirlwall’s (1975) export-led growth model and Thirlwall’s (1979) balance-of-payments constrained growth models into a more general specification. Then, we built upon the model developed in this paper in order to analyse more broadly some important issues concerning the net impact of a currency depreciation on the short-run growth rate. We demonstrate that this impact can go either way, depending on some conditions such as the average share of imported intermediate inputs in prime costs of domestic firms and the institutional capacity of trade unions to set wages through the bargaining process. The model also shows that the effectiveness of a competitive real exchange rate to promote growth is higher in countries where the share of labour in domestic income is also higher. Lastly, we run some simulations to illustrate the impact of a devaluation on short-term growth rate in different scenarios. The simulations demonstrate how the pattern of convergence of the actual growth rate towards the equilibrium growth rate is intrinsically linked to the institutional framework of the economy.
    Keywords: Balance-of-payments constraint; exchange rate; income distribution
    JEL: O40 O33 E25
    Date: 2016–01–15
  83. By: Teresa Ghilarducci; Alex Pavlakis (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: The recent proliferation of state level retirement reform proposals indicates a broad recognition of the looming retirement crisis, and suggests that the political will for reform is present. In this paper, we detail the proximate causes of American workers’ shortage of retirement savings, evaluate the variety of state level programs that are emerging in response to the crisis, and draw some conclusions about what effective reform should look like.
    Keywords: Retirement, Social Security, States, Secure Choice, Marketplace
    JEL: J26 H55 E21 J32
    Date: 2016–01
  84. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, at the Greater Boston Chamber of Commerce Government Affairs Forum, Boston, Massachusetts, January 13, 2016.
    Date: 2016–01–13
  85. By: Teresa Ghilarducci; Joelle Saad-Lessler; Kate Bahn (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: This report, conducted at the request of New York City Comptroller Scott Stringer, reveals a 17% drop (from 49% to 41%) between 2001 and 2011 in the percentage of New York City workers participating in a retirement plan at work. Only 12% of New Yorkers had a defined benefit (DB) plan. The DB plan guarantees a pension, whereas defined contribution (DC) plans such as 401(k)s and IRAs do not. As a result, those with DB plans maintained an average income replacement rate of 90% versus those with DC plans who had an average replacement rate of 48%. The consequences of declining employer-sponsored plans and low replacement rates threaten workers' standard of living in retirement and could increase poverty levels among the city's older residents.
    Keywords: Retirement, Social Security, New York City
    JEL: J26 H55 E21
    Date: 2014–04
  86. By: Teresa Ghilarducci; Zachary Knauss; Bridget Fisher (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Despite billions in tax breaks to incentivize retirement savings, almost half of the American workforce does not have a retirement plan. Without safe, effective accounts to save consistently for retirement, older workers face the increasing likelihood of experiencing downward mobility in retirement. Rather than relying on families and social spending to provide for the growing numbers of vulnerable seniors, we need comprehensive retirement reform to ensure retirement income security. This includes creation of Guaranteed Retirement Accounts (GRAs) added on to Social Security. A GRA is a mandated, professionally-managed retirement account – a hybrid between a defined benefit pension and a 401(k)-type defined contribution plan.
    Keywords: Retirement, 401(k), GRA, Social Security
    JEL: H55 J26 J32 D63 E21
    Date: 2015–06
  87. By: Teresa Ghilarducci; Christian E. Weller (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: The growing retirement crisis results, in part, from inefficient savings incentives embedded in the U.S. tax code. In a joint issue brief with the Center for American Progress (CAP), CAP Senior Fellow Christian Weller and SCEPA Director Teresa Ghilarducci find that households that need the most help saving for retirement receive the least assistance from the multitude of savings incentives in the U.S. tax code, for three reasons. First, existing savings incentives can be incredibly complex. Second, savings incentives often benefit higher-income earners more than middle- and lower-income earners. Third, the public loses out on tax revenue that otherwise would have been collected. Tax reform is needed to simplify savings incentives and better target incentives.
    Keywords: Retirement, Social Security, Tax, Saving
    JEL: H55 J26 J32 D63 E21
    Date: 2015–10
  88. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, at the Newport County Chamber of Commerce, Portsmouth, Rhode Island, November 9, 2015.
