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on Macroeconomics |
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Issue of 2016‒02‒17
94 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Scheer, Alexander |
| Abstract: | The Great Recession has sent debt levels to a post-WWII high for several advanced economies, reviving the discussion of fiscal consolidation. This paper assesses the macroeconomic implications of tax-based versus spending-based consolidation within the framework of a New Keynesian model with long term government debt. Three results stand out: First, tax-based consolidations are inflationary whereas spending-based ones are deflationary. Second, the net benefits of inflation increase in the average maturity of outstanding debt: inflation revalues debt more efficiently, while distortions due to price dispersion remain unaffected - the maturity effect. Third, as a result, tax-based consolidations can become superior to spending cuts if the average maturity is high enough. Quantitatively, the threshold is two years for US data in 2013. The previous mechanism illustrates the importance of inflation in the consolidation process, even if raising its target rate is considered not to be an option. |
| JEL: | H63 E62 E31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112874&r=mac |
| By: | Quint, Dominic; Tristani, Oreste |
| Abstract: | We study the macroeconomic consequences of the money market tensions associated with the financial crisis of 2008-2009. Our structural model includes the banking model of Gertler and Kyiotaki (2011) in the Smets and Wouters (2003) framework. We highlight two main results. First, a financial shock calibrated to account for the observed increase in spreads on the interbank market can account for one third of the observed, large fall in aggregate investment after the financial crisis of 2008. Second, the liqudity injected on the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. In their absence, aggregate investment would have fallen much more--by between 50 and 70 percent. These effects are somewhat larger than estimated in other available studies. |
| JEL: | E58 E44 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112974&r=mac |
| By: | Paul Hubert (OFCE-SciencesPo); Becky Maule (Bank of England) |
| Abstract: | How do private agents interpret central bank actions and communication? To what extent do the effects of monetary shocks depend on the information disclosed by the central bank? This paper investigates the effect of monetary shocks and shocks to the Bank of England’s inflation and output projections on the term structure of UK private inflation expectations, to shed light on private agents’ interpretation of central bank signals about policy and the macroeconomic outlook. We proceed in three steps. First, we correct our dependent variables - market-based inflation expectation measures - for potential risk, liquidity and inflation risk premia. Second, we extract exogenous shocks following Romer and Romer (2004)’s identification approach. Third, we estimate the linear and interacted effects of these shocks in an empirical framework derived from the information frictions literature. We find that private inflation expectations respond negatively to contractionary monetary policy shocks, consistent with the usual transmission mechanism. In contrast, we find that inflation expectations respond positively to positive central bank inflation or output projection shocks, suggesting private agents put more weight on the signal that they convey about future economic developments than about the policy outlook. However, when shocks to central bank inflation projections are interacted with shocks to output projections of the same sign, they have no effect on inflation expectations, suggesting that private agents understand the functioning of the central bank reaction function and put more weight on the policy signal when there is no trade-off. We also find that the effects of contractionary monetary shocks are amplified when they are accompanied by positive shocks to central bank inflation projections. The coordination of policy decisions and macroeconomic projections thus appears important for managing inflation expectations. |
| Keywords: | monetary policy, information processing, signal extraction, market-based inlfation expectations, central bank projections, real-time forecasts |
| JEL: | E52 E58 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1602&r=mac |
| By: | Winkler, Roland C.; Linnemann, Ludger |
| Abstract: | We use quantile regression methods to estimate the effects of government spending shocks on output and unemployment rates. This allows to uncover nonlinear effects of fiscal policy by letting the parameters of either vector autoregressive models or local projection regressions vary across the conditional distribution of macroeconomic activity. In quarterly US data, we find that fiscal output multipliers are notably larger for lower quantiles of the conditional distribution of GDP deviations from trend. Conversely, higher government spending appears to lower the rate of unemployment significantly only at its highest deciles. |
| JEL: | E62 E32 C32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113164&r=mac |
| By: | Floro, Danvee; van Roye, Björn |
| Abstract: | This study tests for regime-switching changes in monetary policy's response to increases in overall financial stress and financial sector-specific stresses across a panel of advanced and emerging economy central banks for the periods 1994Q1 to 2013Q2 and 1996Q2 to 2013:Q3, respectively. We put forward a Factor-Augmented Dynamic Panel Threshold regression model with (estimated) common factors in order to deal with endogeneity and crosssectional dependence. First, we find strong evidence of regime-dependence in the response of monetary policy to financial sector-specific stresses. Second, advanced economy central banks pursue aggressive monetary policy loosening in response to stock market and banking stresses only during times of high financial market stress. This result is robust throughout different sample periods and most of our specifications in the model with and without common factor augmentation. On the other hand, emerging market central banks generally conduct restrictive monetary policy in response to stock market, banking and foreign exchange market stresses, but respond only to stock market stress in an accommodative manner in a high financial market stress regime. However, this evidence virtually disappears in the post-2001 period, as we find instead some evidence that exchange rate and banking stresses have a significant tightening effect on policy rates in a high financial stress environment. Third, the estimated common factors have substantial and time-varying effects on the explanatory power of idiosyncratic stock market and foreign exchange stress components in emerging markets. |
| Keywords: | Financial stress,monetary policy,threshold panel regression,cross-section dependence |
| JEL: | E31 E44 E52 E58 C23 C24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112840&r=mac |
| By: | Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin |
| Abstract: | In this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables within a two-country monetary union DSGE model. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of thereafter observed imbalances in the Euro Area. We find that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area. |
| JEL: | E62 E32 H20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112960&r=mac |
| By: | Jochen Mierau; Mark Mink |
| Abstract: | We integrate a banking sector into an accessible macroeconomic framework, which then provides new explanations for developments around the Global Financial Crisis. The analysis shows that growth of banking sector money supply may explain the secular decline in long-term interest rates before the crisis. A new bank funding channel of monetary transmission clarifies why even large increases in central bank policy rates could not reverse this trend. Our analysis challenges the view that monetary policy becomes ineffective in a liquidity trap, and shows that bank recapitalizations are more effective than fiscal expansions in restoring aggregate demand after a banking crisis. |
| Keywords: | banking; aggregate demand; monetary transmission; global financial crisis |
| JEL: | E32 E50 E63 G01 G21 G28 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:500&r=mac |
| By: | Müller, Gernot Johannes; Hettig, Thomas; Mueller, Gernot |
| Abstract: | Within currency unions, according to the pre-crises consensus, countries can rely on fiscal policy to stabilize economic activity locally. Monetary policy's role, in turn, is to stabilize economic activity at the union level. Against this background, we reassess the optimal degree of fiscal stabilization within currency union provided that monetary policy is constrained by the zero lower bound on nominal interest rates. Specifically, we contrast the optimal level of government consumption from an individual country's perspective with the optimal level from the union's perspective and explore the need for coordinating expansionary fiscal policies. |
| JEL: | E62 F41 E61 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112826&r=mac |
| By: | Patterson, Christina (Massachusetts Institute of Technology); Sahin, Aysegül (Federal Reserve Bank of New York); Topa, Giorgio (Federal Reserve Bank of New York); Violante, Giovanni L. (New York University) |
| 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: | misallocation, productivity |
| JEL: | E24 E32 J24 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9629&r=mac |
| By: | Ambrosius, Christian |
| Abstract: | While much research has been done on causes and effects of banking crises, little is know about what determines recovery from banking crises, despite of large variations in post-crises performances across countries. In order to identify factors that determine the length of recovery (e.g. the time it takes until countries reach their pre-crisis level of per capita GDP), this paper employs event history analysis on 138 incidents of banking crises between 1970 and 2013. Cox Proportional Hazards show that both domestic and external constraints play a key role for recovering from banking crises. In particular, countries that suffered from simultaneous currency crises as well as those with overvalued currencies tended to recover later. Regarding external factors, a low growth of world trade has a negative effect on recovery, and so does uncertainty in financial markets as reflected in high gold prices. Moreover, contractionary monetary policy of the US Fed as Central Bank of the international key currency has a negative effect on the length of recovery in emerging markets and developing countries with open capital accounts. The latter empirical relationship reflects the vulnerability of developing countries and emerging markets to policies in the global financial centers and points to the necessity of understanding crises policies as embedded within monetary asymmetries that significantly limit the policy space of countries at the lower ends of the global currency hierarchy. |
| JEL: | E44 H12 O23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112983&r=mac |
| By: | von Borstel, Julia; Eickmeier, Sandra; Krippner, Leo |
| Abstract: | We investigate the pass-through of monetary policy to bank lending rates in the euro area before and during the sovereign debt crisis. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during the crisis, but has been unable to lower banks markups. Unconventional monetary policy helped decreasing lending rates, mainly due to large shocks rather than a strong propagation. |
| JEL: | E52 E43 C32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113035&r=mac |
| By: | Exler, Florian |
| Abstract: | Bankruptcy legislation has important welfare effects on the aggregate economy through effects on prices of and access to credit. Policy makers face a trade-off between insuring individuals against adverse shocks and providing incentives to repay debt. While the U.S. regime has a strong insurance component, many European systems are stricter in that they force delinquent households to repay (parts of) the outstanding debt through wage garnishment. This paper examines labor supply effects of the German garnishment regime and their effect on credit prices. I find that the income cap at 3, 200 EUR net income per month depresses high wage workers labor supply during bankruptcy by about 20%. Three policy experiments are conducted to reduce the burden of income garnishment. In all cases, the amount of credit in the economy declines and default rates drop by 46% to 56%. This comes from a strong increase in credit prices since banks expect lower repayment. It is shown that removing the income cap and lowering garnishment rates significantly reduces adverse labor supply effects. When reducing the garnishment rate from 70% to 30%, disposable income of highly productive households with 60, 000 EUR gross labor income increases by nearly 2/3 under garnishment. On average, the economy would highly profit from abolishing wage garnishment. Removing garnishment would be equivalent to permanently increasing consumption by 1.5% each year. While these gains are quite substantial, young households suffer from restricted access to credit while households in their prime age enjoy better insurance against adverse events. |
