nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒02‒23
89 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Bubble-driven business cycles By Larin, Benjamin
  2. Банк России На Перепутье: Стоит Ли Смягчать Денежно-Кредитную Политику? (The Bank of Russia at a Crossroads: Whether to Ease Monetary Policy?) By Pavel Trunin; Eugene Goryunov
  3. Три варианта экономической политики для России By BLINOV, Sergey
  4. Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference? By Alexandru MINEA; Jean-Louis COMBES; Weneyam Hippolyte BALIMA
  5. Die Auswirkungen von Niedrigzinsen und unkonventionellen geldpolitischen Maßnahmen auf die Vermögensverteilung By Demary, Markus; Niehues, Judith
  6. Risk Taking and Low Longer-term Interest Rates: Evidence from the U.S. Syndicated Loan Market By Aramonte, Sirio; Lee, Seung Jung; Stebunovs, Viktors
  7. Money and monetary policy in Israel during the last decade By Benchimol, Jonathan
  8. Eurosystem debts do matter By Whittaker, John
  9. Inflation expectations derived from a portfolio model By Covarrubias, Enrique; Hernández-del-Valle, Gerardo
  10. Digital DNA of economy of scale and scope By Ledenyov, Dimitri O.; Ledenyov, Viktor O.
  11. Monetary policy during financial crises: Is the transmission mechanism impaired? By Jannsen, Nils; Potjagailo, Galina; Wolters, Maik H.
  12. Savings and investment behaviour in the euro area By Rodriguez-Palenzuela, Diego; Dées, Stéphane; Saving and Investment Task Force; Andersson, Malin; Bijsterbosch, Martin; Forster, Katrin; Zorell, Nico; Audoly, Richard; Buelens, Christian; Ferrando, Annalisa; Felt, Marie-Hélène; Jaccard, Ivan; Morris, Richard; Özyurt, Selin; Radde, Sören; Rusinova, Desislava; Piette, Cristophe; Van Nieuwenhuyze, Christophe; Nagengast, Arne J.; Raudsaar, Taavi
  13. Investment Price Rigidities and Business Cycles By Moura, Alban
  14. The crisis of finance-led capitalism in the United States of America By Evans, Trevor
  15. 中国财政政策调整的宏观经济效应——基于消费者异质性的新凯恩斯模型 By Guo, Lingyi; Xu, Wenli; Xu, Kun
  16. Systematic errors in growth expectations over the business cycle By Dovern, Jonas; Jannsen, Nils
  17. Monetary policy, excessive risk-taking and banking crisis By Zaghdoudi, Taha
  18. The impact of disembodied technological progress on working hours By Tesfaselassie, Mewael F.
  19. Rational Bubbles and Economic Crises: A Quantitative Analysis By Domeij, David; Ellingsen, Tore
  20. How is the Irish Fiscal Advisory Council Performing? An Independent Evaluation of the First Years of IFAC By Jonung, Lars; Begg, Iain; Tutty, Michael G.
  21. The European Central Bank’s quantitative easing programme: limits and risks By Grégory Claeys; Alvaro Leandro
  22. QE and the Bank Lending Channel in the United Kingdom By Nick Butt; Rohan Churm; Michael McMahon; Arpad Morotz; Jochen Schanz
  23. Extensive versus intensive margin over the business cycle: New evidence for Germany and the United States By Alexander Herzog-Stein; Patrick Nüß
  24. Credit Aggregates, Countercyclical Buffer: stylised facts By Didier Faivre
  25. House price fluctuations and the business cycle dynamics By Girum D. Abate; Luc Anselin
  26. Forecasts of inflation and interest rates in no-arbitrage affine models By Gospodinov, Nikolay; Wei, Bin
  27. Отрицательные последствия плавной девальвации валюты By BLINOV, Sergey
  28. Moving to Shanghai: El funcionamiento dualizado de la economía alemana durante el período 1995 – 2007 By Víctor Antonio Luque de Haro
