nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒02‒12
eighty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Credit subsidies By Correia, Isabel; De Fiore, Fiorella; Teles, Pedro; Tristani, Oreste
  2. International Transmissions of Monetary Shocks By Han, Xuehui; Wei, Shang-Jin
  3. Monetary Policy According to HANK By Kaplan, Greg; Moll, Benjamin; Violante, Giovanni L.
  4. COEURE Survey: Fiscal and Monetary Policies after the Crises By Brendon, Charles; Corsetti, Giancarlo
  5. The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle? By Hagedorn, Marcus; Manovskii, Iourii; Mitman, Kurt
  6. Stagnation Traps By Benigno, Gianluca; Fornaro, Luca
  7. Stagnation Traps By Gianluca Benigno; Luca Fornaro
  8. Aggregate Hiring and the Value of Jobs Along the Business Cycle By Yashiv, Eran
  9. Behavioral Macroeconomics Via Sparse Dynamic Programming By Gabaix, Xavier
  10. Unemployment and econometric learning By Daniel Schaefer; Carl A. Singleton
  11. A simple model of subprime borrowers and credit growth By Justiniano, Alejandro; Primiceri, Giorgio E.; Tambalotti, Andrea
  12. A Simple Model of Subprime Borrowers and Credit Growth By Justiniano, Alejandro; Primiceri, Giorgio E; Tambalotti, Andrea
  13. Informal Labour Markets in Pakistan By M. Ali Choudhary; Saima Mahmood; Gylfi Zoega
  14. Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality By Fagereng, Andreas; Guiso, Luigi; Malacrino, Davide; Pistaferri, Luigi
  15. The role of start-ups in structural transformation By Dent, Robert C.; Karahan, Fatih; Pugsley, Benjamin; Sahin, Aysegul
  16. Household debt in OECD countries: Stylised facts and policy issues By Christophe André
  17. Should the ‘outs’ join the European banking union? By Pia Hüttl; Dirk Schoenmaker
  18. Working Hard in the Wrong Place: A Mismatch-Based Explanation to the UK Productivity Puzzle By Patterson, Christina; Sahin, Aysegul; Topa, Giorgio; Violante, Giovanni L.
  19. Money demand under free banking: Switzerland 1851-1906 By Gerlach, Stefan; Kugler, Peter
  20. Time-varying Consumption Tax, Productive Government Spending, and Aggregate Instability By Mauro Bambi; Alain Venditti
  21. The U.S. oil supply revolution and the global economy By Mohaddes, Kamiar; Raissi, Mehdi
  22. International Housing Markets, Unconventional Monetary Policy and the Zero Lower Bound By Florian Huber; Maria Teresa Punzi
  23. Banking Crisis, Moral Hazard and Fiscal Policy Responses. By Jin Cheng; Meixing Dai; Frédéric Dufourt
  24. When is there more employment, with individual or collective wage setting? By Valeri Sorolla; José Ramón García
  25. Macroeconomic Effects of Bankruptcy and Foreclosure Policies By Mitman, Kurt
  26. Japan's Currency Intervention Regimes: A Microstructural Analysis with Speculation and Sentiment By Ronald McDonald; Xuxin Mao
  27. Finance and Synchronization By Cesa-Bianchi, Ambrogio; Imbs, Jean; Saleheen, Jumana
  28. New and timely statistical indicators on government debt securities By Hartwig Lojsch, Dagmar; Dias, Jorge Diz; Pérez, Asier Cornejo
  29. The implications of liquidity expansion in China for the US dollar By Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L.
  30. The Swiss Business Cycle and the Lead of Small Neighbor Liechtenstein By Andreas Brunhart
  31. Fiscal Consolidation by Austerity and EU Surveillance Policies By Iancu, Aurel; Olteanu, Dan
  32. Personal Insolvency Dynamics in Germany and the UK – A SUR-TAR Approach By Eva Arnold; Nadja König
  33. Household Borrowing and the Possibility of “Consumption-Driven, Profit-Led Growth†By Mark Setterfield; Yun K. Kim
  34. The US Phillips Curve: Back to the 60s? By Olivier J. Blanchard
  35. Monetary Policy and Corporate Bond Returns By Alexandros Kontonikas; Paulo Maio; Zivile Zekaite
  36. Macroprudential policy under uncertainty By Bahaj, Saleem; Foulis, Angus
  37. Overcoming the Euro Crisis and Prospects for a Political Union By Paul J.J. Welfens
  38. Interbank market and central bank policy By Ahn, Jung-Hyun; Bignon, Vincent; Breton, Régis; Martin, Antoine
  39. Uncertainty Shocks and Unemployment Dynamics in U.S. Recessions By Giovanni Caggiano; Efrem Castelnuovo; Nicolas Groshenny
  40. Slowdown in Emerging Markets: Rough Patch or Prolonged Weakness? By Didier, Tatiana; Kose, Ayhan; Ohnsorge, Franziska; Ye, Lei Sandy
  41. Fiscal policy and the cycle in Latin America: the role of financing conditions and fiscal rules By Enrique Alberola-Ila; Iván Kataryniuk; Ángel Melguizo; René Orozco
  42. Technical change biased toward the traded sector and labor market frictions. By Luisito Bertinelli; Olivier Cardi; Romain Restout
  43. What we learn from China's rising shadow banking: exploring the nexus of monetary tightening and banks' role in entrusted lending By Chen, Kaiji; Ren, Jue; Zha, Tao
  44. The Dynamics of Inequality By Gabaix, Xavier; Lasry, Jean-Michel; Lions, Pierre-Louis; Moll, Benjamin
  45. Does Money Impede Convergence? By John Hey; Daniela Di Cagno
  46. A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance By Tianhao Zhi
  47. Estimating Fiscal Multipliers:News From a Nonlinear World By Giovanni Caggiano; Efrem Castelnuovo; Valentina Colombo; Gabriela Nodari
  48. Fiscal Shocks in a Two-Sector Open Economy with Endogenous Markups By Olivier Cardi; Romain Restout
  49. Is there macroprudential policy without international cooperation? By Cecchetti, Stephen G; Tucker, Paul
  50. Unconventional Monetary Policy and Bank Lending By Nobuhiko Mitani
  51. The Comparative African Regional Economics of Globalization in Financial Allocation Efficiency By Simplice Asongu; Vanessa Tchamyou
  52. Pricing in the Norwegian interbank market – the effects of liquidity and implicit government support By Q. Farooq Akram; Casper Christophersen
  53. "Complementary Currencies and Economic Stability" By Dimitri B. Papadimitriou
  54. Choosing a Control Group for Displaced Workers By Krolikowski, Pawel
  55. Back to background risk? By Fagereng, Andreas; Guiso, Luigi; Pistaferri, Luigi
  56. Solution and Estimation Methods for DSGE Models By Fernández-Villaverde, Jesús; Rubio-Ramírez, Juan Francisco; Schorfheide, Frank
  57. The Quantity Theory of Money Revisited: The Improved Short-Term Predictive Power of of Household Money Holdings with Regard to prices By Jean-Charles Bricongne
  58. The Signaling Effect and Optimal LOLR Policy By Mei Li; Frank Milne; Junfeng Qiu
  59. ROMANIAN BANKING SYSTEM REACTION TO THE FINANCIAL AND ECONOMIC CRISIS FOLLOWING THE E3MG MODEL SCENARIOS OF POLLITT AND BARKER (International Conference "Recent Advances in Economic and Social Research", 13-14 mai 2015, București) By Țâmpu Diana Larisa
  60. The QE experience : Worth a try ? By Christophe Blot; Jérôme Creel; Paul Hubert; Fabien Labondance
  61. The evolution of the gender gap in industrialized countries. By Olivetti, Claudia; Petrongolo, Barbara
  62. Economic conditions and monetary policy in a changing world By Kaplan, Robert Steven
  63. Public Debt, Economic Growth and the Real Interest Rate:A Panel VAR Approach to EU and OECD Countries By Kazuo Ogawa; Elmer Sterken; Ichiro Tokutsu
  64. Does income inequality affect aggregate consumption? Revisiting the evidence By Jesus Crespo Cuaresma; Jozef Kubala; Kristina Petrikova
  65. Sustainable development and industrial development: Manufacturing environmental performance, technology and consumption/production perspectives By Mazzanti, M.; Nicolli, F.; Marin, G.; Gilli, M.
  66. The welfare cost of inflation and the regulations of money substitutes By Eden,Benjamin; Eden,Maya
  67. Liquidity traps, capital flows By Acharya, Sushant; Bengui, Julien
  68. Poverty traps: the neglected role of vitality By Meysonnat, Aline; Muysken, Joan; Zon, Adriaan van
  69. On the Asset Allocation of a Default Pension Fund By Dahlquist, Magnus; Setty, Ofer; Vestman, Roine
  70. Household Financial Planning and Savings Behavior By Brounen, Dirk; Koedijk, Kees; Pownall, Rachel A J
  71. Revisiting the Relationship Between Unemployment and Wages By Joao Alfredo Galindo da Fonseca; Giovanni Gallipoli; Yaniv Yedid-Levi
  72. Credit risk stress testing for EU15 banks: a model combination approach By George Papadopoulos; Savas Papadopoulos; Thomas Sager
  73. Approximating time varying structural models with time invariant structures By Fabio Canova; Christian Matthes
  74. HOW WE CAN RESTORE THE BALANCE IN THE ROMANIAN ENERGY MARKET (International Conference "Recent Advances in Economic and Social Research", 13-14 mai 2015, București) By Alina Cristea
  75. Three "Seismic Shifts" in the Global Economy and Policy Challenges By Nishimura, Kiyohiko G.
  76. Are small scale VARs useful for business cycle analysis? Revisiting Non-Fundamentalness By Canova, Fabio; Hamidi Sahneh, Mehdi
  77. Psychological Costs of Currency Transition: Evidence from Euro Adoption By Otrachshenko, Vladimir; Popova, Olga; Tavares, José
  78. Non-Separable Time Preferences and Novelty Consumption: Theory and Evidence from the East German Transition to Capitalism By Davide Dragone; Nicolas Ziebarth
  79. Bundling Governance: Finance versus Institutions in Private Investment Promotion By Simplice Asongu; Enowbi Batuo; Vanessa Tchamyou
  80. The Role of Bequests in Shaping Wealth Inequality: Evidence from Danish Wealth Records By Boserup, Simon H.; Kopczuk, Wojciech; Kreiner, Claus T.