| JEL: | E21 E44 G19 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113219&r=mac |
| By: | Schulz, Bastian |
| Abstract: | This paper adds two-sided ex-ante heterogeneity and a production technology inducing sorting to the canonical Diamond-Mortensen-Pissarides (DMP) search and matching model. Ex-ante heterogeneity and sorting have important implications for the dynamic properties of the model. The modifications solve the problem that standard DMP models do not generate enough volatility in response to shocks, also known as the "Shimer Puzzle" (Shimer, 2005). Amplification to overcome the volatility puzzle stems from an endogenously generated wage rigidity, which is of reasonable magnitude given empirical evidence from the U.S. labor market. Additionally, endogenous matching sets fluctuate in response to shocks and amplify job-creation. Using a standard Nash sharing rule, I show that the surplus function of the model, which depends on both the workers' and the firms' outside option, exhibits an asymmetry in equilibrium that stems from unequal bargaining powers. Using the standard calibration of the model, the firms' matching sets are wider in equilibrium than the workers' matching sets and fluctuate more in response to shocks. |
| JEL: | E24 E32 J64 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112932&r=mac |
| By: | Weber, Henning |
| Abstract: | Empirical data suggest that new rms tend to grow faster than incumbent firms in terms of their productivity. A sticky-price model with learning-by-doing in new firms fits this data and predicts that for plausible calibrations, the optimal long-run inflation rate is positive and between 0.5% and 1.5% per year. A positive long-run inflation rate helps the fast-growing new firms to align their real price with their idiosyncratic productivity growth. In contrast, the standard sticky-price model without learning-by-doing in new firms predicts an optimal long-run inflation rate near zero. In a two-sector model with learning-by-doing in new firms, the policy tradeoff that arises between new and incumbent firms is considerably more severe than the policy tradeoff that arises between economic sectors. |
| JEL: | E52 E61 E31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113087&r=mac |
| By: | Krause, Christopher; Klein, Mathias |
| Abstract: | In this study, the relation between consumer credit and real economic activity during the Great Moderation is studied in a dynamic stochastic general equilibrium model. Our model economy is populated by two different household types. Investors, who hold the economy's capital stock, own the firms and supply credit, and workers, who supply labor and demand credit to finance consumption. Furthermore, workers seek to minimize the difference between investors' and their own consumption level. Qualitatively, an income redistribution from labor to capital leads to consumer credit dynamics that are in line with the data. As a validation exercise, we simulate a three-shock version of the model and find that our theoretical set-up is able to reproduce important business cycle correlations. |
| JEL: | E21 E32 E44 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112816&r=mac |
| By: | Jannsen, Nils; Potjagailo, Galina; Wolters, Maik |
| Abstract: | We study the effects of monetary policy on output during financial crises. We use a large panel of advanced and emerging economies to guarantee a sufficiently high number of financial crises episodes. A financial crises dummy, which is constructed based on the narrative approach, is interacted with other key macroeconomic variables in a panel VAR. Theory suggests that monetary policy might be more effective in financial crises if it can ease malfunctioning of financial markets for example by loosening credit constraints or restoring confidence. Alternatively, deleveraging and uncertainty might predominate and make the economy less interest rate responsive and monetary policy less effective in financial crises. Taking a sample from the mid 1980s to today we find that an expansionary monetary policy shock is very effective in raising GDP during the recessionary period of a financial crisis. The effect is stronger than in non-crises times. In contrast, during the recovery period of a financial crisis, monetary policy has a very small effect on GDP. These differences can be explained by a confidence channel. During the joint occurrence of a recession and a financial crisis an expansionary monetary policy shock increases consumer confidence and GDP. During the following recovery monetary policy has no effects on confidence or GDP. Other variables like credit, housing prices and exchange rates can at most partially explain differences in transmission between the different regimes. |
| JEL: | E52 E58 G01 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113096&r=mac |
| By: | Gabriele Galati; Irma Hindrayanto; Siem Jan Koopman; Marente Vlekke |
| Abstract: | The financial cycle captures systematic patterns in the financial system and is closely related to the concept of procyclicality of systemic risk. This paper investigates the characteristics of financial cycles using a multivariate model-based filter. We extract cycles using an unobserved components time series model and applying state space methods. We estimate financial cycles for the United States, Germany, France, Italy, Spain and the Netherlands, using data from 1970 to 2014. For these countries, we find that the individual financial variables we examine have medium-term cycles which share a few common statistical properties. We therefore refer to these cycles as 'similar'. We find that overall financial cycles are longer than business cycles and have a higher amplitude. Moreover, such behaviour varies over time and across countries. Our results suggest that estimates of the financial cycle can be a useful monitoring tool for policymakers as they may provide a broad indication about when risks to financial stability increase, remain stable, or decrease. |
| Keywords: | unobserved component models; state space method; maximum likelihood; bandpass filter; short and medium term cycles |
| JEL: | C22 C32 E30 E50 E51 G01 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:495&r=mac |
| By: | Palek, Jakob |
| Abstract: | Recent work on financial frictions in New Keynesian models suggest that there is a sizable spread between the risk-less interest rate and the borrowing rate. We analyze the optimal policy mix of monetary and fiscal authorities in a currency union with a country-specific credit spread by introducing a cost channel differential. The cost channel decreases the efficiency of monetary policy and increases the need for fiscal stabilization. We show that the importance of fiscal policy in stabilizing shocks increases, when there is a gap in the inflation differential due to a relative shock, an idiosyncratic shock or a credit spread differential. The welfare losses will be increasing (decreasing) in the size of the cost channel, if the nominal interest rate is a demand- (supply-) side instrument. |
| JEL: | E63 E52 E62 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113047&r=mac |
| By: | Lein, Sarah Marit; Beck, Günter W. |
| Abstract: | To appropriately model the observed slow response of real variables to nominal shocks, macroeconomic models augment nominal with real rigidities. One very popular way of modelling such a real rigidity is to assume a non-constant demand elasticity. While there has been conducted ample empirical work on the degree and importance of nominal rigidities, there exists very little direct evidence on real rigidities of the form described above so far. By using a unique, very rich data set on micro prices, quantities bought and consumer characteristics we provide comprehensive new evidence on the degree of real rigidities across several European goods markets. We find that consumer goods markets are characterized by non-constant demand elasticities. However, the data suggests that superelasticities are much smaller that what is usually assumed in macroeconomic models. We calibrate a menu-cost model augmented with demand-side real rigidiy and find that this type of real rigidity can explain only about 10% of the monetary non-neutrality observed in the data. |
| JEL: | E31 E50 E30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113144&r=mac |
| By: | Kang, Dae Woong; Ligthart, Nick; Mody, Ashoka |
| Abstract: | As the financial crisis gathered momentum in 2007, the United States Federal Reserve brought its policy interest rate aggressively down from 5 1/4 percent in September 2007 to virtually zero by December 2008. In contrast, although facing the same economic and financial stress, the European Central Bank's first action was to raise its policy rate in July 2008. The ECB began lowering rates only in October 2008 once near global financial meltdown left it with no choice. Thereafter, the ECB lowered rates slowly, interrupted by more hikes in April and July 2011. We use the "abnormal" increase in stock prices - the rise in the stock price index that was not predicted by the trend in the previous 20 days - to measure the market's reaction to the announcement of the interest rate cuts. Stock markets responded favorably to the Fed interest rate cuts but, on average, they reacted negatively when the ECB cut its policy rate. The Fed's early and aggressive rate cuts established its intention to provide significant monetary stimulus. That helped renew market optimism, consistent with the earlier economic recovery. In contrast, the ECB started building its shelter only after the storm had started. Markets interpreted even the simulative ECB actions either as "too little, too late" or as signs of bad news. We conclude that by recognizing the extraordinary nature of the circumstances, the Fed's response not only achieved better economic outcomes but also enhanced its credibility. The ECB could have acted similarly and stayed true to its mandate. The poorer economic outcomes will damage the ECB's long-term credibility. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:527&r=mac |
| By: | Douglas Alcântara Alencar (Cedeplar-UFMG); Marco Flávio Cunha Resende (Cedeplar-UFMG); Lúcio Otávio Seixas Barbosa (Cedeplar-UFMG); Gustavo Figueiredo Campolina Diniz (Cedeplar-UFMG) |
| Abstract: | Keynes explained the Finance-Investment-Saving-Funding (FISF) circuit assuming a closed economy without government. Lately, Resende (2008) and Arestis and Resende (2015) expand the above circuit opening the economy, nonetheless without government. This paper novelty is to analyse the FISF circuit in an open economy context including government. Moreover, we studied the fiscal policy effects on aggregate demand. It is argued that when the economy is operating with current account surplus and under full capacity, expansionary fiscal policy stimulates aggregate income. Conclusions highlight the validity of the FISF circuit in an open economy context including government. |
| Keywords: | Finance-Investment-Savings-Funding, open economy, government. |
| JEL: | F41 E12 E21 E62 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td531&r=mac |
| By: | Ahrens, Steffen; Nejati, Nooshin; Pfeiffer, Philipp Ludwig |
| Abstract: | This paper studies the role of labor market institutions in business cycle fluctuations. We develop a DSGE model with search and matching frictions and incorporate a US unemployment insurance experience rating system. Layoff taxes based on experience rating finance the cost of unemployment benefits and create considerable employment adjustment costs. Our framework helps realign the search and matching model with the empirical properties of its most salient variables. The model reproduces the negative correlation between vacancies and unemployment, i.e., the Beveridge curve. Simulations show that the model generates more cyclical volatility in its key variable - the ratio of job vacancies to unemployment (labor market tightness). Moreover, layoff taxes reduce the excess sensitivity of job destruction found in Krause and Lubik (2007) and strengthen the negative correlation of job creation and job destruction. Thus, the model matches key labor market data while incorporating an important feature of the US labor market. |
| JEL: | E24 J64 J65 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112807&r=mac |
| By: | Seitz, Franz; Albuquerque, Bruno; Baumann, Ursel |
| Abstract: | We analyse the forecasting power of different monetary aggregates and credit variables for US GDP. Special attention is paid to the influence of the recent financial market crisis. For that purpose, in the first step we use a three-variable single-equation framework with real GDP, an interest rate spread and a monetary or credit variable, in forecasting horizons of one to eight quarters. This first stage thus serves to pre-select the variables with the highest forecasting content. In a second step, we use the selected monetary and credit variables within different VAR models, and compare their forecasting properties against a benchmark VAR model with GDP and the term spread. Our findings suggest that narrow monetary aggregates, as well as different credit variables, comprise useful predictive information for economic dynamics beyond that contained in the term spread. However, this finding only holds true in a sample that includes the most recent financial crisis. Looking forward, an open question is whether this change in the relationship between money, credit, the term spread and economic activity has been the result of a permanent structural break or whether we might go back to the previous relationships. |