  29. What Can the Data Tell Us About the Equilibrium Real Interest Rate? By Kiley, Michael T.
  30. Friedman, Monetarism and Quantitative Easing By Olivo, Victor
  31. The role of commodity prices in forecasting U.S. core inflation By Gospodinov, Nikolay
  32. Brave new world? Macro prudential policy and the new political economy of The Federal Reserve By Lucy Goodhart
  33. A double-edged sword: High interest rates in capital control regimes By Gudmundsson, Gudmundur S.; Zoega, Gylfi
  34. Global Cycles: Capital Flows, Commodities, and Sovereign Defaults, 1815-2015 By Reinhart, Carmen M.; Reinhart, Vincent; Trebesch, Christoph
  35. Worker flows and job flows: a quantitative investigation By Fujita, Shigeru; Nakajima, Makoto
  36. What are the determinants of hiring? The role of demand and supply factors By Eriksson, Stefan; Stadin, Karolina
  37. Quantitative Easing in Japan and the UK An Econometric Evaluation of the Impacts of Unconventional Monetary Policy on the Returns of Aggregate Output and Price Levels By Troug, Haytem Ahmed; Murray, Matt
  38. Estimation of DSGE models: Maximum Likelihood vs. Bayesian methods By Mickelsson, Glenn
  39. Estimates of Québec’s Growth Uncertainty By Simon van Norden
  40. Monetary Policy Evaluation using a Rational Expectations Model: the UK case By Vasilev, Aleksandar
  41. Measuring the instability of China's financial system: Indices construction and an early warning system By Sun, Lixin; Huang, Yuqin
  42. Solution Methods for Models with Rare Disasters By Fernández-Villaverde, Jesús; Levintal, Oren
  43. Industry 4.0 – job-producer or employment-destroyer? By Weber, Enzo
  44. An empirical evaluation of macroeconomic surveillance in the European Union By Boysen-Hogrefe, Jens; Jannsen, Nils; Plödt, Martin; Schwarzmüller, Tim
  45. Wealth-income ratios in a small, late-industrializing, welfare-state economy: Sweden, 1810–2014 By Waldenström, Daniel
  46. The Cost of Euro Adoption in Poland By Svitlana Maksymenko
  47. Effect of interest rate on bank deposits: evidences from Islamic and non-Islamic economies By Mushtaq, Saba; Siddiqui, Danish Ahmed
  48. Estimating Keynesian models of business fluctuations using Bayesian Maximum Likelihood By Christian Schoder
  49. Entrepreneurship vulnerability to business cycle. A new methodology for identification pro-cyclical and counter-cyclical patterns of entrepreneurial activity. By Lechman, Ewa; Dominiak, Piotr
  50. Double Liability in a Branch Banking System: Historical Evidence from Canada By Grodecka, Anna; Kotidis, Antonis
  51. Does the US current account show a symmetric behavior over the business cycle? By Duncan, Roberto
  52. Cash holdings in Germany and the demand for "German" banknotes: What role for cashless payments? By Bartzsch, Nikolaus; Seitz, Franz
  53. Stocks and GDP in the long run By Alexius, Annika; Spång, Daniel
  54. Estimating the impact of monetary policy on inequality in China By Sánchez-Fung , José R.
  55. Peru's selective default: A stain on its creditworthiness By Porzecanski, Arturo C.
  56. Does homeownership promote wealth accumulation? By Leo Kaas; Georgi Kocharkov; Edgar Preugschat
  57. Measuring Economic Policy Uncertainty By Scott R. Baker; Nicholas Bloom; Steven J. Davis
  58. Financial intermediaries and economic growth in Ghana: an empirical investigation By Odhiambo, Nicholas. M; Nyasha, Sheilla
  59. IS Imbalances and Current Account Surpluses in Japan: In Memory of Professor Ronald I. McKinnon By Horioka, Charles Yuji
  60. Time-varying effect of oil market shocks on the stock market By Wensheng Kang; Ronald A. Ratti; Kyung Hwan Yoon
  61. 'Recessions, healthy no more?': A note on Recessions, Gender and Mortality in France By Josselin Thuilliez