  81. Balanced Growth Despite Uzawa By Grossman, Gene; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
  82. Systemic early warning systems for EU15 based on the 2008 crisis By Savas Papadopoulos; Pantelis Stavroulias; Thomas Sager

  1. By: Correia, Isabel; De Fiore, Fiorella; Teles, Pedro; Tristani, Oreste
    Abstract: In a model with costly financial intermediation and financial disturbances, credit subsidies are desirable, irrespective of how they are financed. They are especially useful when the zero lower bound constraint is reached. They are superior to other credit policies such as direct lending. JEL Classification: E31, E40, E44, E52, E58, E62, E63
    Keywords: banks, costly enforcement, credit policy, credit subsidies, monetary policy, zero-lower bound on nominal interest rates
    Date: 2016–01
  2. By: Han, Xuehui; Wei, Shang-Jin
    Abstract: This paper re-examines international transmissions of monetary policy shocks from advanced economies to emerging market economies. It combines three novel features. First, it separates co-movement in monetary policies due to common shocks from spillovers of monetary policies from advanced to peripheral economies. Second, it uses surprises in growth and inflation and the Taylor rule to gauge desired changes in a country’s interest rate if it focuses only on growth and inflation goals. Third, it proposes a specification that can work with the quantitative easing episodes when no changes in US interest rate are observed. We find that a flexible exchange rate regime per se does not deliver monetary policy autonomy (in contrast to the conclusions of Obstfeld (2015) and several others). Instead, some form of capital control appears necessary. Interestingly, a combination of capital controls and a flexible exchange rate may provide the most buffer for developing countries against foreign monetary policy shocks.
    Keywords: capital control; exchange rate regime; monetary policy independence; Taylor Rule; trilemma
    JEL: E42 E43 E52
    Date: 2016–01
  3. By: Kaplan, Greg; Moll, Benjamin; Violante, Giovanni L.
    Abstract: We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption.
    Keywords: consumption; earnings kurtosis; heterogeneous agents; inequality; liquidity; monetary policy; New Keynesian
    JEL: D14 D31 E21 E52
    Date: 2016–01
  4. By: Brendon, Charles; Corsetti, Giancarlo
    Abstract: We review the recent literature on macroeconomic stabilisation policy, with a particular focus on two major challenges that are particular to the post-crisis land- scape. These are, first, how to provide meaningful economic stimulus when the zero lower bound on nominal interest rates is binding. Second, how to design a stabilisation policy for the Eurozone that will remedy the large macroeconomic imbalances among member states.
    Keywords: Euro-area crisis; Global Crisis; Stabilization Policies; Zero Lower Bound
    JEL: E31 E32 E52 E58 E62
    Date: 2016–01
  5. By: Hagedorn, Marcus; Manovskii, Iourii; Mitman, Kurt
    Abstract: We measure the aggregate effect of unemployment benefit duration on employment and the labor force. We exploit the variation induced by Congress' failure in December 2013 to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. Our baseline estimates reveal that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.019 log points. In levels, 2.1 million individuals secured employment in 2014 due to the benefit cut. More than 1.1 million of these workers would not have participated in the labor market had benefit extensions been reauthorized.
    Keywords: aggregate employment; labor force; macroeconomic stabilization; search and matching; unemployment insurance
    JEL: E24 E62 E65 J65
    Date: 2016–01
  6. By: Benigno, Gianluca; Fornaro, Luca
    Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
    Keywords: endogenous growth; growth traps; liquidity traps; multiple equilibria; secular stagnation
    JEL: E32 E43 E52
    Date: 2016–01
  7. By: Gianluca Benigno (Department of Economics, London School of Economics (LSE); Centre for Economic Policy Research (CEPR); Centre for Macroeconomics (CFM)); Luca Fornaro (Centre for Economic Policy Research (CEPR); Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate School of Economics (Barcelona GSE); Departament d'Economia i Empresa Universitat Pompeu Fabra Barcelona Graduate School of Economics (Barcelona GSE))
    Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
    Keywords: Secular Stagnation, Liquidity Traps, Growth Traps, Endogenous Growth, Multiple Equilibria
    JEL: E32 E43 E52 O42
    Date: 2015–01
  8. By: Yashiv, Eran
    Abstract: U.S. CPS data indicate that in recessions firms actually increase their hiring rates from the pools of the unemployed and out of the labor force. Why so? The paper provides an explanation by studying the optimal recruiting behavior of the representative firm. The model combines labor frictions, of the search and matching type, with capital frictions, of the q-model type. Optimal firm behavior is a function of the value of jobs, i.e., the expected present value of the marginal worker to the firm. These are estimated to be counter-cyclical, the underlying reason being the dynamic behavior of the labor share of GDP. The counter-cyclicality of hiring rates and job values, which may appear counter-intuitive, is shown to be consistent with well-known business cycle facts. The analysis emphasizes the difference between current labor productivity and the wider, forward-looking concept of job values. The paper explains the high volatility of firm recruiting behavior, as well as the reduction over time in labor market fluidity in the U.S., using the same estimated model. Part of the explanation has to do with job values and another part with the interaction of hiring and investment costs, both determinants having been typically overlooked.
    Keywords: aggregate hiring; business cycles; capital market frictions; job values; labor market fluidity; labor market frictions; vacancies; volatility
    JEL: E24 E32
    Date: 2016–01
  9. By: Gabaix, Xavier
    Abstract: This paper proposes a tractable way to model boundedly rational dynamic programming. The agent uses an endogenously simplified, or "sparse," model of the world and the consequences of his actions and acts according to a behavioral Bellman equation. The framework yields a behavioral version of some of the canonical models in macroeconomics and finance. In the life-cycle model, the agent initially does not pay much attention to retirement and undersaves; late in life, he progressively saves more, generating realistic dynamics. In the consumption-savings model, the consumer decides to pay little or no attention to the interest rate and more attention to his income. Ricardian equivalence and the Lucas critique partially fail because the consumer may not pay full attention to taxes and policy changes. In a Mertonstyle dynamic portfolio choice problem, the agent endogenously pays limited or no attention to the varying equity premium and hedging demand terms. Finally, in the neoclassical growth model, agents act on a simplified model of the macroeconomy; in equilibrium, fluctuations are larger and more persistent.
    Keywords: Bounded rationality; inattention; simplification
    JEL: D03 E21 E6 G02
    Date: 2015–12
  10. By: Daniel Schaefer; Carl A. Singleton
    Abstract: We apply well-known results of the econometric learning literature to the Mortensen-Pissarides real business cycle model. The unique rational expectations equilibrium (REE) is always expectationally stable with decreasing gain learning, and this result is robust to over-parametrisation of the econometric model relative to the minimum state variable form used by agents. And so, from this perspective, the assumption of rational expectations in the model is not unreasonable. However, using a parametrisation with UK data, simulations suggest that the implied rate of convergence to the REE with least squares learning is slow. The cyclical response of unemployment to structural shocks is muted under learning, and a parametrisation which guarantees root-t convergence is generally not consistent with attempts to match the observed volatility of labour market data using the standard model.
    Keywords: real business cycle, unemployment, adaptive learning, expectational stability
    JEL: E24 E32 J64
    Date: 2016–01–26
  11. By: Justiniano, Alejandro (Federal Reserve Bank of Chicago); Primiceri, Giorgio E. (Northwestern University); Tambalotti, Andrea (Federal Reserve Bank of New York)
    Abstract: The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi 2009). We present a simple model of prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Owing to their low incomes, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on disproportionately more debt than their prime counterparts, who are not subject to that constraint.
    Keywords: home prices; housing boom; household debt; credit supply; collateral constraints
    JEL: E21 E44 G21
    Date: 2016–02–01
  12. By: Justiniano, Alejandro; Primiceri, Giorgio E; Tambalotti, Andrea
    Abstract: The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi, 2009). We present a simple model with prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Due to their low income, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on disproportionately more debt than their prime counterparts, who are not subject to that constraint.
    Keywords: collateral constraint; credit supply; house price; household debt; housing boom
    JEL: E21 E44 G21
    Date: 2016–01
  13. By: M. Ali Choudhary (State Bank of Pakistan); Saima Mahmood (University of Iceland); Gylfi Zoega (University of Iceland; Birkbeck, University of London)
    Abstract: This paper describes the results of a survey of informal-sector firms in Pakistan. Firms belong to the informal sector mainly because of scarce financial resources. There are significant differences in the level of wages and the flexibility of wages with the informal sector having both lower wages and greater flexibility than the formal sector. While minimum wages are less binding in the informal sector, indexation of wages to inflation is more common. In spite of these differences the reasons for not cutting wages in a recession are similar between the two sectors.
    Keywords: Informal sector, wage setting, wage rigidity.
    JEL: E24 E26 J31
    Date: 2015–09
  14. By: Fagereng, Andreas; Guiso, Luigi; Malacrino, Davide; Pistaferri, Luigi
    Abstract: Lacking a long time series on the assets of the very wealthy, Saez and Zucman (2015) use US tax records to obtain estimates of wealth holdings by capitalizing asset income from tax returns. They document marked upward trends in wealth concentration. We use data on tax returns and actual wealth holdings from tax records for the whole Norwegian population to test the robustness of the methodology. We document that measures of wealth based on the capitalization approach can lead to misleading conclusions about the level and the dynamics of wealth inequality if returns are heterogeneous and even moderately correlated with wealth.
    Keywords: Heterogeneity; Returns to Wealth; Wealth Inequality
    JEL: E13 E21 E24
    Date: 2016–01
  15. By: Dent, Robert C. (Federal Reserve Bank of New York); Karahan, Fatih (Federal Reserve Bank of New York); Pugsley, Benjamin (Federal Reserve Bank of New York); Sahin, Aysegul (Federal Reserve Bank of New York)
    Abstract: The U.S. economy has been going through a striking structural transformation—the secular reallocation of employment across sectors—over the past several decades. We propose a decomposition framework to assess the contributions of various margins of firm dynamics to this shift. Using firm-level data, we find that at least 50 percent of the adjustment has been taking place along the entry margin, owing to sectors receiving shares of start-up employment that differ from their overall employment shares. The rest is mostly the result of life cycle differences across sectors. Declining overall entry has a small but growing effect of dampening structural transformation.