| JEL: | E41 E52 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113066&r=mac |
| By: | Scharnagl, Michael; Mandler, Martin |
| Abstract: | We apply wavelet analysis to compare the relationship between simple sum and Divisa monetary aggregates with real GDP and CPI infl ation for the U.S. using data from 1967 to 2013. Wavelet analysis allows to account for variations in the relationships both across the frequency spectrum and across time. While we find evidence for a weaker comovement of Divisia compared to simple sum monetary aggregates with real GDP the relationship between money growth and infl ation is estimated to be much tighter between Divisia monetary aggregates and CPI infl ation than for simple sum aggregates, in particular at lower frequencies. Furthermore, for the Divisia indices for broader monetary aggregates (M2, M2M, MZM) we estimate a stable lead before CPI in flation of about four to five years. |
| JEL: | C30 E31 E40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112879&r=mac |
| By: | Weder, Mark; Pavlov, Oscar |
| Abstract: | Recent empirical evidence suggests that product creation is procyclical and it occurs largely within existing fi rms. Motivated by these findings, the current paper investigates the role of intrafi rm product scope choice in a general equilibrium economy with oligopolistic producers. We show that the multi-product nature of fi rms makes the economy signifi cantly more susceptible to sunspot equilibria. The estimated indeterminate model generates artifi cial business cycles that closely resemble empirically observed fl uctuations. |
| JEL: | E30 E32 E37 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112942&r=mac |
| By: | Marco Hoeberichts; Ad Stokman |
| Abstract: | Persistent price differences across euro area countries are an indication of incomplete economic integration. We analyze long and short run developments of price level dispersion in the euro area and compare the results with the situation in the US. We find that monetary and economic integration in Europe has been successful in establishing a major downward trend in price level differences across countries since 1960. In 2007, price level dispersion in the euro area was at the same level as in the US. After the financial crisis, dispersion first continued its downward trend before diverging economic conditions across euro area countries contributed to a widening of price level differences again. Short-run dynamics show that price dispersion in Europe deviates more from the long-term equilibrium than in the US, although deviations have become smaller since EMU. |
| Keywords: | economic integration; price-level convergence; law of one price; EMU; US |
| JEL: | E31 E37 F15 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:497&r=mac |
| By: | Balleer, Almut; Hristov, Nikolay; Kleemann, Michael; Menno, Dominik |
| Abstract: | This paper investigates how financial market imperfections and nominal rigidities interact. Based on new firm-level evidence for Germany, we document that financially constrained firms adjust prices more often than their unconstrained counterparts. In particular, financially constrained firms do not only increase prices, but also decrease prices more often. We show that these empirical patterns are consistent with a partial equilibrium menu-cost model with financial frictions. Our results suggest that tighter financial constraints are associated with higher nominal rigidities, higher prices and lower output. Furthermore, financial recessions may induce very different dynamics than normal recessions if the relative size of unexpected financial shocks is large relative to aggregate price shocks. |
| JEL: | E31 E44 E32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113054&r=mac |
| By: | Klein, Mathias; Krause, Christopher |
| Abstract: | Standard real business cycle models predict a rise in employment following a technology shock. In contrast, numerous empirical studies show that a technology shock leads to a decline in labor input. In this paper, we demonstrate that a flexible price model enriched with interpersonal comparison of consumption expenditures is able to generate a fall in employment in response to a technology shock. The negative labor response is robust to different values assigned to the inverse Frisch elastictiy of labor supply and integrating capital adjustment cost into the model. |
| JEL: | D62 E24 E32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113075&r=mac |
| By: | Beck, Günther W.; Beyer, Robert C. M.; Kontny, Markus; Wieland, Volker |
| Abstract: | Ever since the European Central Bank presented its monetary policy strategy on the basis of two pillars "economic" and "monetary" analysis with the latter being used as a cross-check of the first it has been criticized for giving too much importance to monetary aggregates. Opponents argue these aggregates are largely unrelated to monetary policy and provide little or no relevant information. Supporters have instead referred to the success of the Bundesbank in controlling inflation by using monetary targets during the 1970s and early 1980s. Furthermore, loose monetary conditions in the 2000s are viewed by many as a driver of excessive growth of credit and asset prices that set the stage for the global financial crisis. We use a formal characterization of monetary cross-checking and go on to study its role in policy practice empirically. Firstly, we derive historical measures of monetary conditions using this definition of cross-checking for Germany from the 1970s to 1998 and for the euro area since then. We investigate when monetary cross-checking would have called for significant adjustments in interest rate policy. Secondly, we test empirically whether interest rate policy responded to significant deviations of money. Such cross-checks induce a nonlinear shift in rates based on a threshold in terms of filtered money growth. Our estimates of threshold autoregressive models indicate that the behavior of the Bundesbank can well be described by a standard Taylor interest-rate rule augmented by a nonlinear component which induces an interest-rate adjustment when a filtered money growth measure exceeds an empirically specified threshold. Concerning the policy making of the ECB, we find supportive evidence for Trichet s(2008) claim of an interest-rate adjustment induced by a signal from monetary cross-checking at the end of 2004. However, our empirical results would have suggested an even larger (and earlier) response. |
| JEL: | C10 E41 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113126&r=mac |
| By: | Beckers, Benjamin |
| Abstract: | In light of the recent large swings in stock and housing prices accompanied by ample global liquidity, the role of monetary policy in the build-up of asset price bubbles has been questioned. This paper will contribute to the debate whether central banks can and should stronger "lean against the wind" of emerging bubbles. Against this background, the paper will reevaluate if new advances in real-time bubble detection, as brought forward by Phillips et al. (2011), can timely detect bubble emergences and collapses. Here, the paper suggests a combination approach of different bubble indicators to account for the uncertainty around start and end dates of asset price bubbles. Additionally, the paper will then investigate if these indicators carry predictive content for inflation, output growth and recession events when the real-time availability of all variables is considered. It finds that a combination approach of asset price bubbles is well suited to detect the most common stock and house price bubbles in the U.S. and shows that this indicator can improve output forecasts, however, only when the real-time availability of real variables is respected. |
| JEL: | C53 E44 G12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112852&r=mac |
| By: | Tillmann, Peter; Meinusch, Annette |
| Abstract: | In this paper we analyze the effects of changes in peoples' beliefs about the timing of the exit from Quantitative Easing ("tapering") on asset prices. To quantify beliefs of market participants, we use data from Twitter, the social media application, covering the entire Twitter volume on Federal Reserve tapering in 2013. Based on the time series of beliefs about an early or late tapering, we estimate a VAR model with appropriate sign restrictions on the impulse responses to identify a belief shock. The results show that shocks to tapering beliefs have strong and robust effects on interest rates, exchange rates and asset prices. We also derive measures of monetary policy uncertainty and disagreement of beliefs, respectively, and estimate their impact. The paper is the first to use social media data for |
| JEL: | E52 E43 F31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112906&r=mac |
| By: | Moessner, Richhild |
| Abstract: | We quantify the international spillovers of explicit FOMC policy rate guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on international equity markets, considering equity indices of both advanced and emerging economies. We find that explicit FOMC policy rate guidance announcements at the zero lower bound led to higher equity prices in a number of advanced and emerging economies. Moreover, we find that equity indices of economies with lower sovereign ratings rose by more, consistent with the risk-taking channel of monetary policy. |
| JEL: | E52 E58 G15 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112970&r=mac |
| By: | Daniela Bragoli (Università Cattolica - Milan); Massimiliano Rigon (Bank of Italy); Francesco Zanetti (Oxford University) |
| Abstract: | This study investigates the appropriate measure of inflation in the euro area that the central bank should adopt in order to minimize social welfare losses stemming from volatility in the output gap, inflation and relative prices. We use a model that accounts for both the heterogeneity observed in the degree of price rigidity across regions and sectors, and the asymmetry of real disturbances in relative prices. Our work shows that the optimal weights to assign to each region or economic sector depend on complex interactions between the degree of price stickiness, a country’s economic size and the distribution of shocks across regions. Moreover, the optimal system of weights is primarily affected by the distribution of real shocks across countries. It follows that there is no simple rule of thumb for establishing the optimal weights for each region or economic sector. |
| Keywords: | optimal monetary policy, euro area regions, asymmetric shocks, asymmetric price stickiness |
| JEL: | E52 F41 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1045_16&r=mac |
| By: | Javier G. Gómez-Pineda (Banco de la República de Colombia) |
| Abstract: | El artículo estudia la inflación en Colombia durante 1951-1963 de acuerdo al enfoque de presión de costos (cost push inflation). El artículo propone un modelo en el que la inflación responde a los aumentos salariales, la devaluación y la inflación de alimentos. El modelo incorpora una ecuación para la inflación de alimentos en función del fenómeno El Niño-Oscilación del Sur. Entre los resultados se argumenta que los ajustes masivos en los salarios y la tasa de cambio actuaron como importantes fuerzas expansivas de la inflación durante los programas de estabilización y como fuerzas contractivas de la misma durante los prolongados períodos comprendidos entre los ajustes. Los choques de oferta de alimentos desempeñaron un papel importante en la evolución de la inflación en el corto plazo. El análisis lleva a dos principales implicaciones de política. Primero, la evolución de la inflación en el corto plazo ha sido atribuida por la literatura a los cambios en el crecimiento del dinero, pero el enfoque de inflación de costos ofrece importantes puntos de vista sobre la evolución de la inflación en el corto plazo. Segundo, Colombia no llegó a la hiperinflación porque no persistió en el objetivo de aumentar los salarios reales. En vez de esto, permitió aumentos de precios y renunció a regla de indexación de los salarios. En consecuencia la inflación se mantuvo flexible y bajó rápidamente. Classification JEL:N1, N16, E3, E52, E58 |
| Keywords: | Inflación de costos, espiral de precios y salarios, indexación, macroeconomía del populismo, mínimo vital y móvil |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:924&r=mac |
| By: | Finocchiaro, Daria (Research Department, Central Bank of Sweden); Mendicino, Caterina (Monetary Policy Research) |
| Abstract: | We show that in a model with equity and debt financing, the specfication of the borrowing constraint is crucial to generate empirically plausible responses of macro variables and asset prices to financial shocks. The interaction between financial frictions and labor demand, as in Jermann and Quadrini (2012), is key to the result. A collateral constraint a la Kiyotaki and Moore (1997) augmented with a working capital assumption generates similar results on impact. |
| Keywords: | liquidity shocks; collateral constraints; stock prices; comovement |
| JEL: | E32 E44 |