  62. Reservation Wages and the Wage Flexibility Puzzle By Koenig, Felix; Manning, Alan; Petrongolo, Barbara
  63. Reservation wages and the wage flexibility puzzle By Koenig, Felix; Manning, Alan; Petrongolo, Barbara
  64. Labor Share and development By Paul Maarek; Elsa Orgiazzi
  65. Encadenamientos, Clústeres y Flujos de Trabajo en Economía Colombiana By Julián VILLAMIL S; Gustavo HERNÁNDEZ
  66. Capital Taxation under Political Constraints By Scheuer, Florian; Wolitzky, Alexander
  67. Fiscal Policy and Financial Distress: A Balance Sheet Perspective By John FitzGerald; Philip Lane
  68. An economic outlook By Harker, Patrick T.
  69. Terms of Trade Shocks and Investment in Commodity-Exporting Economies By Jorge Fornero; Markus Kirchner; Andrés Yany
  70. Determinantes macroeconómicos de las remesas en los países del DR-CAFTA By López Parra, Elibeth; Cruz-Rodríguez, Alexis
  71. Could exit rules be self-enforcing in the EU? The cases of France and Germany By Kappius, Robert; Neumärker, Bernhard
  72. Reforms, Finance, and Current Accounts By Bertola, Giuseppe; Lo Prete, Anna
  73. When more Flexibility Yields more Fragility: the Microfoundations of Keynesian Aggregate Unemployment By Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
  74. The effects of economic asymmetry in European Union in the context of international capital flows By Dominik Sadlakowski
  75. Credit Risk, Liquidity and Lies By King, Thomas B.; Lewis, Kurt F.
  76. International Evidence on Time-Variation in Trend Labor Productivity Growth By Philipp Wegmueller
  77. BNDES e a balança comercial: estudo dos impactos do crédito sobre as exportações brasileiras By Anderson Cavalcante; João Pedro Figueira Amorim Parga
  78. Neoliberalism, trade imbalances and economic policy in the Eurozone crisis By Constantine, Collin; Reissl, Severin; Stockhammer, Engelbert
  79. Fertility and the Business Cycle: The European Case By Bellido, Héctor; Marcén, Miriam
  80. Analysis of dependence of tax behavior on macroeconomic factors: the case of OECD countries By Sokolovska, Olena; Sokolovskyi, Dmytro
  81. Reservation Wages and the Wage Flexibility Puzzle By Felix Koenig; Alan Manning; Barbara Petrongolo
  82. Testing The ‘Black Swan Effect’ on Croatian Stock Market Between 2000 and 2013 By Radman Peša, Anita; Brajković, Ana
  83. The Influence of Industry Financial Composition on the Exports from Pakistan By Aadil Nakhoda
  84. Forecasting with Sufficient Dimension Reductions By Barbarino, Alessandro; Bura, Efstathia
  85. Do Natural Disasters Hurt Tax Resource Mobilization? By Rasmané OUEDRAOGO; Somlanare Romuald KINDA; Eric Nazindigouba KERE
  86. Downward Nominal Wage Rigidity in the United States During and After the Great Recession By Fallick, Bruce C.; Lettau, Michael; Wascher, William L.
  87. Fundamentals matter: Idiosyncratic shocks and interbank relations By Bednarek, Peter; Dinger, Valeriya; von Westernhagen, Natalja
  88. A Mixed Frequency Approach to Forecast Private Consumption with ATM/POS Data By Cláudia Duarte; Paulo M.M. Rodrigues; António Rua
  89. Enforcement spillovers: Lessons from strategic interactions in regulation and product markets By Mary F. Evans; Scott M. Gilpatric; Jay P. Shimshack

  1. By: Larin, Benjamin
    Abstract: The 2007-2008 financial crisis highlighted that a turmoil in the financial sector including bursting asset price bubbles can cause pronounced and persistent fluctuations in real economic activity. This justifies the consideration of evolving and bursting asset price bubbles as another source of fluctuations in business cycle models. In this paper rational asset price bubbles are incorporated into a life-cycle RBC model as first developed by Ríos-Rull (1996). The calibration of the model to the post-war US economy and the numerical solution show that the model is able to depict plausible bubble-driven business cycles. In particular, the model generates i) a higher and empirically more plausible volatility of consumption at the cost of ii) a lower and empirically less plausible contemporaneous correlation of consumption with output than the life-cycle RBC model without bubbles.