    Keywords: structural transformation; employment dynamics; sectoral reallocation
    JEL: E24 J00 J23 L25
    Date: 2016–01–01
  16. By: Christophe André
    Abstract: Household debt has risen markedly since the turn of the century and stands at a historically high level in most OECD countries. This paper offers an overview of developments in household debt over the past decades across a large sample of OECD countries, highlighting both common trends and country specificities. It examines the vulnerabilities associated with high household debt for households, the financial system and the wider economy. Finally, it describes the challenges faced by policymakers at the current juncture and outlines responses in terms of monetary, micro and macro-prudential, and housing policies. L'endettement des ménages dans les pays de l'OCDE : Faits stylisés et questions de politique L'endettement des ménages a nettement augmenté depuis le début du siècle et se situe à un niveau historiquement élevé dans la plupart des pays de l'OCDE. Ce document donne un aperçu de l'évolution de l'endettement des ménages au cours des dernières décennies à travers un large échantillon de pays de l'OCDE, soulignant à la fois les tendances communes et les spécificités nationales. Il examine les vulnérabilités associées à un endettement élevé des ménages pour ces derniers, le système financier et l'économie en général. Enfin, il décrit les défis rencontrés par les décideurs politiques dans la conjoncture actuelle et esquisse des réponses en termes de politiques monétaire, micro et macro-prudentielles, et du logement.
    Keywords: monetary policy, housing market, household debt, housing policies, mortgages, financial stability, macroprudential policy, politique macroprudentielle, marchés immobiliers, dette des ménages, prêts hypothécaires, politique du logement, stabilité financière, politique monétaire
    JEL: D14 E21 E52 G21 G28 R21 R31
    Date: 2016–02–10
  17. By: Pia Hüttl; Dirk Schoenmaker
    Abstract: Highlights For political reasons, European Union member states’ opinions on joining banking union range from outright refusal to active consideration. The main stance is to wait and see how the banking union develops. The wait-and-see positions are often motivated by the consideration that joining banking union might imply joining the euro. However, in the long term, banking union’s ultimate rationale is linked to cross-border banking in the single market, which goes beyond the single currency. This Policy Contribution documents the banking linkages between the nine ‘outs’ and 19 ‘ins’ of the banking union. We find that some of the major banks based in Sweden and Denmark have substantial banking claims across the Nordic and Baltic regions. We also find large banking claims from banks based in the banking union on central and eastern Europe. The United Kingdom has a special position, with London as both a global and European financial centre. We find that the out countries could profit from joining banking union, because it would provide a stable arrangement for managing financial stability. Banking union allows for an integrated approach towards supervision (avoiding ring fencing of activities and therefore a higher cost of funding) and resolution (avoiding coordination failure). On the other hand, countries can preserve sovereignty over their banking systems outside the banking union. 1. Introduction Banking union, which consists of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), was a reply to one of the root-causes of the European debt crisis - the sovereign-banking loop. The vicious circle linking the solvency of euro-area countries to the solvency of their banks contributed to the crisis. The sovereign-bank loop works two ways. First, banks hold on their balance sheets large amounts of the bonds of their own governments (Merler and Pisani-Ferry, 2012; Battistini et al, 2014). Consequently, a deterioration of a government’s credit rating would automatically undermine the solvency of that country’s banks. Second, a weakening of a country’s banking system could have implications for the government’s budget because of the potential for a government-financed bank bailout, and because of lower tax revenues resulting from the subsequent economic downturn (Angeloni and Wolff, 2012)1. The euro area fell victim to the sovereign-bank loop because national central banks have given up control over the currency in which their debts are issued, putting the European Central Bank (ECB) in charge. To break the loop, a June 2012 summit of euro-area heads of state and government2 decided to move the responsibility for banking supervision to the euro-area level as a pre-condition for direct bank recapitalisation by the European Stability Mechanism (ESM)3. Moreover, the ECB was substantially exposed to banks because it was forced to provide them with liquidity without having supervisory control. If ex-post rescues are organised at European level, ex-ante supervision should also be moved to European level to minimise the need for such rescues (Goodhart and Schoenmaker, 2009). The essence of banking union is therefore supervision and resolution of banks at supranational level. While euro-area members have been included in all elements of the banking union by default, the SSM also allows non-euro area EU members to participate. For these countries, an important strategic question is if and when they should join part or all of banking union. On this question, opinions differ (Figure 1). Sweden declared in 2014 that it will not join banking union in the foreseeable future, and has not since changed its view substantially4, remaining the United Kingdom's main ally on this issue. By contrast, Denmark's government said in April 2015 that it wants to become part of the banking union, because it views it as being in the interests of its financial sector (Østergaard and Larsen, 2015)5. In central and eastern Europe, the Czech Republic remains sceptical about eventual participation in the banking union, and Hungary and Poland have also adopted wait-and-see approaches6. Bulgaria and Romania are more positive about joining banking union. In July 2014, Bulgaria said it would seek to join banking union after poor supervision led to the collapse of its fourth biggest lender7. Romania too has embraced the idea of joining banking union from early on (Isarescu, 2013). [infogram id="new_map___all_of_europe" prefix="SEh" format="interactive" title="new map - All of Europe"] These wait-and-see positions are often motivated by the consideration that joining banking union might imply joining the euro. However, we argue that in the long-term, banking union’s ultimate rationale is more linked to cross-border banking in the single market, which goes beyond the single currency. Therefore, the debate about whether to opt in to banking union is not necessarily a debate about joining the full package, eg joining both the euro and banking union.
    Date: 2016–02
  18. By: Patterson, Christina; Sahin, Aysegul; Topa, Giorgio; Violante, Giovanni L.
    Abstract: The UK experienced an unusually prolonged stagnation in labor productivity in the aftermath of the Great Recession. This paper analyzes the role of sectoral labor misallocation in accounting for this “productivity puzzle.” If jobseekers disproportionately search for jobs in sectors where productivity is relatively low, hires are concentrated in the wrong sectors, and the post-recession recovery in aggregate productivity can be slow. Our calculations suggest that, quantified at the level of three-digit occupations, this mechanism can explain up to two thirds of the deviations from trend-growth in UK labor productivity since 2007.
    Keywords: Mismatch; Occupation; Productivity
    JEL: E24 J24 J63
    Date: 2016–01
  19. By: Gerlach, Stefan; Kugler, Peter
    Abstract: This paper studies money demand in Switzerland under free banking before the establishment of the Swiss National Bank. We find that, in addition to income and the interest rate of savings deposits, the number of banks was an important determinant of long run money demand. It also played a role in the monetary adjustment process. We also detect a strong positive long run impact of real income and the interest rate spread on the number of banks. Moreover, positive deviation of the number of banks from long run equilibrium leads to a decrease in the money stock and leads to a fall in interest rates and an increase in real income.
    Keywords: free banking; monetary dynamics; money demand; Switzerland
    JEL: E41 E42 N13
    Date: 2015–12
  20. By: Mauro Bambi; Alain Venditti
    Abstract: In this paper we study the dynamics of an economy with productive government spending under the assumption that the government balances its budget by levying endogenous non-linear consumption taxes. For standard specifcation of the utility function and production function, we prove that under counter-cyclical consumption taxes, while there exists a unique balanced growth path, sunspot equilibria based on self-fulfilling expectations occur through a form of global indeterminacy.
    Keywords: Endogenous growth, time-varying consumption tax, global indeterminacy, self-fulfilling expectations, sunspot equilibria.
    JEL: C62 E32 H20 O41
    Date: 2016–01
  21. By: Mohaddes, Kamiar (Girton College and University of Cambridge); Raissi, Mehdi (International Monetary Fund)
    Abstract: This paper investigates the global macroeconomic consequences of falling oil prices due to the oil revolution in the United States, using a Global VAR model estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved through imposing dynamic sign restrictions on the impulse responses of the model. The results show that there are considerable heterogeneities in the responses of different countries to a U.S. supply-driven oil price shock, with real GDP increasing in both advanced and emerging market oil-importing economies, output declining in commodity exporters, inflation falling in most countries, and equity prices rising worldwide. Overall, our results suggest that following the U.S. oil revolution, with oil prices falling by 51 percent in the first year, global growth increases by 0.16 to 0.37 percentage points. This is mainly due to an increase in spending by oil importing countries, which exceeds the decline in expenditure by oil exporters.
    JEL: C32 E17 F44 F47 O13 Q43
    Date: 2016–01–01
  22. By: Florian Huber (Department of Economics, Vienna University of Economics and Business); Maria Teresa Punzi (Department of Economics, Vienna University of Economics and Business)
    Abstract: In this paper we propose a time-varying parameter VAR model for the housing market in the United States, the United Kingdom, Japan and the Euro Area. For these four economies, we answer the following research questions: (i) How can we evaluate the stance of monetary policy when the policy rate hits the zero lower bound? (ii) Can developments in the housing market still be explained by policy measures adopted by central banks? (iii) Did central banks succeed in mitigating the detrimental impact of the financial crisis on selected housing variables? We analyze the relationship between unconventional monetary policy and the housing markets by using the shadow interest rate estimated by Krippner (2013b). Our findings suggest that the monetary policy transmission mechanism to the housing market has not changed with the implementation of quantitative easing or forward guidance, and central banks can affect the composition of an investors portfolio through investment in housing. A counterfactual exercise provides some evidence that unconventional monetary policy has been particularly successful in dampening the consequences of the financial crisis on housing markets in the United States, while the effects are more muted in the other countries considered in this study.
    Keywords: Zero Lower Bound, Shadow interest rate, Housing Market, Time-varying parameter VAR
    JEL: C32 E23 E32
    Date: 2016–01
  23. By: Jin Cheng; Meixing Dai; Frédéric Dufourt
    Abstract: This paper examines the role of fiscal policy as prudential instrument in preventing banking crisis in a framework where the government faces the tradeoff between the supply of public services and the stabilization of the banking system. We advocate that in a monetary union, the national governments without monetary autonomy should redesign their fiscal policy to prevent financial crises due to the moral hazard of banking entrepreneurs whose incentives are distorted by their expectations of ex-post bailout. We show that the government has incentive to bail out banks under both discretion and commitment if the banking sector is relatively influential. To prevent financial fragility, the pre-committed fiscal bailout policy should be time-consistent and incite banks to keep sufficient liquidity reserves and a low leverage ratio. Such policy could be efficiently complemented by public lending with a pre-announced interest rate that reduces banks’ moral hazard incentives but not their normal risk-taking.
    Keywords: Banking crisis, capital ratio, over risk-taking, too big to fail, fiscal bailout, fiscal policy, government put, moral hazard, crisis resolution, public lending.
    JEL: E44 G01 G11 G28 H21 H32
    Date: 2015
  24. By: Valeri Sorolla; José Ramón García
    Abstract: With the standard Diamond-Mortensen-Pissarides labor market with frictions we analyze when there is more employment with individual wage setting compared to collective wage setting, using a wage equation generated by the standard total surplus sharing rule. Using a Cobb-Douglas production function we ?find that if the bargaining power of the individual is high compared to the bargaining power of the union there is more unemployment with individual wage setting and the opposite is also true. When the individual worker and the union have the same bargaining power, if the cost of open a vacancy is high enough, there is more unemployment with individual wage setting. Finally, for a constant marginal product of labor production function AL, when the individual worker and the union have the same bargaining power, individual bargaining produces more unemployment.