| Date: | 2015–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0314&r=mac |
| By: | Strehl, Wolfgang; Engler, Philipp |
| Abstract: | We analyse the welfare properties of progressive income taxes in a stylized DSGE model of a currency union calibrated to the Eurozone. When the central bank follows a standard Taylor rule and volatility originates solely in productivity shocks, we find that considerable welfare gains can be achieved by introducing a progressive income tax schedule. The reason is that the slightly lower average levels of consumption and greater volatility of hours are more than offset in their effects on welfare by a significant reduction in consumption volatility. However, at the aggregate level this result is not robust to the introduction of rule-of-thumb households, but we find a positive welfare effect for the latter type of households while intertemporally optimizing households lose. Furthermore, under an optimal monetary policy, welfare falls even in the absence of rule-of-thumb households. When demand shocks are considered, progressive taxes cannot improve welfare. Increasing tax progression above the Eurozone average is a "beggar-thyself" policy for all specifications. |
| JEL: | E62 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112823&r=mac |
| By: | Hahn, Volker |
| Abstract: | We integrate monetary policy-making by committee into a New Keynesian model to assess the consequences of the committee's institutional characteristics for inflation, output, and welfare. Our analysis delivers the following results. First, we demonstrate that transparency about the committee's future composition may be harmful. Second, we show that longer terms for central bankers lead to more effective output stabilization at the expense of higher inflation variability. Third, larger committees allow for more efficient stabilization of inflation but for less efficient output stabilization. Fourth, large committees and short terms are therefore socially desirable if the weight on output stabilization in the social loss function is low. Fifth, we show that a central banker with random preferences may be preferable to a central banker who shares the preferences of society. |
| JEL: | E58 D71 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112811&r=mac |
| By: | Cycon, Lisa; Koetter, Michael |
| Abstract: | Based on detailed loan portfolio data of a top-20 universal bank in Germany, we investigate the effect of unconventional monetary policy on corporate loan pricing. We can decompose corporate lending rates, thereby shedding light on intra-bank transmission of monetary policy. We identify policy effects on contracted customer rates, refinancing rates charged internally, markups earned by the bank, and loan volumes by exploiting the co-existence of eurozone-wide security purchase programs by the European Central Bank (ECB) and local fiscal policies that are determined autonomously at the district level where bank customers reside between August 2011 until December 2013. The purchase programs of the ECB reduced refinancing costs significantly. Local fiscal stimuli increased loan prices and margins earned. The differential effect of unconventional expansionary monetary policy given local tax environments is significantly negative. Lending volumes do not respond significantly though. |
| JEL: | E43 G18 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112831&r=mac |
| By: | Hohberger, Stefan; Kraus, Lena |
| Abstract: | Large trade imbalances have emerged as major policy challenges for the euro area within the last decade. As fiscal policy is the major macroeconomic policy instrument left with the individual member countries of EMU, fiscal devaluation is a highly debated policy tool to mimic the effects of an external devaluation by implementing a budgetary-neutral tax shift from direct to indirect taxes. This paper uses a two-region two-sector DSGE model with nominal wage and price rigidities to analyse the welfare effects of fiscal devaluation understood as tax shift from social security contributions for employers to value-added tax in a small open economy in monetary union. This paper finds that fiscal devaluation can stabilise excessive trade balance fluctuations but implies welfare losses for the average household. The results are robust to several sensitivity checks. |
| JEL: | E62 F32 F41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113193&r=mac |
| By: | Weber, Patrick |
| Abstract: | Using a unique data set, I study whether structural bank characteristics can help to explain a bank's propensity to take recourse to the ECB's marginal lending facility (MLF). My key finding is that besides structural measures capturing a bank's business model, indicators for its liquidity risk management have a highly significant predictive power for a bank's access to the lender-of-the-last-resort (LLR) facility. A bank with volatile reserve holdings, a lower average reserve fulfillment and a more aggressive bidding behavior in the main refinancing operations, is significantly more likely to revert to the MLF. These results suggest that the option value of having access to the ECB's LLR varies significantly across banks. Thus (i) a uniform Marginal Lending rate undermines market efficiency and (ii) structural bank characteristics could be used to adequately adjust the pricing of the MLF to bank specific structural liquidity risks. |
| JEL: | E58 G01 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113123&r=mac |
| By: | Lamla, Michael; Dräger, Lena; Pfajfar, Damjan |
| Abstract: | Using the microdata of the Michigan Survey of Consumers, we evaluate whether U.S. consumers form macroeconomic expectations consistent with different economic concepts. We observe that 50\% of consumers have expectations consistent with the Income Fisher equation, 46\% with the Taylor rule and 34\% with the Phillips curve. For the Taylor rule and the Phillips curve we observe less consistency during recessions and with high inflation. Moreover, changes in the communication policy of the Fed affect consistency. The strongest positive effect comes from the introduction of the official inflation target. Finally, consumers with theory-consistent expectations have lower absolute inflation forecast errors. |
| JEL: | E52 D84 C25 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113170&r=mac |
| By: | Dinlersoz, Emin (U.S. Census Bureau); Hyatt, Henry R. (U.S. Census Bureau); Janicki, Hubert P. (U.S. Census Bureau) |
| Abstract: | Young and small firms are typically matched with younger and nonemployed individuals, and they provide these workers with lower earnings compared to other firms. To explore the mechanisms behind these facts, a dynamic model of entrepreneurship is introduced, where individuals can choose not to work, become entrepreneurs, or work in one of the two sectors: corporate or entrepreneurial. The differences in production technology, financial constraints, and labor market frictions lead to sector-specific wages and worker sorting across the two sectors. Individuals with lower assets tend to accept lower-paying jobs in the entrepreneurial sector, an implication that finds support in the data. The effect on the entrepreneurial sector of changes in key parameters is also studied to explore some channels that may have contributed to the decline of entrepreneurship in the United States. |
| Keywords: | entrepreneurship, borrowing constraints, financial frictions, labor market frictions, worker sorting, decline in entrepreneurship |
| JEL: | L26 J21 J22 J23 J24 J30 E21 E23 E24 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9693&r=mac |
| By: | Pirschel, Inske |
| Abstract: | In this paper I use the predictive distribution of the back-, now- and forecasts obtained with a mixed-frequency Bayesian VAR (MF-BVAR) to provide a real-time assessment of the probability of a recession in the euro area for the period from 2003 until 2013. Using a dataset that consists of 135 monthly data vintages and covers 11 soft and hard monthly indicators as well as quarterly real GDP, I show that the MF-BVAR is able to capture current economic conditions extremely well. For both recession periods in the sample, the Great Recession of 2008/2009 and the European debt crisis 2011/2013, the MF-BVAR real-time recession probabilities soar right at the onset of the pending slump of GDP growth. By contrast a BVAR estimated on quarterly data detects both recessions with a substantial delay. While typically non-linear discrete-choice or regime switching models have to be used to predict rare events such as recessions, my results indicate that the MF-BVAR can not only compete with other nowcasting approaches in terms of the accuracy of point forecasts, but also reliably detect rare events through the corresponding predictive distribution which is easily available as a by-product of the estimation procedure. |
| JEL: | C53 E32 E37 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113031&r=mac |
| By: | Stefano Eusepi; Bruce Preston |
| Abstract: | New Keynesian theory identifies a set of principles central to the design and implementation of monetary policy. These principles rely on the ability of a central bank to manage expectations precisely, with policy prescriptions typically derived under the assumption of perfect information and full rationality. In consequence the prevailing policy regime is credible and correctly understood by market participants. Despite considerable advances in understanding, recent events have engendered a reevaluation of the theory and practice of monetary policy. The challenging macroeconomic environment bequeathed by the financial crisis has led many to question the efficacy of monetary policy, and, particularly, question whether central banks can influence expectations with as much control as previously thought. The objective of this survey is to review what is understood about the challenges to the New Keynesian paradigm posed by imperfect knowledge and to assess the degree of confidence with which one should hold the basic prescriptions of modern monetary economics. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-07&r=mac |
| By: | Bierbaumer-Polly, Jürgen; Huber, Peter; Huber, Petr |
| Abstract: | According to difference-in-difference estimates business cycle synchronization and similarity in sector structures between acceding and pre-existing regions reduced after Eastern Enlargement. Results for Northern enlargement are more ambiguous. In both enlargements, however, region pairs affected by enlargement with highly synchronized business cycles before enlargement experienced smaller increases in business cycle synchronization and weaker reductions of structural differences relative to similar unaffected region pairs than region pairs with less synchronized business cycles. Similarly, affected regions that were more similar in terms of sector structure before enlargement experienced larger reductions in structural differences and business cycle synchronization than similar unaffected region pairs. |
| JEL: | F15 E32 R11 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113154&r=mac |
| By: | Neuenkirch, Edith; Hayo, Bernd |
| Abstract: | We analyse the German citizens knowledge about monetary policy and the European Central Bank (ECB), as well as the public s use of mass communication media to obtain information about the ECB. We employ a unique representative public opinion survey of German households conducted in 2011. We find that a person s own desire to be informed about the ECB together with the use of various media channels to keep informed are decisive for both (i) the own perception of knowledge about the ECB and (ii) the actual level of knowledge. The media-related influence differs with a person s level of education and is stronger for subjective knowledge. Women are less interested and knowledgeable. We conclude that the ECB is well advised to continue its education programmes to convince the public of the importance of monetary policy literacy. |
| JEL: | A20 E52 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113218&r=mac |
| By: | Große Steffen, Christoph |
| Abstract: | This paper analyses empirically and theoretically the effects of uncertainty shocks on sovereign default risk. It describes a novel mechanism for non-fundamental debt crises induced by uncertainty shocks that are defined as time-varying levels of ambiguity surrounding the macroeconomic fundamental of the economy. A business cycle model with strategic sovereign default is augmented with ambiguity averse investors with multiple-priors utility. I find that uncertainty shocks increase the risk of default as perceived by worst case investors' beliefs. Sovereign and private sector interest rates rise due to a spillover channel that unfolds through the domestic banking sector. A crisis zone is characterised where worst case investors' beliefs lead to non-fundamental debt crises. The model's predictions are shown to be in line with impulse responses obtained from a VAR analysis for a panel of four Euro area countries. Specifically, the dichotomy of sovereign debt pricing in the core and periphery countries can partly be rationalised by accounting for ambiguity premia. |
| JEL: | D81 E44 F34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112936&r=mac |
| By: | Talavera, Oleksandr; Gorodnichenko, Yuriy |