    Keywords: Computable General Equilibrium,Bubble,Asset Price,Real Activity
    JEL: D58 E32 E44
    Date: 2016
  2. By: Pavel Trunin (Gaidar Institute for Economic Policy); Eugene Goryunov (Gaidar Institute for Economic Policy)
    Abstract: The position of supporters of the policy easing by the Bank of Russia is the following: if the monetary authorities of developed countries abandon their principles, then why do they rely on Russia? Is it not better instead to do exactly what the central banks in the US, UK, Japan and the euro area do - to stimulate economic growth by quantitative easing? According to adherents of monetary policy easing, it is necessary to turn the Bank of Russia into the institute of development, making it one of the investors of economic growth. Furthermore, it should be included in the process of creating "long cheap money", as it occurs in the US and the European Union. Позиция сторонников смягчения политики Банка России следующая: если денежные власти развитых стран отказываются от своих принципов, то зачем тогда России на них полагаться? Не лучше ли вместо этого делать ровно то, что делают центральные банки в США, Великобритании, Японии и еврозоне — стимулировать экономический рост денежной эмиссией? По мнению адептов смягчения монетарной политики, нужно превратить Банк России в институт развития, сделав его соинвестором экономического роста. Кроме того, он должен быть включен в процесс создания «длинных дешевых денег», как это происходит в США и Европе.
    Keywords: Russian economy, Bank of Russia, monetary policy, quantitative easing
    JEL: E31 E43 E44 E51 E52 E58
    Date: 2013
  3. By: BLINOV, Sergey
    Abstract: Key discussions regarding Russia's economic policy are now taking place between the two camps of economists. The foremost proponent of the ideas in the first camp is Alexey Kudrin, former Vice-Prime Minister, PhD in Economics. The second camp has crystalized itself around Sergey Glaziev, Advisor to the President of Russia, Doctor of Economics, Academician. Both options of economic policy which are proposed by these two schools of thought mean a lot of pain to produce any gain. The first part of this article analyzes the weaknesses of these two options. The second part of the article offers an alternative analysis of the causes responsible for the ups and downs of the Russian economy. An action plan is put forward which, within a few months, would allow the Ruble exchange rate to be stabilized and would ensure that the Russian economy grows regardless of the world market prices for major goods of the Russian primary materials exports.
    Keywords: Monetary Policy, Central Banking, Interest Rates, Quantitative Easing (QE), Economic Growth, Money Supply
    JEL: E31 E32 E40 E43 E50 E51 E52 E58 E65 G01 N10 O11
    Date: 2016–01–15
  4. By: Alexandru MINEA (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Jean-Louis COMBES (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Weneyam Hippolyte BALIMA
    Abstract: Based on a sample of 38 emerging countries, we find that inflation targeting (IT) adoption improves sovereign debt risk. However, we show that IT adoption effectiveness is sensitive to several structural characteristics, such as the phase of the business cycle, the fiscal stance, and the level of development. In addition, the measure of the risk, namely ratings (rating agencies) or bond yield spreads (markets), as well as the form of IT (full-fledged or partial) is equally crucial for the effects of IT adoption on sovereign debt risk. Thus, our paper provides valuable insights for IT implementation as a device for improving emerging market economies’ access to international financial markets for financing long-term investment projects and supporting potential economic growth.