    Keywords: matching frictions, unemployment, individual and collective wage setting
    JEL: E24 O41
    Date: 2015–09
  25. By: Mitman, Kurt
    Abstract: I study the implications of two major debt-relief policies in the US: the Bankruptcy Abuse and Consumer Protection Act (BAPCPA) and the Home Affordable Refinance Program (HARP). To do so, I develop a model of housing and default that includes relevant dimensions of credit-market policy and captures rich heterogeneity in household balance sheets. The model also explains the observed cross-state variation in consumer default rates. I find that BAPCPA significantly reduced bankruptcy rates, but increased foreclosure rates when house prices fell. HARP reduced foreclosures by one percentage point and provided substantial welfare gains to households with high loan-to-value mortgages.
    Keywords: bankruptcy; default risk; foreclosure; household debt; housing
    JEL: E21 G11 K35 R21
    Date: 2016–01
  26. By: Ronald McDonald; Xuxin Mao
    Abstract: his paper provides a unique examination of three sep- arate regimes of Japanese currency interventions between 1991 and 2004. It is the first research to jointly test the coordination and signalling chan- nels and the reaction function of central banks in an identified structural framework. The empirical research also involves testing an innovative microstructure framework considering 'sentiment' and fundamental infor- mation. There are several important ndings based on the analysis of the pa- per. Firstly, the shocks to the bond yield differential are the key driving force of the dynamics of the JPY/USD exchange rate, and have a strong long-run impact on speculation and sentiment. Secondly, with respect to the reaction function of the central bank, the interventions happened in clusters, and were the reactions to sharp appreciations of the JPY ap- preciation. Between 2003 and 2004, the central bank also reacted to the large speculation position and high sentiment on the yen's appreciation. Thirdly, the signalling channel was effective when the interventions were frequent. Fourthly, speculation and sentiment had strong effects on the changes in the exchange rate, and the coordination channel worked when the changes in exchange rate volatility were slow
    Keywords: Cointegrated VAR, Currency Intervention, Forward Rate Bias, Microstructure, Sentiment Measures, Speculation, Transmission Chan- nel, Reaction Function
    JEL: E31 E43 F31 F32
    Date: 2016–01
  27. By: Cesa-Bianchi, Ambrogio; Imbs, Jean; Saleheen, Jumana
    Abstract: It is well known that the bulk of international financial flows across countries are driven by common shocks. In response to these common shocks, we find that capital tends to flow systematically between the same types of countries, while the discrepancy between GDP growth rates widens. Thus, in the data synchronization falls when financial linkages rise, but only so in response to common shocks. In contrast, financial linkages tend to increase the synchronization of business cycles in response to purely country-specific shocks.
    Keywords: Business Cycle Synchronization; Common Shocks; Contagion; Financial Linkages; Idiosyncratic Shocks
    JEL: E32 F15 F36 G21 G28
    Date: 2016–01
  28. By: Hartwig Lojsch, Dagmar; Dias, Jorge Diz; Pérez, Asier Cornejo
    Abstract: New monthly statistical indicators on government debt securities for euro area countries have now been developed on the basis of the information contained in the Centralised Securities Database (CSDB), an internal database available to the European System of Central Banks (ESCB). The CSDB is jointly operated by the ESCB and contains timely and high-quality security-by-security reference data on debt securities, equities and investment funds. The new indicators on government debt securities provide an indication of the expected disbursements made for the servicing of issued debt securities together with the associated interest rate (nominal yield), broken down by country, original and remaining maturity, currency and type of coupon rate. This paper describes in detail the newly compiled statistical information and thus contributes to further describing the euro area government bond markets. The new indicators on euro area government debt securities are also highly relevant for policy-making and monetary and fiscal analyses. They indicate that, as at December 2014, the debt service scheduled for such securities in 2015 stood at approximately 15.9% of GDP (€1.6 trillion). This is associated with an average nominal yield on outstanding government debt securities for the euro area as a whole of 3.1% per annum. Both of these indicators have followed a decreasing path in recent periods. The new indicators also reveal some heterogeneity within the euro area: Italy shows the highest debt service and Luxembourg the lowest, while the debt securities issued by Germany have the lowest average nominal yield and Lithuanian ones the highest. JEL Classification: E62, H63, H68
    Keywords: debt securities, euro area, Government debt
    Date: 2015–06
  29. By: Kang, Wensheng (Kent State University); Ratti, Ronald A. (Western Sydney University); Vespignani, Joaquin L. (University of Tasmania)
    Abstract: The 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.
    JEL: E41 E51 F31 F41
    Date: 2016–01–01
  30. By: Andreas Brunhart (Liechtenstein-Institut)
    Abstract: Der vorliegende Beitrag untersucht den schweizerischen Konjunkturzyklus vergleichend mit den fünf angrenzenden Staaten Deutschland, Österreich, Italien, Frankreich und Liechtenstein. In Kontrast zu der weitverbreiteten Auffassung, dass kleine Staaten ihren Konjunkturzyklus von Grossstaaten „importieren“, kann gezeigt werden, dass das reale BIP des Klein(st)staates Liechtenstein einen Vorlaufindikator für die Volkswirtschaft der Schweiz darstellt, sowohl was die Wachstumsraten als auch die Trendabweichung (Produktionslücke) betrifft. Diese Schlussfolgerung, auf Jahresdaten für 1972 bis 2013 gestützt, beruht auf Kreuzkorrelationsanalysen sowie univariaten und multivariaten Granger-Kausalitätstests. Der statistisch signifikante Vorlauf von einem Jahr ist robust für alle verwendeten Länder-Samples, Zeitfenster der vorliegenden Jahresbeobachtungen und Modellspezifikationen. Dieses Ergebnis deutet die Möglichkeit an, dass Mikrostaaten nicht nur ausländischen Schocks stärker ausgesetzt sind, empfindlicher auf internationale Fluktuationen reagieren und volatiler als Grossstaaten sind – alles stilisierte Fakten der Literatur der Kleinstaaten-Ökonomie –, sondern dass deren Konjunkturzyklen auch früher betroffen sind. This contribution investigates the business cycles of Switzerland compared to its five neighboring countries Germany, Austria, Italy, France and Liechtenstein. In contrast to the widespread notion of small countries “importing” the business cycle from bigger neighbors, it is shown that the real GDP of the very small neighboring country Liechtenstein is a leading indicator for Switzerland’s economy, regarding the growth rates as well as the output gap. This finding is based on cross correlation analyses and univariate and multivariate Granger causality tests, applying annual data from 1972 until 2013. The significant lead of one year is robust across all the various countrysamples, time frames and model specifications. This conclusion indicates the possibility that small nations are not only more opposed to foreign shocks, react more sensitively to international economic fluctuations, and are more volatile than big nations – all stylized facts from small state economics literature –, but that their business cycles are also affected earlier.
    Keywords: Konjunkturzyklus, Vorlaufindikatoren, Schweiz, Liechtenstein, VAR, Granger-Kausalität
    JEL: C22 C32 E32 O52
    Date: 2015–10
  31. By: Iancu, Aurel (National Institute of Economic Research, Romanian Academy); Olteanu, Dan (National Institute of Economic Research, Romanian Academy)
    Abstract: After a brief introduction dealing with critical opinions of some economists on the European austerity policy, the authors point out that austerity as a means of achieving fiscal consolidation and financial stability is applied when the fiscal domain is weak. After analyzing the effects of the 2009 crisis on some indicators and austerity measures taken by almost all EU countries, the study presents the content and the role of the EU fiscal compact and methodology used to support the fiscal consolidation measures. Most of the study consists in the analysis of the outcome of this methodology (through indicators, key-equations, graphs) revealing the relationships between indicators: effective GDP and potential GDP, production variation, effective, cyclical and structural deficits as well as the deficit in the balance of payments. The paper reveals some shortcomings of the new mechanism which affect the development of some major segments of the real economy, such as public investments, and further the economic potential growth on medium and long terms.
    Keywords: fiscal policy, budget deficits, structural deficits, austerity, fiscal consolidation, the golden rule of public finance, economic growth
    JEL: E62 F02 H2 H5 H6 H7
    Date: 2015–12
  32. By: Eva Arnold (Universität Hamburg (University of Hamburg)); Nadja König (Universität Hamburg (University of Hamburg))
    Abstract: This paper analyses the dynamics of personal insolvencies in Germany and the UK, focusing on the recent recession. These countries are particularly interesting as they are both member countries of the European Union, yet have completely different approaches to deal with overindebted individuals. In Germany unfortunate households who file on their debt are required to undergo a relatively long restructuring period until they eventually receive debt relief, whereas British debtors can choose proceeding out of many alternatives to manage their debt. Even under the official bankruptcy option, debt gets discharged relatively fast. In line with their different insolvency procedures, the two countries also represent two different financial systems: the German system is rather bank-based and the UK system rather market-based. The underlying financial systems already point to different patterns of lending across countries and hence, also to different structures of debt. Specifically, we are interested in the dynamics of petitions and actual insolvencies during the crisis as well as their reaction to exogeneous macroeconomic and financial conditions. The findings suggest that insolvencies are more persistent in the UK than in Germany, i.e. after an external shock it takes longer for insolvencies to return to their previous level in the UK. In both countries, the recent recession has no effect on petitions to default, but it has an effect on actual insolvencies in the UK suggesting that debtors rather opted for official procedures during the recession.