| Abstract: | We document basic facts about prices in online markets in the U.S. and Canada, a rapidly growing segment of the retail sector. Relative to prices in regular stores, prices in online markets are more flexible as well as exhibit stronger pass-through (60-75 percent) and faster convergence (half-life less than 2 months) in response to movements of the nominal exchange rate. Multiple margins of adjustment (frequency of price changes, direction of price changes, size of price changes, exit of sellers) are active in the process of responding to nominal exchange rate shocks. Furthermore, we use the richness of our dataset to show that degree of competition, stickiness of prices, synchronization of price changes, reputation of sellers, and returns to search effort are important determinants of pass-through and speed of price adjustment for international price differentials. |
| JEL: | E31 F41 F40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112885&r=mac |
| By: | Winkelmann, Lars; Netsunajev, Aleksei |
| Abstract: | This paper extends the discussion of international comovements of actual inflation rates to inflation expectations. Financial market expectations about inflation rates in the United States (US) and Euro Area (EA) are modeled in a structural vector autoregression (SVAR). We demonstrate how the heteroscedasticity of the expectations data enables a flexible and data-driven statistical identification of the model. A multi-step procedure is proposed to explore the economic nature and geographical source of structural shocks. We emphasize the SVAR s ability to derive shocks that disentangle US specific, EA specific and global components. Our main empirical finding indicates that so-called global inflation translates to short horizon inflation expectations. In contrast, long expectations horizons are mostly driven by domestic shocks, thus, appear rather local. Results support the view of credible monetary policy strategies that anchor inflation expectations. |
| JEL: | E31 F42 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112900&r=mac |
| By: | Vogel, Lukas; Kollmann, Robert; Ratto, Marco; Roeger, Werner; in 't Veld, Jan |
| Abstract: | We estimate a three-country model using 1995 2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyse the determinants of Germany s current account (CA) surplus after the launch of the euro. Our results suggest that the German surplus reflects a succession of distinct shocks. Mono-causal explanations of the surplus are thus insufficient. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labour market reforms and other positive German aggregate supply shocks. The key shocks that drove the rise in the German CA tended to worsen the REA trade balance, but had a weak effect on REA real activity. Our analysis suggests these driving factors are likely to be slowly eroded, leading to a very gradual reduction of the German CA surplus. An expansion in German government consumption and investment would raise German GDP and reduce the CA surplus, but the effects on the surplus would be weak. |
| JEL: | E30 F30 F40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112810&r=mac |
| By: | Scheufele, Rolf; Bäurle, Gregor |
| Abstract: | This paper analyzes credit supply and demand shocks for the Swiss economy. Using a medium scale BVAR model we are able to take into account various interactions of housing prices, credit supply and demand, interest rates and real activity measures. To identify meaningful economic shocks, we used a combination of zero and sign restrictions. Generally, the empirical analysis implies that the effects of credit supply and demand shocks on real activity are limited, only playing a substantive role in specific episodes. Furthermore, the credit supply shocks (i.e. bank lending shocks and monetary policy shocks) explain a large fraction of housing price and credit fluctuations. Indeed, they tend to be more important for housing prices than housing demand shocks. There is further evidence that shocks related to credit supply, monetary policy shocks dominate bank lending shocks. For Switzerland as a small open economy it turns out to be very crucial to take into account foreign demand which is able to explain a substantial variation in real and financial variables. |
| JEL: | C11 C32 E44 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112931&r=mac |
| By: | Julian di Giovanni (Universitat Pompeu Fabra, Barcelona GSE, CREI and CEPR); Andrei A. Levchenko (University of Michigan, NBER, and CEPR); Isabelle Méjean (Ecole Polytechnique and CEPR) |
| Abstract: | This paper investigates the role of individual firms in international business cycle comovement using data covering the universe of French firm-level value added, bilateral imports and exports, and cross-border ownership over the period 1993-2007. At the micro level, controlling for firm and country effects, trade in goods with a particular foreign country is associated with a significantly higher correlation between a firm and that foreign country. In addition, foreign multinational affliates operating in France are significantly more correlated with the source economy. The impact of direct trade and multinational linkages on comovement at the micro level has significant macro implications. Because internationally connected firms are systematically larger than noninternationally connected firms, the firms directly linked to foreign countries represent only 8% of all firms, but 56% of all value added, and account for 75% of the observed aggregate comovement. Without those linkages the correlation between France and foreign countries would fall by about 0.091, or one-third of the observed average business cycle correlation of 0.29 in our sample of partner countries. These results are evidence of transmission of business cycle shocks through direct trade and multinational ownership linkages at the firm level. |
| Keywords: | Comovement, International Trade, Firm-Level Shocks, Large Firms |
| JEL: | F44 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:649&r=mac |
| By: | Trebesch, Christoph; Zettelmeyer, Jeromin |
| Abstract: | We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable twist of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. The interventions thus had very local effects only, consistent with theories of segmented bond markets. |
| JEL: | E43 E58 F34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112809&r=mac |
| By: | Blagov, Boris; Funke, Michael |
| Abstract: | An estimated Markov-switching DSGE modelling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong s linked exchange rate system. The model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse re- sponses to macroeconomic shocks reveal substantial differences in spreads. These findings contribute to efforts at modelling exchange rate regime credibility as a non-linear process with two distinct regimes. |
| JEL: | E32 F41 C51 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112819&r=mac |
| By: | Reitz, Stefan; Pierdzioch, Christian; Rülke, Jan-Christoph |
| Abstract: | This research applies data from the Livingston survey to study the time variation in the sentiment of U.S. stock-market forecasters. A Panel Smooth Transition Regression (STR) model is estimated to identify the importance of market conditions summarized by stock-market misalignments and recent returns for the formation of regressive and extrapolative expectations. We find that survey participants expect little mean reversion in times of large misalignments reflecting the observed substantial and persistent swings in stock prices. Recent returns are negatively extrapolated depending on the sign and the size of the return revealing a contrarian behavior of forecasters in the presence of market exuberance. |
| JEL: | C15 E37 G15 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113210&r=mac |
| By: | Preugschat, Edgar; Kaas, Leo; Kocharkov, Georgi |
| Abstract: | The nine largest countries in the Euro area have surprisingly different degrees of wealth inequality. At the same time, there is a strong negative correlation between wealth inequality and homeownership rates across countries. To account for this fact, we first analyze decompositions of the Gini coefficient across subgroups of households. The main contributing factor for the negative correlation with homeownership appears to be inequality between homeowners and renters. In a second step, we estimate the effects of homeownership on the Gini using a Recentered Influence Function (RIF) regression approach. The coefficients on homeownership are significantly negative and are positively correlated with between group Ginis (owners vs renters) across countries. To better understand the effect of ownership on inequality we regress ownership on individual quantiles. For most countries the effect of ownership is strongest for quantiles below the median. This suggests that policies promoting homeownership for lower wealth groups should have the largest impact wealth inequality. |
| JEL: | D31 E21 G11 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113026&r=mac |
| By: | Irmen, Andreas |
| Abstract: | Uzawa s steady-state growth theorem (Uzawa (1961)) is generalized to a neoclassical economy that uses current output, e.g., to create technical progress or to manufacture intermediates. The difference between aggregate final-good production and these resources is referred to as net output. The new generalized steady-state growth theorem holds since net output exhibits constant returns to scale in capital and labor. This insight provides an understanding for why technical change is labor-augmenting in steady state even if capital-augmenting technical change is feasible. By example, this point is made for four growth models that allow for endogenous capital- and labor-augmenting technical change, namely, Irmen and Tabakovic (2015), Acemoglu (2003), Acemoglu (2009), Chapter 15, and for the typical model of the induced innovations literature of the 1960s. The reduced form of these models is shown to be consistent with the generalized steady-state growth theorem. |
| JEL: | E10 O10 O40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113141&r=mac |
| By: | Theobald, Thomas; Grüning, Patrick; van Treeck, Till |
| Abstract: | Germany entered the euro with a current account deficit but over the entire past decade has run large and persistent current account surpluses. Besides joining the common currency, the increase of Germany's current account since the late 1990s has been accompanied by strong shifts in the personal and, in particular, the functional income distribution. In this paper, we argue that income inequality should always be analyzed with respect to both the personal and the functional distribution of income. We then present a dynamic stochastic general equilibrium (DSGE) model in which a current account surplus arises as an endogenous result of a decrease in the share of household income in national income. On the one hand, this result complements existing literature where current account deficits result from rising personal income inequality. On the other hand, we find that current account imbalances will be more pronounced when accompanied by changes in the financial system. Accordingly, if we link Germany's accession to the European monetary union to lower exchange rate costs for German bank lending, the current account surplus becomes larger. |
| JEL: | D31 E17 F32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112846&r=mac |
| By: | Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Maarten van Rooij |
| Abstract: | Using survey data from a representative sample of Dutch households, we estimate the strength of the precautionary saving motive by eliciting subjective expectations on future consumption. We find that expected consumption risk is higher for the young and the self-employed, and is correlated positively with income risk. We insert these subjective expectations (rather than consumption realizations, as in the existing literature) in an Euler equation for consumption, and estimate the degree of prudence by associating expected consumption risk with expected consumption growth. Robust OLS and IV estimates both indicate a coefficient of relative prudence of around 2. |
| Keywords: | Consumption Risk; Euler Equation; Prudence; Precautionary Saving; Subjective Expectations |
| JEL: | D12 D14 D81 E21 C14 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:496&r=mac |
| By: | Meyer-Gohde, Alexander |
| Abstract: | I construct risk-sensitive approximations of policy functions of DSGE models around the stochastic steady state and ergodic mean that are linear in the state variables. The method requires only the solution of linear equations using standard perturbation output to construct the approximation and is uniformly more accurate than standard linear approximations. In an application to real business cycles with recursive utility and growth risk, the approximation successfully estimates risk aversion using the Kalman filter, where a standard linear approximation provides no information and alternative methods require computationally intensive procedures such as particle filters. At the posterior mode, the model s market price of risk is brought in line with the postwar US Sharpe ratio without compromising the fit of the macroeconomy. |
| JEL: | C61 C63 E17 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113057&r=mac |
| By: | Hauptmann, Andreas; Capuano, Stella; Schmerer, Hans-Jörg |