    Keywords: Inflation targeting; Sovereign debt ratings; Government bond yield spreads, Emerging markets; Propensity scores matching
    JEL: G15 F34 H63 E58 E44
    Date: 2015–02
  5. By: Demary, Markus; Niehues, Judith
    Abstract: Die krisenhaften Entwicklungen seit dem Jahr 2008 haben es für die großen Zentralbanken notwendig gemacht, ihre Leitzinsen auf nahezu Null zu senken. Gleichzeitig bekunden die Zentralbanken, dass sie die Zinsen noch für eine ausgedehnte Zeit niedrig halten werden. In einem solchen Umfeld von niedrigen Zinsen auf Spareinlagen und boomenden Vermögenspreisen stellt sich zunehmend die Frage, welche Umverteilungseffekte hieraus resultieren. Um dieser Frage nachzugehen, wurden Daten aus dem Household Finance and Consumption Survey für Deutschland aus-gewertet. Es zeigt sich, dass weniger die boomenden Aktienkurse und Immobilienpreise, sondern die niedrigen Zinsen auf Spareinlagen und Krediten eine umverteilende Wirkung hatten. So zeigt sich bei jungen Haushalten, die eine Immobilie über eine Hypothek finanzieren und die über wenige Spareinlagen verfügen, dass die Schuldendiensterleichterung den Verlust an Zinserträgen überkompensiert. Bei den älteren Haushalten überwiegt jedoch der Verlust an Zinserträgen, da diese demografische Gruppe tendenziell über einen hohen Anteil an Spareinlagen und nur geringe Schulden verfügt. Auch wenn sich keine Zunahme an Ungleichheit zeigt, so hat ein länger anhaltendes Niedrigzinsumfeld negative Auswirkungen für die Altersvorsorge. Dies ist vor allem vor dem Hintergrund zu sehen, dass die Haushalte hohe Anteile an verzinslichen Spareinlagen halten und nur einen geringen Aktienanteil aufweisen.
    Keywords: Ersparnisbildung,Geldpolitik,Niedrigzinsumfeld,Household Finance and Consumption Survey,Ungleichheit,Vermögensverteilung,Europäische Union,Europäische Währungsunion,Europäische Zentralbank,Staatsverschuldung,European Central Bank,European Monetary Union,European Union,Monetary Policy,Public Debt
    JEL: D12 D14 D31 E21 E31 E32 E43 E52 E58
    Date: 2015
  6. By: Aramonte, Sirio (Board of Governors of the Federal Reserve System (U.S.)); Lee, Seung Jung (Board of Governors of the Federal Reserve System (U.S.)); Stebunovs, Viktors (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We use supervisory data to investigate risk taking in the U.S. syndicated loan market at a time when longer-term interest rates are exceptionally low, and we study the ex-ante credit risk of loans acquired by different types of lenders, including banks and shadow banks. We find that insurance companies, pension funds, and, in particular, structured-finance vehicles take higher credit risk when investors expect interest rates to remain low. Banks originate riskier loans that they tend to divest shortly after origination, thus appearing to accommodate other lenders' investment choices. These results are consistent with a "search for yield" by certain types of shadow banks and, to the extent that Federal Reserve policies affected longer-term rates, the results are also consistent with the presence of a risk-taking channel of monetary policy. Finally, we find that longer-term interest rates have only a modest effect on loan spreads.
    Keywords: Risk-taking channel of monetary policy; Search for yield; Shadow banking; Shared National Credit Program; Syndicated loans; Zero lower bound
    JEL: E43 E44 E52 E58 G11 G20
    Date: 2015–07–22
  7. By: Benchimol, Jonathan
    Abstract: This study examines how money and monetary policy have influenced output and inflation during the past decade in Israel by comparing two New Keynesian DSGE models. One is a baseline separable model (Galí, 2008) and the other assumes non-separable household preferences between consumption and money (Benchimol & Fourçans, 2012). We test both models by using rolling window Bayesian estimations over the last decade (2001–2013). The results of the presented dynamic analysis show that the sensitivity of output with respect to money shocks increased during the Dot-com, Intifada, and Subprime crises. The role of monetary policy increased during these crises, especially with regard to inflation, even though the effectiveness of conventional monetary policy decreased during the Subprime crisis. In addition, the non-separable model including money provides lower forecast errors than the baseline separable model without money, while the influence of money on output fluctuations can be seen as a good predictive indicator of bank and debt risks. By impacting and monitoring households’ money holdings, policy makers could improve their forecasts and crisis management through models considering monetary aggregates.