    Keywords: Private Household Debt, Personal Insolvency Laws, Recessions
    JEL: E44 G01 G21 K49
    Date: 2016–02
  33. By: Mark Setterfield; Yun K. Kim
    Abstract: We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers’ consumption behavior, under different assumptions about how debt is serviced. Our results demonstrate that borrowing and emulation transform the relationship between distribution and growth, giving rise to the possibility of a “consumption-driven, profit-led†growth regime (Kapeller and Schütz, 2015) and what we call the “paradox of inequalityâ€. A key conclusion is that the wage-or-profit led characteristics of the growth process, rather than being invariant, can be altered by social constructs such as borrowing and consumption norms that change over time
    Keywords: Borrowing, saving, emulation, debt servicing, wage-led growth, profit-led growth
    JEL: E12 E44 O41
    Date: 2016–01
  34. By: Olivier J. Blanchard (Peterson Institute for International Economics)
    Abstract: Blanchard reexamines the behavior of inflation and unemployment and reaches four conclusions: (1) Low unemployment still pushes inflation up; high unemployment pushes it down. Put another way, the US Phillips curve is alive. (2) Inflation expectations, however, have become steadily more anchored, leading to a relation between the unemployment rate and the level of inflation rather than the change in inflation. In this sense, the relation resembles more the Phillips curve of the 1960s than the accelerationist Phillips curve of the later period. (3) The slope of the Phillips curve, i.e., the effect of the unemployment rate on inflation given expected inflation, has substantially declined. But the decline dates back to the 1980s rather than to the crisis. There is no evidence of a further decline during the crisis. (4) The standard error of the residual in the relation is large, especially in comparison to the low level of inflation. Each of the last three conclusions presents challenges for the conduct of monetary policy. Wisdom gained from the experience of the 1960s and later will be needed.
    Date: 2016–01
  35. By: Alexandros Kontonikas; Paulo Maio; Zivile Zekaite
    Abstract: We investigate the impact of monetary policy shocks, measured as the surprise change in the Fed Funds rate (FFR), on the excess returns of U.S. corporate bonds. We obtain a significant negative response of excess bond returns to shocks in FFR, and this effect is especially strong in the period before the 2007-09 financial crisis and for bonds with longer maturity and lower rating. By using a VAR-based decomposition for excess bond returns, our results show that the largest part of the contemporaneous negative response of corporate bond returns to monetary policy tightening can be attributed to higher expected excess bond returns (higher bond risk premia). Therefore, the discount rate channel represents an important mechanism through which monetary policy affect corporate bonds. Our results also show that the importance of this eect has declined after the financial crisis
    Keywords: Corporate Bond Market, Variance Decomposition, Monetary Policy
    JEL: G10 G12 E44 E52
    Date: 2016–01
  36. By: Bahaj, Saleem (Bank of England); Foulis, Angus (Bank of England)
    Abstract: We argue that the uncertainty over the impact of macroprudential policy need not make a policymaker more cautious. Our starting point is the classic result of Brainard (1967) which finds that uncertainty over the impact of a policy instrument will make a policymaker less active. This result is challenged in a series of richer models designed to take into account the more complex reality faced by a macroprudential policymaker. We find that the presence of unquantifiable sources of risk, potential asymmetries in policy objectives, the ability to learn from policy actions, and private sector uncertainty over policy objectives can all lead to more active policy in the face of uncertainty.
    Keywords: Macroprudential policy; robust control; Linex; uncertainty
    JEL: D81 E58
    Date: 2016–01–29
  37. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW); Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The euro crisis and a new debate about immigration in Europe have undermined support for the EU while the unsolved Greek debt problems as well as the ECB’s quantitative easing policy have raised new crucial policy issues. It is necessary to identify the key issues of Eurozone stabilization and to clarify the economic benefits from monetary integration. As regards the economic welfare analysis of the euro, the new model presented shows the benefits of the euro’s reserve currency position, namely in the framework of a neoclassical growth model with seigniorage based on international reserve holdings. Discounted benefits are about 10 000 € per capita in a stable Euro area. Thus the benefits are bigger than often considered, at the same time one may raise the question of whether the existing institutional setting of the Eurozone is sufficient for achieving long-term stability and prosperity. As regards the envisaged third rescue package for Greece it is emphasized that a haircut of public creditors along with adoption of a Greek capital levy plus privatization efforts are required to achieve debt sustainability and growth. The traditional interpretation of subsidiarity in the EU is found to be misleading and the vertical division of politics is destabilizing.
    Keywords: Potential Output, Innovation, Knowledge Production Function, Macroeconomics, Globalization
    JEL: E23 F02
    Date: 2015–07
  38. By: Ahn, Jung-Hyun (NEOMA Business School); Bignon, Vincent (Banque de France); Breton, Régis (Banque de France); Martin, Antoine (Federal Reserve Bank of New York)
    Abstract: We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal amount. The model endogenously generates a situation of cash hoarding, leading to the associated market freezes or underinsurance against liquidity choice. The model therefore provides a unified framework for thinking, on the one hand, about policy measures that can reduce hoarding of cash by banks and, on the other hand, about liquidity requirements of the type imposed by the new Basel III regulation. In our model, banks hold tradable and nontradable assets. Nontradable assets are subject to a liquidity shock, and an injection of cash is required for the asset to mature if it is hit by the shock. Banks have access to an interbank market on which they obtain cash against their tradable securities. The quantity of cash obtained on this market is determined endogenously by the market value of the tradable assets and is subject to cash-in-the-market pricing. Banks holding an asset that turns out to be bad may be constrained on the interbank market and therefore may have to interrupt their nontradable project.
    Keywords: money market; liquidity regulation; nonconventional monetary policy; cash-in-the-market pricing
    JEL: E58 G21 G28
    Date: 2016–01–01
  39. By: Giovanni Caggiano (University of Padova); Efrem Castelnuovo (University of Melbourne, University of Padova, Bank of Finland); Nicolas Groshenny (University of Adelaide)
    Abstract: What are the effects of uncertainty shocks on unemployment dynamics? We answer this question by estimating non-linear (Smooth-Transition) VARs with post-WWII U.S. data. The relevance of uncertainty shocks is found to be much larger than that predicted by standard linear VARs in terms of i) magnitude of the reaction of the unemployment rate to such shocks, and ii) contribution to the variance of the prediction errors of unemployment at business cycle frequencies. The ability of different classes of DSGE models to replicate our results is discussed.
    Keywords: Uncertainty shocks, Unemployment Dynamics, Smooth Transition Vector-AutoRegressions, Recessions.
    JEL: C32 E32 E52
    Date: 2015–03
  40. By: Didier, Tatiana; Kose, Ayhan; Ohnsorge, Franziska; Ye, Lei Sandy
    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; fiscal policy; growth slowdown; monetary policy; policy space; structural reforms
    JEL: E60 F43 O4 O43
    Date: 2016–01
  41. By: Enrique Alberola-Ila; Iván Kataryniuk; Ángel Melguizo; René Orozco
    Abstract: A stronger macroeconomic position when the financial crisis erupted allowed Latin American economies to mitigate its impact through fiscal expansions, reversing the characteristic procyclical behaviour of fiscal policy. At the same time, in the last two decades fiscal rules have been extensively adopted in the region. This paper analyses the stabilising role of discretionary fiscal policy over time, and the role of fiscal financing conditions and fiscal rules in this evolution in a sample of eight Latin American economies. The analysis shows three main results: i) fiscal policies became countercyclical during the crisis, but they have turned procyclical again in recent years; ii) financing conditions are confirmed to be a key driver of the fiscal stance, but their relevance has recently diminished; and iii) fiscal rules are associated with a more stabilising role for fiscal policy.
    Keywords: procyclical fiscal policy, fiscal rules, financing conditions, Latin America
    Date: 2016–01
  42. By: Luisito Bertinelli; Olivier Cardi; Romain Restout
    Abstract: This paper develops a tractable version of a two-sector open economy model with search frictions in order to account for the relative wage and the relative price effects of higher productivity growth in tradables relative to non tradables. Using a panel of eighteen OECD countries over the period 1970-2007, our estimates reveal that a 1 percentage point increase in the productivity differential between tradables and non tradables lowers the non traded wage relative to the traded wage (relative wage) by 0.22% and appreciates the relative price of non tradables by 0.64%. While the decline in the relative wage reveals the presence of mobility costs preventing wage equalization across sectors, the relative wage responses to a productivity differential display a large dispersion across countries, thus suggesting that labor market frictions vary substantially across OECD economies. Using a set of indicators capturing the heterogeneity of labor market frictions across economies, we find that the relative wage significantly declines more in countries where labor market regulation is more pronounced. These empirical findings can be rationalized in a two-sector open economy model with search in the labor market as long as we allow for an endogenous sectoral labor force participation decision. In line with our estimates, our quantitative analysis reveals that the relative wage falls more in countries where unemployment benefits are more generous, firing cost is high, the worker bargaining power is large. When calibrating the model to each OECD economy, our numerical results reveal that the model predicts the relative wage response fairly well, and to a lesser extent the relative price response.
    Keywords: Productivity growth; Sectoral wages; Relative price of non tradables; Search theory; Labor market institutions.
    JEL: E24 F16 F41 F43 J65
    Date: 2015
  43. By: Chen, Kaiji (Emory University); Ren, Jue (Emory University); Zha, Tao (Federal Reserve Bank of Atlanta)
    Abstract: We argue that China's rising shadow banking was inextricably linked to potential balance-sheet risks in the banking system. We substantiate this argument with three didactic findings: (1) commercial banks in general were prone to engage in channeling risky entrusted loans; (2) shadow banking through entrusted lending masked small banks' exposure to balance-sheet risks; and (3) two well-intended regulations and institutional asymmetry between large and small banks combined to give small banks an incentive to exploit regulatory arbitrage by bringing off-balance-sheet risks into the balance sheet. We reveal these findings by constructing a comprehensive transaction-based loan dataset, providing robust empirical evidence, and developing a theoretical framework to explain the linkages between monetary policy, shadow banking, and traditional banking (the banking system) in China.
    Keywords: Regulatory arbitrage; asset pricing; institutional asymmetry; entrusted loans; risk taking; shadow loans; bank loans; nonloan investment; nonbank trustees; small banks; large banks; balance sheet; optimal decisions
    JEL: E02 E5 G11 G12 G28
    Date: 2016–01–01
  44. By: Gabaix, Xavier; Lasry, Jean-Michel; Lions, Pierre-Louis; Moll, Benjamin
    Abstract: The past forty years have seen a rapid rise in top income inequality in the United States. While there is a large number of existing theories of the Pareto tail of the long-run income distributions, almost none of these address the fast rise in top inequality observed in the data. We show that standard theories, which build on a random growth mechanism, generate transition dynamics that are an order of magnitude too slow relative to those observed in the data. We then suggest two parsimonious deviations from the canonical model that can explain such changes: "scale dependence" that may arise from changes in skill prices, and "type dependence," i.e. the presence of some "high-growth types." These deviations are consistent with theories in which the increase in top income inequality is driven by the rise of "superstar" entrepreneurs or managers.