| Abstract: | Unions are often stigmatized as being a source of inefficiency due to higher collective bargaining outcomes. This is in stark contrast with the descriptive evidence presented in this paper. Larger firms choose to export and are also more likely to adopt collective bargaining. We rationalize those stylized facts using a partial equilibrium model that allows us to evaluate firms value functions under individual or collective bargaining. Exporting further decreases average production costs for large firms in the collective bargaining regime, allowing them to benefit from additional external economies of scale due to lower bargaining costs. Our findings suggest that the positive correlation between export status and collective bargaining can be explained through size. Including controls for firm-size destroys the estimated positive relationship between export status and collective bargaining. Using interaction terms between size and the export status, we find that larger exporters tend to do collective bargaining, whereas smaller exporters tend to refrain from collective agreements. |
| JEL: | F16 E24 J30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113019&r=mac |
| By: | Trimborn, Timo; Strulik, Holger |
| Abstract: | Recent empirical research has shown that income per capita in the aftermath of natural disasters is not necessarily lower than before the event. In many cases, income is not significantly affected and surprisingly, can even respond positively to natural disasters. Here, we propose a simple theory based on the neoclassical growth model that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly residential housing (or other durable goods). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy about equally residential structures and productive capital. We also show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare. |
| JEL: | E20 O40 R31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113016&r=mac |
| By: | Steinkamp, Sven; Maskay, Nephil; Westermann, Frank |
| Abstract: | In this paper, we investigate whether foreign currency accounts help overcome credit constraints in developing countries. We analyze a novel bank-level data set from Nepal, where a steady inflow of remittances has contributed to foreign currency deposits on commercial bank balance sheets. In this data set we find that: (i) Banks hedge their FX exposure by investing in FX assets. (ii) Banks also hedge indirectly via their sectoral lending composition: Banks with a large share of FX deposits primarily lend to firms in traded-goods sectors. They lend only little to the non-traded sectors, as well as deprived sectors of the economy that have been targeted by various support programs. While the direct impact of FX accounts on relaxing credit constraints thus appears small, and biased towards specific sectors, there is also a substantial indirect effect via the additional creation of domestic deposits that benefits all sectors of the economy. |
| JEL: | F31 F24 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112901&r=mac |
| By: | Gehrig, Thomas Paul; Fohlin, Caroline; Haas, Marlene |
| Abstract: | Using a new daily dataset for all stocks traded on the New York Stock Exchange, we study the evolution of information asymmetry during runs on financial institutions and the subsequent liquidity freeze of October 1907 - one of the severest financial crises of the 20\textsuperscript{th} century. We find that increased informational risk and resulting runs on financial institutions led to a freeze in short-term money markets, which forced liquidation of stock positions, and drained liquidity from the stock market: spreads increased from 0.5\% to 3\% during the crisis episode. This liquidity freeze was primarily driven by fears of informed trading and was most intense for the mining sector. In addition to wider spreads and tight money markets, freezing liquidity manifests itself in fading trading volume and increased price sensitivity to changes in trading volume. Importantly, short-term liquidity measures did not have a long-lasting soothing effect on trading volume, but only on prices. We go on to show that rising illiquidity is associated with lower asset prices. Thus, our findings demonstrate how opaque markets can easily transmit an idiosyncratic rumor into a long-lasting, market-wide crisis. They demonstrate the usefulness of illiquidity measures to alert market participants to pendings market runs. |
| JEL: | G14 D84 E44 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113008&r=mac |
| By: | Hermansson, Cecilia (Department of Real Estate and Construction Management, Royal Institute of Technology) |
| Abstract: | This paper analyzes relationships between Swedish bank customers’ risk appetite and their financial assets and debt, controlling for demographic, socio-economic, financial and educational variables including financial literacy. We use subjective risk measures, i.e. risk tolerance and risk preference, as well as an objective risk measure, i.e. relating customers’ saving deposits to more risky stocks and mutual funds as a share of total financial assets. Bank customers with high risk appetite have significantly more financial assets compared with those with medium and low risk appetite. The subjective risk measures show that those with high risk appetite have significantly higher debt than those with low risk appetite. The objective risk measure shows the opposite. The paper concludes that it is important to use several measures of risk. Also, policy makers and banks need to measure bank customers’ risk appetite in a more systematic and transparent way, in order to improve both the banks’ and their customers’ risk management, and not less importantly, to decrease macroeconomic risks. |
| Keywords: | Household saving; debt; risk attitudes |
| JEL: | D12 D14 E58 G21 |
| Date: | 2016–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:kthrec:2012_015&r=mac |
| By: | Hermansson, Cecilia (Department of Real Estate and Construction Management, Royal Institute of Technology) |
| Abstract: | This paper analyzes relationships between Swedish bank customers’ risk appetite and their financial assets and debt, controlling for demographic, socio-economic, financial and educational variables including financial literacy. We use subjective risk measures, i.e. risk tolerance and risk preference, as well as an objective risk measure, i.e. relating customers’ saving deposits to more risky stocks and mutual funds as a share of total financial assets. Bank customers with high risk appetite have significantly more financial assets compared with those with medium and low risk appetite. The subjective risk measures show that those with high risk appetite have significantly higher debt than those with low risk appetite. The objective risk measure shows the opposite. The paper concludes that it is important to use several measures of risk. Also, policy makers and banks need to measure bank customers’ risk appetite in a more systematic and transparent way, in order to improve both the banks’ and their customers’ risk management, and not less importantly, to decrease macroeconomic risks. |
| Keywords: | Household saving; debt; risk attitudes |
| JEL: | D12 D14 E58 G21 |
| Date: | 2016–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:kthrec:2015_012&r=mac |
| By: | Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics, Umeå University,); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | Much evidence suggests that people are concerned with their relative consumption, i.e., their own consumption relative to that of others. Yet, conspicuous consumption and the corresponding social costs have so far been ignored in savings-based indicators of sustainable development. The present paper examines the implications of relative consumption concerns for measures of sustainable development by deriving analogues to genuine saving when people are concerned with their relative consumption. Unless the positional externalities have been fully internalized, an indicator of such externalities must be added to genuine saving to arrive at the proper measure of intertemporal welfare change. A numerical example based on U.S. and Swedish data suggests that conventional measures of genuine saving (which do not reflect conspicuous consumption) are likely to largely overestimate this welfare change. We also show how relative consumption concerns affect the way public investment ought to be reflected in genuine saving. |
| Keywords: | Welfare change; investment; saving; relative consumption |
| JEL: | D03 D60 D62 E21 H21 I31 Q56 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0641&r=mac |
| By: | Lemke, Wolfgang; Vladu, Andreea |
| Abstract: | We model the dynamics of the euro area yield curve using a shadow-rate term structure model (SRTSM), with particular attention to the period since late 2011 when interest rates have been at the lowest level since the inception of EMU. The shadow rate is driven by latent factors with linear Gaussian dynamics, while the actual short rate is the maximum between the shadow rate and a lower bound (estimated at 10 bps) so that interest rates will never fall below that level. The estimated SRTSM performs attractively with respect to cross-sectional fit and forecast performance. The model implies that since mid-2012 the median horizon when future one-month rates would return to 50 bps has been ranging between about 25 and 40 months. Deriving such lift-off timing instead from the simple metric of the forward curve crossing 50 bps would underestimate the SRTSM-implied median timing by between 5 to 15 months. As a novelty in the literature, we analyze the effect of a downward shift in the lower bound on the yield curve: for short maturities, rates decrease one-to-one with a drop in the lower bound, while the effect diminishes for longer maturities. The shift-down in the euro area yield curve between April and June 2014 appears to partially reflect such a drop in the (perceived) lower bound. |
| JEL: | G12 C32 E43 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113159&r=mac |
| By: | Enders, Zeno; Peter, Alexandra |
| Abstract: | The global financial crisis of 2007-2009 spread through different channels from its origin in the United States to large parts of the world. In this paper we explore the financial and the trade channels in a unified framework and quantify their relative importance for this transmission. Specifically, we employ a DSGE model of an open economy with an internationally operating banking sector. We investigate the transmission of the crisis via the collapse of export demand and through losses in the value of cross-border asset holdings. Calibrated to German and UK data, the model attributes around half of the observed maximum output decline in Germany to these channels, and 87% for the UK. While the trade channel explains 30% of the empirical output decline in both countries, the financial channel plays a much larger role in the UK than in Germany. The UK's larger vulnerability to financial shocks is due to higher foreign-asset holdings, which simultaneously serve as an automatic stabilizer in case of plummeting foreign demand. The transmission via the financial channel triggers a much longer-lasting recession relative to the trade channel, resulting in larger cumulated output losses and a prolonged crisis particularly in the UK. Stricter bank capital regulations would have deepened the initial slump while simultaneously speeding up the recovery. |
| JEL: | F44 F41 E32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113022&r=mac |
| By: | Schüler, Yves Stephan; Hiebert, Paul P.; Peltonen, Tuomas A. |
| Abstract: | We extract and analyse financial cycles for 13 European Union countries using a quarterly dataset spanning over 1971-2013. For identification of financial cycles, we employ a novel spectral approach determining the most important common cyclical fluctuations across total credit, residential property prices, equity prices, and benchmark bond yields. Results suggest that the most important financial cycles are on average 12 years, but with some dispersion across countries. Compared to business cycles, financial cycles have more important fluctuations in the medium term (8-20 years); but less important fluctuations in the short run (2.5-8 years). Regarding the extracted financial cycles, credit and residential property prices best summarize contemporaneous movements across financial indicators in almost all country cases. |
| JEL: | E30 E40 C54 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112985&r=mac |
| By: | Strohsal, Till; Proaño, Christian R.; Wolters, Jürgen |
| Abstract: | A growing strand of literature argues that the financial cycle is considerably longer and larger than the business cycle and that its importance is increasing over time. This paper proposes an empirical approach which is suitable to test these hypotheses. We parametrically estimate the whole spectrum of financial and real variables to obtain a complete picture of their cyclical properties. We provide strong statistical evidence for the hypothesized features of the financial cycle for the US and only slightly weaker evidence for the UK. For Germany, however, distinct characteristics of the financial cycle are, if at all, much less visible. |
| JEL: | C22 E32 E44 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113143&r=mac |