    Date: 2015–11–09
  89. By: Bridget Fisher (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: In 2005, after three years of debate and public review, Mayor Bloomberg and the New York City Council finalized a deal to finance an expansion of the Manhattan’s central business district from Midtown to the Hudson River. The redevelopment plan created the Hudson Yards Financing District, roughly bounded by West 43rd Street on the north, 8th Avenue to the east, West 28th Street to the south, and the Hudson River to the west. This area would be the recipient of $3 billion of bond revenue issued by the city through a city-owned local development corporation for the purposes of upgrading the area’s outdated infrastructure. These investments were promised to pay for themselves by attracting private development to the area.
    Keywords: Development, Urban, Redevelopment, New York City
    JEL: H30 E21 H2
    Date: 2015–10
  90. By: Mathew Davies and Susan Harris-Rimmer
    Abstract: This article takes a critical stance on Indonesia's normative influence. Whilst normative influence does help explain why Indonesia matters beyond the widespread consensus that it is weak, we also feel that its influence is often overstated. We examine three components of Indonesia's normative influence, modelling, diplomacy and civil society activism. In each component we assess the strengths and weaknesses of Indonesia and identify where wishful thinking predominates over dispassionate analysis. We conclude by arguing that the Jokowi approach to foreign policy destabilises the traditional make-up of normative influence and, if it is pursued into the future, will lead to a re-composition of that influence.
    Keywords: Indonesia, norms, ASEAN, civil society, pro-people's diplomacy
    Date: 2016–02–02
  91. By: Anna Białek-Jaworska (Faculty of Economic Sciences, University of Warsaw); Natalia Nehrebecka (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: The purpose of the paper is to verify the applicability of the pecking order theory to Polish non-finance companies’ inclination to use credit-based financing, as well as to indicate the long-term and short-term bank credit use determinants, including the monetary policy impact and the year effect. The analysis covers a sample of 800,000 observations across the period 1995-2011, using the GMM sys-tem method. The impact of foreign and government ownership, the share of exports, profitability, liquidity, fixed assets collateral and monetary policy are the determinants of the long-term and short-term bank loan in business financing investigated in the study. For small and medium-sized enterprises, a negative correlation is found between profitability and both long- and short-term loan financing, as well as between liquidity and short-term loan financing, ac-cording to what the pecking order theory assumes. A negative impact of restrictive monetary policy effected via interest rate and rate of exchange channels on Polish firms’ decisions as regards financing their business with short-term bank loan is found. The effect of the current and previous period payment gridlocks on short-term bank loan financing experienced by small and medium-sized enterprises should help banks adjust their loan offer to SMEs’ needs. The correlation between the bankruptcy risk level and companies’ short-term borrowing decisions – positive in the group of large firms and ad-verse among SMEs – should guide banks’ loan committees when modifying their creditworthiness analysis and loan application verification procedures. The use of (S)VAR panel method for investigating the response of the bank loan financing level to the interest rate, exchange rate and credit risk disturbance (shock) are the original aspects of the study. The empirical evidence that a higher share of liquid securities in assets reduces the use of short-term loan and that in small firms its level in a previous period is positively correlated with the use of short-term bank loan financing is the added value of the paper.
    Keywords: bank loan, long-term bank loan, short-term bank loan, pecking order theory, system GMM, (S)VAR
    JEL: G32 E52 G21 C23 C33
    Date: 2016
  92. By: Teresa Ghilarducci; Joelle Saad-Lessler; Michael Papadopoulos (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: New Yorkers need safe and convenient mechanisms to save for old age. Secure pension income helps strengthen the city's financial future by keeping social spending down and older residents' spending power up. However, fewer than half of New York residents have access to a retirement plan at work. Low and decreasing rates of employer sponsorship of retirement plans and the shift from traditional pension plans to 401(k)-type plans are threatening New Yorkers' financial readiness for retirement.
    Keywords: Retirement, 401(k), Sponsorship, New York City, City
    JEL: H55 J26 J32 D63 E21
    Date: 2015–06
  93. By: Saeyeon Oh (Department of Economics, Sogang University, Seoul); Jungsoo Park
    Abstract: This paper provides empirical evidence on how bank branch competition affects household credit constraints based on Korean household and nation-wide bank branch data. The main findings are as follow. First, regression results show that banks alleviate household credit constraint when bank branch competition is strong. Second, relaxation of credit constraint occurs at the internal margin, while external margin is not affected. Finally, main beneficiaries from increase in banking competition are older households with head age 35 or above. These results are consistent with the fact that most Korean banks are multi-branch nation-wide banks transacting based on hard information. Banks are compelled to provide more household credit in order to compensate for the lower profitability in competitive market.