    Keywords: inequality; operator methods; Pareto distribution; speed of transition; superstars
    JEL: D31 E24
    Date: 2015–12
  45. By: John Hey; Daniela Di Cagno
    Abstract: Inspired by Clower’s conjecture that the necessity of trading through money in monetised economies might hinder convergence to competitive equilibrium, and hence, for example, cause unemployment, we experimentally investigate behaviour in markets where trading has to be done through money. In order to evaluate the properties of these markets, we compare their behaviour to behaviour in markets without money, where money cannot intervene. As the trading mechanism might be a compounding factor, we investigate two kinds of market mechanism: the double auction, where bids, asks and trades take place in continuous time throughout a trading period; and the clearing house, where bids and asks are placed once in a trading period, and which are then cleared by an aggregating device. We thus have four treatments, the pairwise combinations of nonmonetised/monetised trading with double auction/clearing house. We find that: convergence is faster under non-monetised trading, implying that the necessity of using money to facilitate trade hinders convergence; that monetised trading is noisier than non-monetised trading; and that the volume of trade and realised surpluses are higher with the double auction than the clearing house. As far as efficiency is concerned, monetised trading lowers both informational and allocational efficiency, and while the double auction outperforms the clearing house in terms of allocational efficiency, the clearing house is marginally better than the double auction in terms of informational efficiency when trade is through money. Crucially we confirm the conjecture that inspired these experiments: that the necessity to use money in trading hinders convergence to competitive equilibrium, lowers realised trades and surpluses, and hence may cause unemployment.
    Keywords: clearing house mechanism, double auction mechanism, experimental markets, money, monetised trading, non-monetised trading
    JEL: C92 D40 E24
  46. By: Tianhao Zhi (Finance Discipline Group, UTS Business School, University of Technology, Sydney)
    Abstract: This paper critically reviews and examines the relationship between the origin of disequilibrium macroeconomic thinking by John Maynard Keynes, and the development of Keynesian disequilibrium macroeconomic models. Given that the two strands of literature are both plentiful, I will focus on discussing the essence of Keynesian disequilibrium thinking, and its implications of relevant models in the context of Keynes-Metzler-Goodwin and Weidlich-Haag-Lux approaches.
    Keywords: disequilibrium macroeconomics; nonlinear economic dynamics; John Maynard Keynes; Hyman Minsky
    JEL: B22 E5 E12 G21
    Date: 2016–02–01
  47. By: Giovanni Caggiano (University of Padova); Efrem Castelnuovo (University of Melbourne, University of Padova); Valentina Colombo (University of Padova); Gabriela Nodari (University of Verona, University of New South Wales)
    Abstract: We estimate nonlinear VARs to assess to what extent .scal spending multipliers are countercyclical in the United States. We deal with the issue of non-fundamentalness due to .scal foresight by appealing to sums of revisions of expectations of .scal expenditures. This measure of anticipated .scal shocks is shown to carry valuable information about future dynamics of public spending. Results based on generalized impulse responses suggest that .scal spending multipliers in recessions are greater than one, but not statistically larger than those in expansions. However, nonlinearities arise when focusing on "extreme" events, i.e., deep recessions vs. strong expansionary periods.
    Keywords: Fiscal news, Fiscal foresight, Fiscal spending multiplier, Smooth Transition Vector-AutoRegressions, Extreme events
    JEL: C32 E32 E52
    Date: 2015–03
  48. By: Olivier Cardi (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique, Université François Rabelais - Tours); Romain Restout (UCL - Université Catholique de Louvain, BETA - Bureau d'Economie Théorique et Appliquée - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We use a two-sector neoclassical open economy model with traded and non-traded goods and endogenous markups to investigate the effects of temporary fiscal shocks. One central finding is that theory can be reconciled with evidence once we allow for endogenous markups and assume that the traded sector is more capital intensive than the non-traded sector. More precisely, while both ingredients are essential to produce the real exchange rate depreciation, only the second ingredient is necessary to account for the simultaneous decline in investment and the current account, in line with the evidence.
    Keywords: Non-traded Goods, Fiscal Shocks, Investment, Current Account, Endogenous markup.
    Date: 2015
  49. By: Cecchetti, Stephen G; Tucker, Paul
    Abstract: In this paper we address three questions: (1) Does global finance require a common prudential standard? (2) Does global finance require international cooperation in overseeing the system’s safety and soundness? And (3), does global finance require notification, cooperation and coordination of dynamic regulatory-policy adjustments? Our answer to the first question is that global finance does require a common prudential standard, defined as a level of required resilience, applied appropriately to all parts of the financial system. Without adoption of a common resilience standard, the international financial system will fragment and balkanize. In addressing the second question, we explain why shared, collective analysis is necessary to identify and mitigate stability-threatening shortfalls against that standard for resilience. This will be possible only with increased public and private transparency. Finally, we examine the daunting, but essential, task of implementing a dynamic prudential framework that maintains the system’s resilience even as its structure and risk-taking behaviors change. The policy implications of our analysis focus on the need for global agreement, implementation monitoring, information sharing and even, sometimes given damaging spillovers, collective regulatory responses to emerging threats. Institutions will need to be adapted to make all this feasible.
    Keywords: Basel Committee on Banking Supervision; financial globalization; Financial Stability Board; financial stability policy; international cooperation; macroprudential policy; prudential policy; stress tests
    JEL: F53 F55 G28
    Date: 2016–01
  50. By: Nobuhiko Mitani (Osaka School of International Public Policy, Osaka University)
    Abstract: In this paper, I analyze whether liquidity expanded and bank lending was increased by monetary easing in 2000 or not, using pane; data of Japanese bank and shinkin from 2000 to 2014. Analyzing above this, I got the result that lending through shinkin didn't expand and monetary easing didn't take enough effect which increased lending through liquidity expanding.
    Keywords: liquidity rate, nontraditional monetary policy, shinkin
    Date: 2016–01
  51. By: Simplice Asongu (Yaoundé/Cameroun); Vanessa Tchamyou (Yaoundé/Cameroun)
    Abstract: The study assesses the role of globalization-fuelled regionalization policies on financial allocation efficiency in four economic and monetary regions in Africa for the period 1980 to 2008. Banking system and financial system efficiencies are used as dependent variables whereas seven bundled and unbundled globalization variables are employed as independent indicators. The bundling exercise is achieved by means of principal component analysis while the empirical evidence is based on interactive Fixed Effects regressions. The following findings are established. First, financial allocation efficiency is more sensitive to financial openness compared to trade openness and most sensitive to globalization. The relationship between allocation efficiency and globalization-fuelled regionalization policies is: (i) Kuznets or inverted U-shape in the UEMOA and CEMAC zones (evidence of decreasing returns to allocation efficiency from globalization-fuelled regionalization) and (ii) U-shape overwhelmingly in the COMESA and scantily in the EAC (increasing returns to allocation efficiency from globalization-fuelled regionalization). Established shapes are relevant to specific globalization dynamics within regions. ‘Economic and monetary’ regions are more prone to surplus liquidity than purely economic regions. Policy implications and measures of fighting surplus liquidity are discussed.
    Keywords: Globalization; Financial Development; Regional Integration; Panel; Africa
    JEL: A10 D60 E40 O10 P50
    Date: 2015–12
  52. By: Q. Farooq Akram (Norges Bank (Central Bank of Norway)); Casper Christophersen (European Insurance and Occupational Pensions Authority (EIOPA) and Norges Bank (Central Bank of Norway))
    Abstract: We investigate the effects of central bank liquidity and possible implicit government guarantees against default on Norwegian overnight interbank interest rates. We conduct an econometric study of these interest rates over the period 2006-2009, which includes the sharp fall in interbank trading during the financial crisis. Our findings suggest relatively lower funding costs for banks of systemic importance, particularly for banks with many and valuable linkages to other banks. Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but on its distribution among banks as well. There is also evidence of stronger effects on interest rates of systemic importance, creditworthiness and liquidity demand and supply factors during the financial crisis.
    Keywords: Interbank money market, Interest rates, Systemic importance
    JEL: G21 E43 E58
    Date: 2015–02–01
  53. By: Dimitri B. Papadimitriou
    Abstract: A complementary currency circulates within an economy alongside the primary currency without attempting to replace it. The Swiss WIR, implemented in 1934 as a response to the discouraging liquidity and growth prospects of the Great Depression, is the oldest and most significant complementary financial system now in circulation. The evidence provided by the long, successful operation of the WIR offers an opportunity to reconsider the creation of a similar system in Greece. The complementary currency is a proven macroeconomic stabilizer--a spontaneous money creator with the capacity to sustain and increase an economy's aggregate demand during downturns. A complementary financial system that supports regional development and employment-targeted programs would be a U-turn toward restoring people's purchasing power and rebuilding Greece's desperate economy.
    Date: 2016–01
  54. By: Krolikowski, Pawel (Federal Reserve Bank of Cleveland)
    Abstract: The vast majority of studies on the earnings of displaced workers use a control group of continuously employed workers to examine the effects of initial displacements. This approach implies long-lived earnings reductions following displacement even if these effects are not persistent, overstating the losses relative to the true average treatment effect. This paper’s approach isolates the impact of an average displacement without imposing continuous employment on the control group. In a comparison of the standard and alternative approaches using PSID data, the estimated long-run earnings losses fall dramatically from 25 percent to 5 percent. Model simulations reinforce these empirical findings.
    Keywords: Displacement; earnings; control group; treatment event;
    JEL: E24 J63 J64
    Date: 2016–02–02
  55. By: Fagereng, Andreas; Guiso, Luigi; Pistaferri, Luigi
    Abstract: Estimating the effect of background risk on individual financial choices faces two challenges. First, the identification of the marginal effect requires a measure of at least one component of human capital risk that qualifies as "background" (a risk that an individual cannot diversify or avoid). Absent this, estimates suffer from measurement error and omitted variable bias. Moreover, measures of background risk must vary over time to eliminate unobserved heterogeneity. Second, once the marginal effect is identified, an evaluation of the economic significance of background risk requires knowledge of the size of all the background risk actually faced. Existing estimates are problematic because measures of background risk fail to satisfy the "non-avoidability" requirement. This creates a downward bias which is at the root of the small estimated effect of background risk. To tackle the identification problem we match panel data of workers and firms and use the variability in the profitability of the firm that is passed over to workers to obtain a measure of risk that is hardly avoidable. We rely on this measure to instrument total variability in individual earnings and find that the marginal effect of background risk is much larger than estimates that ignore endogeneity. We bound the economic impact of human capital background risk and find that its overall effect is contained, not because its marginal effect is small but because its size is small. And size of background risk is small because firms provide substantial wage insurance.