| By: | Dovern, Jonas; Feldkircher, Martin; Huber, Florian |
| Abstract: | To assess the performance of multivariate density forecasts for the world economy based on a Bayesian global vector autoregressive (GVAR) model, we decompose the predictive joint density into its marginals and a copula term that captures the dependence structure among variables and countries. Moreover, we use the stochastic search variable selection prior (SSVS) on the coefficients in its conjugate form to account for model uncertainty at the national level and augment the GVAR framework to allow for stochastic volatility. Our results are as follows: First, the GVAR systematically outperforms forecasts based on country-specific models in terms of predictive joint density. Second, the good GVAR performance is driven by superior predictions for the dependence structure across variables, whereas the GVAR model does not yield better predictive marginal densities. Third, the relative performance gains of the GVAR model are particularly pronounced during the Great Recession. Finally, our results imply that for some countries a more parsimonious GVAR model can further improve the forecast quality. |
| JEL: | C53 E37 F41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112999&r=mac |
| By: | Gravert, Jan Hendrik; Bredemeier, Christian; Jüßen, Falko |
| Abstract: | Estimates of Frisch labor-supply elasticities are larger for women than for men. We show that standard labor-supply regressions tend to overestimate this gender difference. In couples with joint borrowing constraints, wage-rate fluctuations of the secondary earner are less important for the couples willingness to borrow. This results in smaller estimation biases for secondary earners which are mostly women, empirically. Quantitatively, our results suggest that the gender difference in true Frisch elasticities is about a fifth smaller than reported reviously. |
| JEL: | E24 J16 J22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113115&r=mac |
| By: | Krüger, Fabian; Clark, Todd E.; Ravazzolo, Francesco |
| Abstract: | This paper shows entropic tilting to be a flexible and powerful tool for combining medium-term forecasts from BVARs with short-term forecasts from other sources (nowcasts from either surveys or other models). Tilting systematically improves the accuracy of both point and density forecasts, and tilting the BVAR forecasts based on nowcast means and variances yields slightly greater gains in density accuracy than does just tilting based on the nowcast means. Hence entropic tilting can offer -- more so for persistent variables than not-persistent variables -- some benefits for accurately estimating the uncertainty of multi-step forecasts that incorporate nowcast information. |
| JEL: | E17 C11 C53 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113077&r=mac |
| By: | Bartels, Bernhard; Weiser, Constantin |
| Abstract: | In this paper, we explore the institutional investors' assessment of relative creditworthiness across selected country groups with a special focus on the impact of public debt on the perception of sovereign risk. Our results show that general government debt is among the most important determinants of credit risk in industrialized countries and emerging markets alike. When using a multivariate framework, we further find that the influence of debt on ratings does not differ between both groups. Also, our results point towards a rating penalty for highly-indebted advanced countries when their debt ratio is associated with a growing one. By contrast, a high debt level alone does not lead to an additional rating decline. Finally, we show that peripheral euro area economies (GIIPS) received a rating privilege before the financial crisis that turned into a penalty after 2008. |
| JEL: | G24 F34 E62 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112822&r=mac |
| By: | Bluhm, Richard; Thomsson, Kaj |
| Abstract: | This paper analyzes the duration of large economic declines and provides a theory of delayed recovery. First, we develop a formal political economy model that illustrates a simple mechanism of how weak constraints on the political executive can lead to longer declines in ethnically heterogeneous countries. The model shows how uncertain post-recovery incomes and a `winner-take-all' threshold effect create a commitment problem rendering a cooperative equilibrium inaccessible. Holding out can benefit groups by reducing the threshold effects in subsequent periods, thus limiting the remaining uncertainty. Placing strong constraints on the executive solves this commitment problem by reducing the uncertainty from the threshold effects, which brings about cooperation earlier on. Second, we then test several empirical predictions from the model using standard data on linguistic heterogeneity and more detailed data on ethnic power configurations. We find that the partial correlations are consistent with the proposed theory. The effect of executive constraints on the length of declines is very large in heterogeneous countries, but practically disappears in ethnically homogeneous societies. The adverse effect of heterogeneity is driven by the number of groups; increasing political concentration works in the opposite direction. |
| JEL: | E60 O43 J15 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112863&r=mac |
| By: | Busch, Ramona; Memmel, Christoph |
| Abstract: | An increase in the level of interest rates is said to have a negative impact on banks net interest margins in the short run. Using a time series of more than 40 years for the German banking system, we show that the opposite effect exists in the long run, where an increase in the level of interest rates by 100 basis points leads to an estimated increase of 7 basis points in the banks net interest margin. In addition, we analyze the consequences of the low-interest rate environment and find that banks interest margins for retail deposits, especially for term deposits, have declined by up to 97 basis points. |
| JEL: | G21 C32 E43 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113187&r=mac |
| By: | Burda, Michael Christopher; Genadek, Katie; Hamermesh, Daniel |
| Abstract: | Using the American Time Use Survey (ATUS) 2003-12, we estimate time spent by workers in non-work while on the job. Non-work time is substantial and co-varies positively with the local unemployment rate. While the fraction of workers who spend some time in non-work varies pro-cyclically, the average time spent by workers in non-work conditional on any positive non-work varies countercyclically. These results are consistent with a model in which heterogeneous workers are paid efficiency wages to refrain from loafing on the job. That model also predicts relationships of the incidence and conditional amounts of non-work with wage rates and unemployment benefits that are observed in links of the ATUS to data characterizing states unemployment insurance schemes. |
| JEL: | J22 E24 J30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112905&r=mac |
| By: | Olivetti, Claudia (Boston College); Petrongolo, Barbara (Queen Mary, University of London) |
| 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, demand and supply, industry structure |
| JEL: | E24 J16 J31 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9659&r=mac |
| By: | Krapf, Matthias; Chadi, Adrian |
| Abstract: | During the European sovereign debt crisis, most countries that ran into fiscal trouble had Catholic majorities, whereas countries with Protestant majorities were able to avoid fiscal problems. Survey data show that, within Germany, views on the euro crisis differ between Protestants and Non-Protestants, too. Concerns about the euro crisis have increased among Protestants during the crisis, and significantly reduce their subjective wellbeing only. We use the timing of survey interviews and news events in 2011 to account for the endogeneity of euro concerns. Emphasis on moral hazard concerns in Protestant theology may, thus, still shape economic preferences. |
| JEL: | Z10 I31 E00 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112833&r=mac |
| By: | Ehrhold, Frank; Rahausen, Christian |
| Abstract: | Ausgangspunkt der Überlegungen sind die seit Bestehen der Banken- und Staatsschuldenkrise deutlich gesunkenen Refinanzierungszinssätze auf emittierte Bundeswertpapiere. Es wird darauf hingewiesen, dass das Zusammenwirken verschiedener Ursachen für die daraus erzielten Ersparnisse verantwortlich ist. Zur Berechnung dieser wurde als Benchmark der durchschnittliche Zins des Zeitraumes 1999 bis 2008 herangezogen. In jedem Fall werden die einzelnen Wertpapierarten individuell betrachtet. Hinsichtlich der Datengrundlage werden Veröffentlichungen der Bundesfinanzagentur und Bundesbank verwendet. Für alle Emissionen seit 2009 fällt so über deren gesamte Laufzeit eine geringere Zinslast in Höhe von 170 Mrd. € an - eine Summe, die fast 15% des gesamten Bundesschuldenstand entspricht. Da nicht von einem sofortigen Ende der Niedrigzinsen auszugehen ist, werden daran anknüpfend in der Szenariobetrachtung, basierend auf historischen Volatilitäten, verschiedene Entwicklungsmöglichkeiten dargestellt. In Abhängigkeit der Rückkehr zum "Normal-Niveau" können leicht weitere Ersparnisse im dreistelligen Milliardenbereich anfallen. Das Ergebnis ist als Baustein zu verstehen, ein Urteil über den krisenbedingten Profit/Verlust auf öffentlicher Ebene treffen zu können. |
| JEL: | E62 H61 H62 H68 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:grewdp:022015&r=mac |
| By: | Claudia Olivetti (Boston College and NBER); Barbara Petrongolo (Queen Mary University of London and CEP (LSE)) |
| Abstract: | Women in developed economies have made major inroads in labor markets throughout the past century, but remaining gender differences in pay and em ployment 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: | Gender gaps, Demand and supply, Industry structure |
| JEL: | E24 J16 J31 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp782&r=mac |
| By: | Adam Elbourne; Fabio Duchi |
| Abstract: | This study looks at the effects of credit supply shocks in the Netherlands and provides estimates of how important credit supply disturbances have been for explaining the recent disappointing economic growth. We find that domestic credit supply shocks can account for about half of the below trend growth in 2009 but that they have played very little role from the end of 2012 until the end of our sample period in 2014. The banking crisis in 2008 has been followed by a sustained period of low growth. Whilst this is a common finding after a banking crisis, many other things have happened beside problems with the banks. For example, the collapse of world trade, the euro crisis and government austerity. How much of our recent disappointing economic performance is due to contractions in credit supply and how much to these other factors? To answer this we use a vector auto regression (VAR) identified with sign and zero restrictions on data from 1998 to 2014. We start by looking at what a contraction in credit supply does to the macro economy before estimating when credit supply shocks hit the Netherlands and how big they were. The set of restrictions we use relies on supply and demand shocks pushing prices and quantities in different directions. An adverse credit supply shock raises the price of credit but contracts the quantity of loans. In contrast, an adverse loan demand shock decreases both the price and the quantity. With enough of these restrictions we can use the model to back out a time series of the size and timing of the shocks that hit the economy. We find that a typical credit supply shock depresses inflation, GDP growth and lending growth. Interestingly, we find evidence across all of the specifications we estimate that lending growth recovers more quickly than GDP growth, which suggests that firms and households can, with time, switch some of their external finance needs to other sources of credit. We also look at investments and consumption separately, since there have been many reports of households and small firms being unable to obtain credit. We find that investments are hit considerably harder than consumption but that they recover much more quickly. |
| JEL: | C32 E51 G01 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:320&r=mac |
| By: | Matthes, Jürgen |
| Abstract: | In jüngerer Zeit werden in der internationalen ökonomischen Debatte wirtschaftspolitische Forderungen laut, die deutlich von einer Nachfrageorientierung und weniger von einer angebotsorientierten liberalen Sicht geprägt sind. Sie gehen teilweise recht weit oder scheinen einer stabilitätsorientierten Wirtschaftspolitik entgegenzustehen. So wird beispielsweise vorgeschlagen, die fiskalpolitischen Regeln in Europa aufzuweichen, die extrem expansive Geldpolitik mit sehr niedrigen Zinsen für lange Zeit beizubehalten, die Inflation deutlich zu erhöhen, das Bargeld abzuschaffen, Schuldenschnitte bei Staaten durchzuführen sowie die Umverteilung von Einkommen und Vermögen stark zu erhöhen. Diese Forderungen erhalten aus verschiedenen Gründen hohes Gewicht in der öffentlichen internationalen Debatte. Erstens werden sie durch plakative Schlagworte in die öffentliche Debatte eingebracht. Das gilt zum einen für die Diskussion über eine vermeintlich drohende Säkulare Stagnation, zum anderen für die von Piketty angestoßene Kapitalismus- und Umverteilungsdebatte. Zweitens werden sie von prominenten ökonomischen Vertretern befürwortet. Zahlreiche renommierte internationale Makroökonomen äußern die Sorge vor einer Säkularen Stagnation - und auch der vormals wenig bekannte Piketty hat inzwischen einen hohen Grad an Bekanntheit erreicht. Drittens basieren diese Forderungen auf einem zunächst wohlfundiert erscheinendem makroökonomischem Fundament. [...] |