    Keywords: Divisia monetary aggregates; Monetary policy; DSGE; Crises; Israel
    JEL: E31 E32 E37 E51 E52 E58
    Date: 2016–02–09
  8. By: Whittaker, John
    Abstract: Since September 2015, the European Central Bank has been publishing Target2 balances of the eurozone national central banks. But this presents an incomplete picture of intra-eurosystem debts because it does not include those arising from the issue of banknotes. The ECB also plays down the importance of Target2 debts as a “normal feature of the decentralised implementation of monetary policy in the euro area”. But if Greece were to leave the euro and its eurosystem debt (currently €114bn) were written off, other eurozone countries would bear the loss, in addition to losses on official loans. There is no effective mechanism for limiting eurosystem debts. And exit risk – the risk that Greece or some other eurozone country with large eurosystem debts will leave the euro – will always be present.
    Keywords: Target2, eurosystem, monetary union, euro banknotes
    JEL: E42 E52 E58 F33
    Date: 2016–02–01
  9. By: Covarrubias, Enrique; Hernández-del-Valle, Gerardo
    Abstract: This paper proposes a new methodology for extracting inflation expectations from financial markets. For this purpose, a synthetic financial asset is built whose returns are matched with the inflation rate by construction. The methodology estimates the implicit return expected by the market on this asset through a portfolio valuation approach; in other words, implicit inflation expectations are obtained. This approach clarifies the mechanisms behind a negative risk premium: an inflation-linked bond is attractive to an investor when high inflation is expected or when generalized low returns are observed; in both cases, a yield below expected returns is observed.
    Keywords: Inflation expectations; bond markets; breakeven.
    JEL: E31 E43 E44 G11 G12
    Date: 2016–02–11
  10. By: Ledenyov, Dimitri O.; Ledenyov, Viktor O.
    Abstract: The research article aims to create a general fundamental theory on the Digital DNA of the modern digital creative economy of the scale and scope. In the frames of our theory, we define the Digital DNA of the modern digital creative economy of the scale and scope, making the following theoretical assumptions: 1) Digital DNA exists in the modern digital creative economy of the scale and scope; 2) Digital DNA consists of a chain of the knowledge with all the information on the modern digital creative economy of the scale and scope; 3) the Digital DNA uniquely identifies and accurately characterizes the modern digital creative economy of the scale and scope in the time, scale, frequency domains; 4) the Digital DNA represents a genetic key, which may help us to better understand the generation of the discrete-time digital business cycles with the different amplitudes, frequencies, shapes and powers in the modern digital creative economy of the scale and scope in the time, scale, frequency domains. In this innovative advanced research, we investigate the following research problems: 1) the existing damaging mechanisms of the Digital DNA’s complex knowledge base structure in the modern digital creative economies of the scales and scopes in the time, scale, frequency domains; 2) the possible repairing mechanisms of the Digital DNA’s complex knowledge base structure in the modern digital creative economies of the scales and scopes in the time, scale, frequency domains; 3) the specific influences by the damaged/repaired Digital DNA on the discrete-time digital business cycles generation/propagation in the modern digital creative economies of the scales and scopes in the time, scale, frequency domains. In addition, the innovative advanced research aims: 1) to perform the computer modeling on the Digital DNA’s complex knowledge base structure in the modern digital creative economy of the scale and scope; 2) to decode the Digital DNA’s complex knowledge base structure in the modern digital creative economy of the scale and scope.
    Keywords: Digital DNA, chain of knowledge, Ledenyov discrete-time digital waves, spectrum analysis of discrete-time digital signals, amplitude / frequency / wavelength / period / phase of discrete-time digital signal, continuous time signals, Juglar fixed investment cycle, Kitchin inventory cycle, Kondratieff long wave cycle, Kuznets infrastructural investment cycle, modern digital creative economy, macroeconomics, econometrics, econophysics, macroeconomics