    Keywords: background risk; portfolio choice; uninsurable labor income risk
    JEL: E20 E24 G11
    Date: 2016–01
  56. By: Fernández-Villaverde, Jesús; Rubio-Ramírez, Juan Francisco; Schorfheide, Frank
    Abstract: This paper provides an overview of solution and estimation techniques for dynamic stochastic general equilibrium (DSGE) models. We cover the foundations of numerical approximation techniques as well as statistical inference and survey the latest developments in the field.
    Keywords: approximation error analysis; Bayesian inference; DSGE model; frequentist inference; GMM estimation; impulse response function matching; likelihood-based inference; Metropolis-Hastings algorithm; minimum distance estimation; particle filter; perturbation methods; projection methods; sequential Monte Carlo
    JEL: C11 C13 C32 C52 C61 C63 E32 E52
    Date: 2015–12
  57. By: Jean-Charles Bricongne (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique, Banque de France - Banque de France - Banque de France)
    Abstract: This article analyses the predictive power of household money holdings with regard to prices or current aggregates (consumption and disposable incomes) over the short term (i.e. over one quarter), as compared with that of other explanatory variables, namely unemployment and total monetary aggregates. Regardless of the approach used, in the short term, household holdings exhibit a comparative advantage over unemployment and total monetary aggregates. The gain in terms of RMSE compared to a simple autoregressive equation is often at least 10%. This is consistent with the quantity theory of money, which holds that there should be a fairly direct link between money and consumption with a limited lag. In the longer run (12 quarters), unemployment exhibits better forecasting properties than household money holdings, which is consistent with the findings of Stock & Watson (1999).
    Keywords: Quantity theory of money, household money holdings, inflation, forecasting
    Date: 2015
  58. By: Mei Li (Department of Economics and Finance, University of Guelph); Frank Milne (Department of Economics, Queen’s University); Junfeng Qiu (China Economics and Management Academy, Central University of Finance and Economics)
    Abstract: When a central bank implements the LOLR policy in a financial crisis, bank creditors often infer a bank’s quality from whether or not it borrows from the central bank. We establish a formal model to study the optimal LOLR policy in the presence of this signaling effect, assuming that the central bank aims to encourage central bank borrowing to avoid inefficiencies caused by contagion. In our model, there are two types of banks: a high quality type with high expected asset returns and a low quality type with lower returns. Both types of banks need to roll over their short-term debts. A central bank offers to lend to both types of banks. After private creditors observe whether banks borrow from the central bank, banks try to borrow from the private market. We find that there may exist a separating equilibrium where only low quality banks borrow from the central bank; and two pooling equilibria where both types of banks do and do not borrow from the central bank. Our major results are as follows: (1) Considering the signaling effect, the central bank should set its lending rate lower than the prevailing market rate to induce both types of banks to borrow from the central bank. (2) Hiding the identity of banks borrowing from the central bank will encourage banks to borrow from the central bank. (3) The central bank may serve as a coordinator for the realization of its favored equilibrium.
    Keywords: Signaling, Lender of Last Resort
    JEL: E58 G28
    Date: 2016
  59. By: Țâmpu Diana Larisa (postdoc researcher, The Romanian Academy)
    Abstract: This paper examines the impact that the crises that began in 2007 have on Romania economy taking into consideration the scenarios of E3MG model. What it will be figured here is a series of carefully defined scenarios, simulating aspects of behavioral changes within the banking sector and in the wider global economy. The conclusion will try to explain the mechanism by which the crisis has infested the economy specifying the moment when the current policy was effective or not. The last part of the paper highlights the effects that the monetary policy measures have on Romania case, following the ‘seven-point plan' of Barker. The results show that there are ways to stimulate the economy and increase employment, transforming the financial crisis into an opportunity for a new green deal.
    Keywords: E3MG model; economic crises, scenario, monetary policy, government policy
    Date: 2015–12
  60. By: Christophe Blot (OFCE); Jérôme Creel (OFCE); Paul Hubert (OFCE); Fabien Labondance (Centre de REcherches sur les Stratégies Economiques)
    Abstract: The ECB has decided to implement large-scale quantitative easing (QE) measures since March 2015 until September 2016. This unconventional monetary policy has had a variety of precedents, in the Japanese, UK and US economies. These experiments have been effective a tmodifying government and corporate bond yields, mostly in the UK and US and to a lesser extent in Japan. This conclusion is not context-free. The European QE has started in a deflation era which requires more activism and cooperation from the ECB and Euro area governments than in the UK and the US when their central banks embarked in QE. The success of the European QE will also depend substantially on the depreciation of the Euro and will require clear communication by the ECB that it is prepared to accept a large depreciation at least until the inflation rate goes back to its target.
    Keywords: Quantitative easing (EQ) measures; Unconventional monetary policy; Depreciation of the Euro
    Date: 2015–04
  61. By: Olivetti, Claudia; Petrongolo, Barbara
    Abstract: Women in developed economies have made major inroads in labor markets throughout the past century, but remaining gender differences in pay and employment seem remarkably persistent. This paper documents long-run trends in female employment, working hours and relative wages for a wide cross-section of developed economies. It reviews existing work on the factors driving gender convergence, and novel perspectives on remaining gender gaps. The paper finally emphasizes the interplay between gender trends and the evolution of the industry structure. Based on a shift-share decomposition, it shows that the growth in the service share can explain at least half of the overall variation in female hours, both over time and across countries.
    Keywords: female employment; gender gaps; industry structure
    JEL: E24 J16 J31
    Date: 2016–01
  62. By: Kaplan, Robert Steven (Federal Reserve Bank of Dallas)
    Abstract: Remarks before the Dallas chapters of Financial Executives International, the Association for Corporate Growth and the National Association of Corporate Directors.
    Date: 2016–01–11
  63. By: Kazuo Ogawa; Elmer Sterken; Ichiro Tokutsu
    Abstract: We investigate the causal relationship between the public debt to GDP ratio and economic growth for 31 EU and OECD countries from 1995 to 2013. A number of studies have tackled this problem, but very few make the transmission mechanism explicit in their analysis. We estimate a panel VAR model that incorporates the long-term real interest rate on government bonds as a vehicle to transmit shocks in both the public debt to GDP ratio and economic growth. We find no causal link from the public debt to GDP ratio to the GDP growth rate, irrespective of the levels of public debt. Rather, we find a causal relation from the GDP growth rate to the public debt to GDP ratio. In high-debt countries, the direct negative impact of economic growth on public debt is enhanced by a rise in the long-term real interest rate, which in turn decreases interest-sensitive demand and leads to a further increase in the public debt to GDP ratio.
    Date: 2016–01
  64. By: Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business); Jozef Kubala (University of Economics in Bratislava); Kristina Petrikova (University of Economics in Bratislava)
    Abstract: The standard Keynesian view predicts that equalization of the income distribution leads to an increase in aggregate consumption. We revisit the analysis carried out by the seminal empirical contributions which test such a hypothesis using modern econometric methods and the most comprehensive dataset existing on income distribution measures. Our results indicate that there is no substantive empirical evidence of an effect of income inequality on aggregate consumption.
    Keywords: Inequality, aggregate consumption, average propensity to consume
    JEL: E22 D31
    Date: 2016–01
  65. By: Mazzanti, M. (Department of Economics and Management, University of Ferrara); Nicolli, F. (IRCrES-CNR, Milano); Marin, G. (IRCrES-CNR, Milano); Gilli, M. (Department of Economics and Management, University of Ferrara)
    Abstract: The aim of this paper is to analyse the environmental performances of manufacturing sectors and their main drivers, (economic factors, technology, trade). We analyse the dynamic development of environmental performances, in absolute terms and in 'productivity' terms, through both decomposition and econometric analyses. The analysis aims to highlight differences over time, across geographical areas, by country income categories and by sector technological classes. Strong emphasis is assigned to the comparison of consumption and production perspectives.
    Keywords: Environmental Performance, Sustainability, Consumption, Production
    JEL: E21 O11 Q56
    Date: 2015–12–01
  66. By: Eden,Benjamin; Eden,Maya
    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. 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 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 cost: 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: Debt Markets,Economic Theory&Research,Access to Finance,Emerging Markets,Political Economy
    Date: 2016–02–02
  67. By: Acharya, Sushant (Federal Reserve Bank of New York); Bengui, Julien (Federal Reserve Bank of New York)
    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 when many advanced economies were pushed to the zero bound on interest rates. We establish three main results. First, 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. Second, 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. And third, 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: 2016–01–01
  68. By: Meysonnat, Aline (SBE, Maastricht University); Muysken, Joan (UNU-MERIT, and SBE, Maastricht University); Zon, Adriaan van (UNU-MERIT, and SBE, Maastricht University)
    Abstract: This paper proposes an integrated framework that incorporates both the "physical" and the "behavioural" dimensions of poverty in developing countries and their consequences for aggregate savings behaviour. To this end a concept is introduced, labelled "vitality", which captures the idea that being near subsistence consumption levels not only has an impact on the ability to save, but also on the willingness to save. We introduce the notion of a "vitality threshold" which marks a situation where the willingness to invest into the future changes - this is represented by a change in the discount rates. The recognition of transition paths from a "pessimistic", low-savings regime with high discount rates to an "optimistic" regime with relatively high savings enables us to analyse the transition of countries through various stages of development. In addition to this, we can shed new light on poverty traps by looking at below subsistence consumption scenarios. Finally we can infer specific policy implications concerning development aid. For instance, if a country is in a pessimistic, low-savings regime, we argue that a transfer should be high enough to push a country above the subsistence-level consumption threshold by far enough to enable it to reach the optimistic, high savings regime and consequently grow out of poverty. The existence of vitality thresholds implies that marginal changes in development assistance may have non-marginal long-term effects
    Keywords: poverty trap, subsistence consumption, vitality, foreign aid
    JEL: O10 O20 I12 I13 I15 I31 I32 F35 E21
    Date: 2015–12–01
  69. By: Dahlquist, Magnus; Setty, Ofer; Vestman, Roine
    Abstract: We characterize the optimal default fund in a defined contribution (DC) pension plan. Using detailed data on individuals and their holdings inside and outside the pension system, we find substantial heterogeneity among default investors in terms of labor income, financial wealth, and stock market participation. We build a life-cycle consumption-savings model incorporating a DC pension account and realistic investor heterogeneity. We examine the optimal asset allocation for different realized equity returns and investors and compare it with age-based investing. The optimal asset allocation leads to less inequality in pensions while it moderates the risks through active rebalancing.