| JEL: | O4 E6 F53 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:12016&r=mac |
| By: | Mutschler, Willi |
| Abstract: | This note shows how to derive unconditional moments, cumulants and polyspectra of order higher than two for the pruned state-space of nonlinear DSGE models. Useful Matrix tools and computational aspects are also discussed. |
| JEL: | C10 C51 E10 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113138&r=mac |
| By: | Bengtsson, Erik (Department of Economic History, Lund University) |
| Abstract: | One of the major ways in which economic inequality can increase is when the development of wages of ordinary workers trail productivity and GDP growth, meaning that the increasing riches fall in the hand of other social groups (top employees, owners of land and capital). This paper investigates the relationship between wages and GDP in Denmark, Norway and Sweden from 1800 to 1910, using wage series for workers in agriculture as well as crafts and industry. It shows wages trailing especially in Norway from 1840 to the mid-1870s but also in Denmark in the 1850s and 1860s. On the other hand, wages generally increase faster than GDP in the 1880s and 1890s. These developments are explained with labour supply (population growth, migration) as well as class conflict and social policy. |
| Keywords: | Wages; living standards; inequality; working class; Denmark; Norway; Sweden |
| JEL: | E24 I30 J30 N13 N33 |
| Date: | 2016–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luekhi:0142&r=mac |
| By: | Slavik, Ctirad; Yazici, Hakki |
| Abstract: | The U.S. wage and earnings distributions display significantly higher levels of inequality today compared to the late 1960's. The aim of this paper is twofold. First, we want to assess to what extent the observed changes in inequality can be explained by a model that incorporates the technology-education race model of Tinbergen (1974) into a standard incomplete markets model that macroeconomists use to study inequality. Second, we want to use this model to decompose the changes in the skill premium and in overall inequality into four components: skill-biased technical change, increase in the relative supply of skilled workers, increase in residual wage volatility, and changes in tax policy. We construct an incomplete markets model with capital-skill complementarity in which the wage distribution responds endogenously to technological changes. That is, technological advancements - modeled as a decline in the price of equipments - increase the amount of equipments in the economy which increases the skill premium endogenously. We calibrate the deep parameters of the model to late 1960's U.S. economy and find that the model matches well the inequality measures in the data. We find that our model overestimates somewhat the changes in both the skill premium and overall measures of inequality between the 1960's and the 2000's. We then decompose the change in inequality into changes in technology, relative supply of skilled workers, residual wage risk, and taxes. In line with Tinbergen's technology-education race theory, we find that the skill premium is most significantly affected by the changes in technology and supply of skilled workers. We also identify a mechanism not previously analyzed in the literature: an increase in residual wage risk leads to higher precautionary savings and thus to higher levels of aggregate capital. Due to capital-skill complementarities in the production function, this leads to an increase in the skill premium and thus to a further increase in inequality. |
| JEL: | E25 J31 O33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113021&r=mac |
| By: | Balkan, Binnur (Central Bank of Turkey); Tumen, Semih (Central Bank of Turkey) |
| Abstract: | We exploit the regional variation in the unexpected (or forced) inflow of Syrian refugees as a natural experiment to estimate the impact of immigration on consumer prices in Turkey. Using a difference-in- differences strategy and a comprehensive data set on the regional prices of CPI items, we find that general level of consumer prices has declined by approximately 2.5 percent due to immigration. Prices of goods and services have declined in similar magnitudes. We highlight that the channel through which the price declines take place is the informal labor market. Syrian refugees supply inexpensive informal labor and, thus, substitute the informal native workers especially in informal labor intensive sectors. We document that prices in these sectors have fallen by around 4 percent, while the prices in the formal labor intensive sectors have almost remained unchanged. Increase in the supply of informal immigrant workers generates labor cost advantages and keeps prices lower in the informal labor intensive sectors. |
| Keywords: | immigration, consumer prices, Syrian refugees, natural experiment, informal employment |
| JEL: | C21 E31 J61 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9642&r=mac |
| By: | Scholtens, Bert; Veldhuis, Rineke |
| Abstract: | Abstract We investigate how the development of the financial industry connects with renewable energy. We analyze 198 countries over three decades in various model settings (fixed effects, random effects, dynamic panel). We use a wide range of proxies for the development of the financial industry and establish that in general this development has a positive impact on renewable energy capacity. Especially, the relative size of the commercial banking industry as well as of private credit and the size of the financial industry play a crucial role in advancing renewable energy investments. |
| JEL: | C33 E22 G10 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113114&r=mac |
| By: | von Weizsäcker, Carl Christian |
| Abstract: | Abstract: Im Rahmen eines Mehrsektoren-Modells der österreichischen Kapitaltheorie entwickle ich für die Parameter des 21. Jahrhunderts die Hypothese des negativen natürlichen Zinses, d.h. des Gleichgewichtszinses in einem Zustand ohne Staatsschulden. Ich nenne dies das NNIM-Modell (negative natural interest model). Ich zeige, wie mithilfe eines geeigneten Ausmaßes von Staatsschulden der Zinssatz auf das Niveau der Wachstumsrate der Volkswirtschaft angehoben werden kann, was Wohlstandsgewinne mit sich bringt. Ich analysiere die mikro-ökonomische Voraussetzung für das Keynessche Unterbeschäftigungsgleichgewicht: Marktasymmetrie, d.h. Transaktionshunger auf der Anbieterseite und Transaktionssättigung auf der Nachfrageseite. Hieraus leite ich das bekannte Phänomen der Preisträgheit ab. Diese macht, wie auch Keynes argumentiert, deflatorische Anpassungsprozesse sehr langwierig und schmerzhaft. In der Quintessenz ist der Keynessche Ansatz der Effektive Demand das dynamische Korrelat zum Steady State NNIM-Modell. Keynes bleibt daher höchst aktuell für das 21. Jahrhundert. |
| JEL: | E12 B19 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113062&r=mac |
| By: | Krolzig, Hans-Martin; Sserwanja, Isaac |
| Abstract: | Joint modelling of fiscal and monetary policies should elucidate on their interaction. We construct an eight-dimensional parsimonious structural vector equilibrium correction model (PSVECM) of the US macro economy over the last five decades. The fiscal deficit is found to be one of the five cointegration vectors, constraining fiscal policy in the long run. In contrast, the share of the government sector is found not to be mean reverting. To overcome the common problem of ad-hoc assumptions regarding the direction of instantaneous causality, we use graph-theoretical methods to identify the causal structure of the model from the data. Model reduction procedures allow to control for the course-of-dimensionality inhibiting such high-dimensional vector autoregressive systems. Impulse-response analysis of the parsimonious system facilitated the precise measurement of the dynamic Keynesian fiscal multiplier, where we distinguish between deficit-spending and balanced-budget government spending shocks (as in the so-called Haavelmo, 1945, theorem). Our estimates of the long-run multiplier are 1.62 in case of the bond-financed and 1.77 in case of the tax-financed spending shock, with both being significant greater than one at a 95\% confidence level. Monetary policy is neutral is the long-run but have permanent effects on the level of output. Increasing the federal funds rate by a percentage point is followed by falling tax revenues while government spending is largely unchanged, thus inflating the fiscal deficit in the short- and medium run. |
| JEL: | C32 E63 H62 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112813&r=mac |
| By: | Alain Hecq; Jan P. A. M. Jacobs; Michalis P. Stamatogiannis |
| Abstract: | Before being considered definitive, data currently produced by statistical agencies undergo a recurrent revision process resulting in different releases of the same phenomenon. The collection of all these vintages is referred to as a real-time data set. Economists and econometricians have realized the importance of this type of information for economic modeling and forecasting. This paper focuses on testing non-stationary data for forecastability, i.e., whether revisions reduce noise or are news. To deal with historical revisions which affect the whole vintage of time series due to redefinitions, methodological innovations etc., we employ the recently developed impulse indicator saturation approach, which involves potentially adding an indicator dummy for each observation to the model. We illustrate our procedures with the U.S. Real Gross National Product series from ALFRED and find that revisions to this series neither reduce noise nor can be considered as news. |
| Keywords: | Data revision, Non-Stationary Data, News-Noise Tests, Structural Breaks, |
| JEL: | C32 C82 E01 |
| Date: | 2016–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2016s-01&r=mac |
| By: | Dybowski, T. Philipp |
| Abstract: | Recent empirical research emphasizes the importance of foresight for tax policy analyses. According to Leeper et al. (2013a), failing to model foresight adequately can lead to biased inference in empirical models. The authors reveal this bias by augmenting the SVAR model of Blanchard and Perotti (2002) with a measure for tax foresight. I extend this finding by transforming their model into a time-varying SVAR with stochastic volatility. This approach allows to study the time-variations of tax foresight, and resulting effects on tax policy shocks over time. Two findings stand out: First, both anticipated and unanticipated tax shocks show considerable movements over time. The magnitude of these shocks suggests that some tax reforms are more anticipated than others. Second, I find that the bias in the tax shocks is more pronounced during the 1980s and 1990s, suggesting that tax reforms in these decades were to a higher degree anticipated than in the 1960s and 1970s. The results compare well to other studies and find support in anecdotal evidence on documented U.S. tax reforms. |
| JEL: | E62 C32 H30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113049&r=mac |
| By: | Heshmati, Almas (Jönköping University, Sogang University) |
| Abstract: | Circular economy (CE) is a sustainable development strategy that is being proposed to tackle urgent problems of environmental degradation and resource scarcity. CE's 3R principles are to reduce, reuse and recycle materials. The principles account for a circular system where all materials are recycled, all energy is derived from renewables; activities support and rebuild the ecosystem and support human health and a healthy society and resources are used to generate value. This study is a review of the rapidly growing literature on CE covering its concept and current practices and assessing its implementation. The review also serves as an assessment of the design, implementation and effectiveness of CE related policies. It first presents the concept of CE and compares it with the current linear economy of taking materials, producing goods and disposing waste. It explains why it is imperative to move away from a linear economy towards regenerative sustainable industrial development with a closed loop. The paper then introduces current practices that have been introduced and discusses standards for the assessment of CE's development and performance. The main focus here is on providing a summary of the data analysis of key CE indicators to give a picture of CE practices. Third, based on an analysis of literature, the paper identifies the underlying problems and challenges to CE in an entrepreneurial perspective. Finally, the review provides a conclusion on CE's current development and gives policy suggestions for its future development as part of an entrepreneurial and innovative national level development strategy. |
| Keywords: | circular economy, environmental policy, national development strategy, sustainable development strategy, entrepreneurial strategy |
| JEL: | E01 F18 H23 O44 Q50 Q53 Q55 Q58 R11 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9611&r=mac |