    Keywords: Bank branch competition, credit constraints, information asymmetry
    JEL: G01 G21 E44
    Date: 2015
  94. By: Lewis, John (Bank of England)
    Abstract: Using a large data set of import volumes and values for goods imports from around 50 trading partners, and 3,000 goods type, this paper finds that the micro level, passthrough is non-linear in the exchange rate. The passthrough of larger bilateral exchange rate movements (ie more than 5%) is around four times larger than that of smaller changes. However, regressions on aggregate data indicate that passthrough at the macro level is close to full. The resolution to this apparent puzzle lies in the fact that larger bilateral movements account for the vast majority of variation in the exchange rate index, and hence the non-linearity at the micro level largely disappears at the macro level.
    Keywords: Exchange rate passthrough; Big Data; non-linearity
    JEL: E31 F14 F41
    Date: 2016–01–08
  95. By: Flores, Jairo (Banco Central de Reserva del Perú)
    Abstract: Este trabajo estudia la transmisión de choques de política monetaria de EUA sobre América Latina especificando su interrelación con el resto del mundo a través de sus vínculos comerciales. Para ello, se utiliza el enfoque GVAR que permite estudiar la interdependencia a nivel de países y variables con datos de frecuencia mensual desde 2003 hasta 2014. Además, dado que la tasa de política de la Fed se encuentra cercana del límite inferior cero desde la crisis financiera, se emplea una medida alternativa construida en Wu & Xia (2014) llamada “shadow federal funds rate". Se encuentra que un choque de política monetaria contractiva en EUA ocasiona la respuesta esperada sobre sus principales variables domésticas y produce una disminución significativa y persistente de la actividad económica y de los precios en los países de la región.
    Keywords: GVAR, política monetaria, América Latina
    JEL: C32 E52 F41
    Date: 2015–12
  96. By: Shima'a Hanafy (University of Marburg)
    Abstract: We empirically analyse the determinants of inward foreign direct investment (FDI) in Egypt employing a novel panel dataset of 26 Egyptian governorates for the period 1992–2008. Using the case of Arab FDI to Egypt, we also investigate whether FDI location determinants are different depending on similarity of culture and language between FDI source and host region. Our results indicate that domestic private investment, well-functioning Free Zones, and labour abundance positively affect FDI location. In contrast to results for other countries, we find no significant effect of concentration of previous FDI stocks on the location of inward FDI. Moreover, regional investment preferential policies in Egypt—with the exception of Free Zones—do not affect the unequal spatial FDI distribution. Finally, we find that the location of Arab FDI inflows to Egypt is not sensitive to the usual determinants. Arab investors are more willing to invest in less investment-agglomerated areas and are less affected by economic considerations and incentives.
    Keywords: Foreign direct investment, FDI location, agglomeration, cultural similarity, regional FDI, Arab countries
    JEL: F21 E22 R12 O53 Z10
    Date: 2015
  97. By: Rajmund Mirdala
    Abstract: Fixed versus flexible exchange rate dilemma has become a subject of rigorous academic discussions for decades. Advantages of exchange rates flexibility contrasted benefits of exchange rate stability though a phenomenon known as the fear of floating favoured exchange rate variability and its positive effects on economies. Relative diversity in the exchange rate regimes in EU11 countries motivated many authors to investigate the sources of their real exchange rate volatility provided that even fixed exchange rates may fluctuate via adjustments in prices and wages. However, fixed exchange rate perspective associated with Eurozone membership may induce changed patterns in the real exchange rate determination in countries that benefit from nominal exchange rate flexibility prior to euro adoption. In the paper we analyse sources of real exchange rates fluctuations in EU11 countries. SVAR methodology and impulse-response functions will be employed to examine the responsiveness of real exchange rates to the underlying structural shocks by employing SVAR methodology. Our results indicate an increased responsiveness of real exchange rates in EMU non-member countries to demand and supply shocks, particularly due to the effects of the crisis period. At the same time, real exchange rates in EMU member countries became more responsive to nominal shocks.
    Keywords: real exhange rates, exogenous shocks, economic crisis, structural vector auto regression, impulse-response function
    JEL: C32 E52
    Date: 2015–12

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