    Keywords: age-based investing; default fund; life-cycle model; pension plan design
    JEL: D91 E21 G11 H55
    Date: 2016–01
  70. By: Brounen, Dirk; Koedijk, Kees; Pownall, Rachel A J
    Abstract: Greater personal responsibility towards financial decision-making is being advocated on a global basis. Individuals and households are encouraged to take a more active approach to personal finance. In this paper, we examine behavioral factors, which lead households towards savings and financial planning across a panel of 1,253 Dutch households. In line with the available literature, we find that an individual’s propensity to save decreases with age and is higher among the financial literate. Moreover, we find that saving behavior varies across generations, and is significantly dominant among baby boomers. This generation effect, however, weakens once we account for more individual specifics. Our results offer evidence for parental influence, and for the effects of the psychometrics of numeracy, self-efficacy, locus of control and future orientation. A good understanding of these personality variables helps to explain why some take financial responsibility while others do not.
    Keywords: consumption; intertemporal household choice; life cycle models and saving; wealth
    JEL: D91 E21
    Date: 2015–12
  71. By: Joao Alfredo Galindo da Fonseca (University of British Columbia, Vancouver School of Economics); Giovanni Gallipoli (University of British Columbia); Yaniv Yedid-Levi (University of British Columbia, Vancouver School of Economics)
    Abstract: We revisit the empirical relationship between wages and labor market conditions. Following work histories in the NLSY79 we document that the relationship between wages and unemployment rate differs across occupations. The results hold after controlling for unobserved match quality. This suggests that evidence about history-dependence of wages obtained from pooled samples conceals significant differences and may provide an imprecise description of earning dynamics. Similar discrepancies emerge when we group workers by education. Sensitivity of wages to unemployment appears related to whether total remuneration entails performance pay components.
    Keywords: wages, unemployment, occupation
    JEL: E30 J30 J60
    Date: 2016–02
  72. By: George Papadopoulos (Democritus University of Thrace); Savas Papadopoulos (Bank of Greece); Thomas Sager
    Abstract: In bank stress tests, the role of a satellite model is to tie bank-specific risk variables to macroeconomic variables that can generate stress. For valid stress tests it is important to develop a comprehensive satellite model that both preserves the sense of known economic relationships and also exhibits high predictive ability. However, it is often difficult to achieve these desiderata in a single satellite model. Multicollinearity of key macro variables and limited data may militate against inclusion of all important stress variables, thus limiting the range of stress scenarios. In order to address this problem we depart from the custom of using a single model as the "true" satellite. Instead, we generate a full space of candidate models that we then screen for reasonable candidates that remain sufficiently rich to cover a wide range of stress scenarios. We then develop composite models by combining the surviving candidate models through weighting. The result is a composite satellite model that includes all the desired macroeconomic variables, reflects the expected relationships with the dependent variable (NPL growth) and exhibits more than 20% lower RMSE compared to a commonly used benchmark model. An illustrative stress testing application shows that this approach can provide policy makers with prudent estimates of credit risk.
    Keywords: Financial stability; Macroprudential policy; Non-performing loans; Forecast combination; Predictive modelling
    JEL: C53 E58 G28
    Date: 2016–01
  73. By: Fabio Canova; Christian Matthes
    Abstract: The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identification and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of Gertler and Karadiís (2010) model are studied.
    Keywords: Structural model, Time-varying coefficients, Endogenous variations, Misspecification
    Date: 2016–01
  74. By: Alina Cristea (PhD Candidate, Academy of Economic Studies)
    Abstract: National Power System is a complex system that includes a number of subsystems with different structures and components. With market power relations between subsystems SEN is performed on a commercial basis. Units of the system must create information systems and specific research in order to follow the dynamic environment by adopting specific strategies trends and evolution. The introduction of competition in the production and distribution of electricity requires a rethinking of business activity in the energy system units. Claims liberalized energy market participants flexible behavior imposed by the existence of competition and the need to adapt to all the changes that occur constantly. Market mechanism should introduce competitive pressure from increasingly large on companies in the sector, directly or through contracts and tariffs. In a competitive environment the producers will have to reduce their costs given that the installed capacity exceeds consumer demand. Energy suppliers are obliged to diversify their services and will be encouraged to find the most appropriate level of security in energy supply. Entering the competition implies responsiveness to consumers
    Keywords: mathematical model, balance, energy market
    JEL: C6 E2 E3 L7
    Date: 2015–12
  75. By: Nishimura, Kiyohiko G.
    Date: 2016–01
  76. By: Canova, Fabio; Hamidi Sahneh, Mehdi
    Abstract: Non-fundamentalness arises when observables do not contain enough information to recover the vector of structural shocks. Using Granger causality tests, the literature suggested that many small scale VAR models are non-fundamental and thus not useful for business cycle analysis. We show that causality tests are problematic when VAR variables are cross sectionally aggregated or proxy for non-observables. We provide an alternative testing procedure, illustrate its properties with a Monte Carlo exercise, and reexamine the properties of two prototypical VAR models.
    Keywords: aggregation; Granger causality; non-fundamentalness; small scale VARs
    JEL: C32 C5 E5
    Date: 2016–01
  77. By: Otrachshenko, Vladimir; Popova, Olga; Tavares, José
    Abstract: We analyze individual levels of life satisfaction in Slovakia, after that country adopted the Euro, following a spirited debate. We gauge the psychological cost of transition to the new currency by comparing individual life satisfaction, not only before and after Euro introduction, but by comparison with individuals with similar characteristics in the neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and share similar macroeconomic indicators just before the currency change in Slovakia. We find evidence of substantial psychological costs of currency transition, which are especially important for the old, the unemployed, those with low education and in households with children. We believe these results suggest the importance of information and enlightened debate before a sweeping change in economic context such as the adoption of a new currency.
    Keywords: currency transition; Czech Republic; euro; Slovakia; subjective well-being
    JEL: E52 F55 I31
    Date: 2016–01
  78. By: Davide Dragone; Nicolas Ziebarth
    Abstract: Non-separable intertemporal preferences and novelty consumption can explain the persistent correlation between economic development and obesity. Employing the German reunification as a fast motion natural experiment of economic development, we study how the sudden availability of novel food products impacts individual consumption patterns and body weight. Immediately after the reunification, East Germans consumed more novel western food and gained more weight than West Germans. The subsequent long-run persistence in food consumption and body weight among Eastern Germans cannot be explained by taste for variety; it provides evidence for habit formation in intertemporal consumption preferences.
    Keywords: economic development, food consumption, German reunification, habit formation, learning, novel goods, obesity
    JEL: D11 D12 D92 E21 I12 I15 L66 O10 O33 Q18 R22
    Date: 2016–01
  79. By: Simplice Asongu (Yaoundé/Cameroun); Enowbi Batuo (University of Westminster); Vanessa Tchamyou (Yaoundé/Cameroon)
    Abstract: Purpose – The study extends the debate on finance versus institutions in the promotion of investment documented by Acemoglu and Johnson (2005), Ali (2013) and Asongu (2014). We assess the effects of various components of governance on private investment, notably: political, economic and institutional governances. Financial indicators of depth, allocation efficiency, activity and size are used. Design/methodology/approach – An endogeneity robust dynamic system GMM estimation technique is employed. Principal component analysis is also employed to reduce the dimensions of governance variables. The empirical evidence is based on 53 African countries for the period 1996-2010. Findings – The findings provide support for the quality of governance as a better determinant of private investment than financial intermediary development. Moreover, the evidence of finance and governance as substitutes in their impact on investment implies that good governance fuels private investment and this positive impact is stronger in nations with less developed financial systems. This finding is consistent with Ali (2013) and contrary to the results of Asongu (2014c). Practical implication – Policy measures for fighting involuntary and voluntary surplus liquidities are discussed. The paper provides additional support for the need of strengthening governance institutions to promote investment on the one hand and fighting financial allocation inefficiency by mitigating surplus liquidity issues on the other hand. Originality/value – The paper extends the debate on the substitution of finance and institutions in the promotion of private investment.
    Keywords: Finance; Institutions; Investment: Property Rights; Africa
    JEL: G20 G24 E02 P14 O55
    Date: 2015–12
  80. By: Boserup, Simon H.; Kopczuk, Wojciech; Kreiner, Claus T.
    Abstract: Using Danish administrative data, we estimate the impact of bequests on the level and inequality of wealth. We employ an event study design where we follow the distribution of wealth over time of people who are 45-50 years old, and divided into treatment group and control group depending on whether a parent dies or not. Bequests account for 26 percent of the average post-bequest wealth 1-3 years after parental death and significantly affect wealth throughout the distribution. We find that bequests increase measures of absolute wealth inequality (variance), but reduce relative inequality (top wealth shares). Following the receipts of bequests, variance of the distribution censored at the top/bottom 1% increases by 33 percent, but the top 1% share declines by 6 percentage points from an initial level of 31 percent and the top 10% share declines by 10 percentage points from a base of around 81 percent.
    Keywords: bequests; intergenerational mobility; wealth; wealth inequality
    JEL: D31 E21 J62
    Date: 2016–01
  81. By: Grossman, Gene; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
    Abstract: Evidence for the United States suggests balanced growth despite falling investment-good prices and less than unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that introducing human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if education is endogenous and capital is more complementary with schooling than with raw labor. We describe balanced growth paths for several neoclassical growth models with capital-augmenting technological progress and endogenous schooling. The balanced growth path in an overlapping-generations model in which individuals choose their time in school matches key features of the U.S. record.
    Keywords: balanced growth; capital-skill complementarity; neoclassical growth; technological progress
    JEL: E1 J2 O1 O4
    Date: 2016–01
  82. By: Savas Papadopoulos (Bank of Greece); Pantelis Stavroulias (Democritus University of Thrace); Thomas Sager (University of Texas)
    Abstract: Reliable forecasts of an economic crisis well in advance of its onset could permit effective preventative measures to mitigate its consequences. Using the EU15 crisis of 2008 as a template, we develop methodology that can accurately predict the crisis several quarters in advance in each country. The data for our predictions are standard, publicly available macroeconomic and market variables that are preprocessed by moving averages and filtering. The prediction models then utilize the filtered data to distinguish pre-crisis from normal quarters through standard statistical classification methodology plus a proposed new combined method, enhanced by an innovative threshold selection and goodness-of-fit measure. Empirical results are very satisfactory: Country-stratified 14-fold cross validation achieves 92.1% correct classification and 85.7% for both true positive rate and positive predictive value for the EU15 crisis of 2008. Results will be of use to policy makers, investors, and researchers who are interested in estimating the probability of a crisis as much as one and a half years in advance in order to deploy prudential policies.
    Keywords: Banking crisis; financial stability; macroprudential policy; classification methods; goodness-of-fit measures
    JEL: C53 E58 G28
    Date: 2016–01

This nep-mac issue is ©2016 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.