    JEL: A1 C0 C63 E0 E00 E01 E02 E3 E30 E32 E37 E39 E60 F0 F00 F40 F44 F47 O3 O30
    Date: 2016–01–20
  11. By: Jannsen, Nils; Potjagailo, Galina; Wolters, Maik H.
    Abstract: We study the macroeconomic effects of monetary policy during financial crises using a Bayesian panel vector autoregressive (PVAR) model for 20 advanced economies. We interact all of the endogenous variables with financial crisis dummies, which are constructed using the narrative approach. We also distinguish between an acute initial phase of financial crises and a subsequent recovery phase. We show that an expansionary monetary policy shock has large positive effects on output and inflation during the acute phase of a financial crisis. These effects are larger than those during non-crisis periods. Decreased uncertainty as well as increases in consumer confidence and share prices explain these large effects, whereas these variables are much less relevant for monetary policy transmission outside financial crises. Counterfactual analysis shows that the transmission mechanism would be impaired without the effects of monetary policy on these variables, where credit would not react at all and the response of output would be substantially lower. During the recovery phase of a financial crisis, output and inflation are generally non-responsive to monetary policy shocks.
    Keywords: fiscal monetary policy transmission,financial crisis,financial stability,state-dependence,uncertainty,panel VAR
    JEL: C33 E52 E58 G01
    Date: 2015
  12. By: Rodriguez-Palenzuela, Diego; Dées, Stéphane; Saving and Investment Task Force; Andersson, Malin; Bijsterbosch, Martin; Forster, Katrin; Zorell, Nico; Audoly, Richard; Buelens, Christian; Ferrando, Annalisa; Felt, Marie-Hélène; Jaccard, Ivan; Morris, Richard; Özyurt, Selin; Radde, Sören; Rusinova, Desislava; Piette, Cristophe; Van Nieuwenhuyze, Christophe; Nagengast, Arne J.; Raudsaar, Taavi
    Abstract: Although monetary union created the conditions for improving economic and financial integration in the euro area, in the context of the financial and sovereign crises, it has also been accompanied by the emergence of severe imbalances in savings and investment, credit and housing booms in some countries and the allocation of resources towards less productive sectors. The global financial crisis and the euro area sovereign debt crisis then led to major and abrupt adjustments as the risks posed by the large imbalances materialised. Although the institutional shortcomings in the EU that permitted the emergence of imbalances have been largely addressed since 2008, the adjustment process is not yet complete. From a macroeconomic perspective, the imbalances in the external accounts have led to the accumulation of high levels of external liabilities that need to be reduced, which, in turn, is weakening investment and therefore weighing on growth prospects and growth potential. From a macroprudential perspective, the lingering imbalances have added to systemic risk and rendered the euro area more vulnerable to risks. This Occasional Paper analyses the dynamic patterns in macroeconomic imbalances primarily from the former perspective, addressing in particular the connections between macroeconomic and sectoral adjustments of imbalances and the challenges for economic growth and performance over a longer horizon. JEL Classification: E21, E22, F32, F41
    Keywords: consumption, current account, investment, rebalancing, savings
    Date: 2016–01
  13. By: Moura, Alban
    Abstract: I incorporate investment price rigidity in a two-sector monetary model of business cycles. Fit to quarterly U.S. time series, the model suggests that price sluggishness in the investment sector is the single most empirically relevant friction to match the data. Sticky investment prices constitute an important propagation mechanism to understand the sources of aggregate fluctuations, the dynamic effects of technology shocks, and the properties of the relative price of investment goods.
    Keywords: multisector DSGE model, investment price stickiness, relative price of investment
    JEL: E3 E5
    Date: 2015–11
  14. By: Evans, Trevor
    Abstract: This study examines the development of the US economy since the prolonged recession in the early 1980s. This period was characterised by a serious weakening in the bargaining position of waged workers and a major expansion of the financial sector. Most of the economic gains accrued to top earners and economic growth became increasingly dependent on the expansion of credit. This precarious constellation led to short recessions in 1990 and again in 2001, but then in 2007 and 2008 the failure of highly complex securities led to the most serious financial crisis since 1929. The study reviews the development of profitability, income distribution and other key macroeconomic variables in the period leading up to, during and immediately after the crisis. It then identifies the main channels by which the crisis was transmitted form the US to other advanced capitalist economies and concludes with a brief review of the policy measures introduced by the US government in response to the crisis.
    Keywords: United States,finance-led capitalism,financial crisis
    JEL: E25 E32 E44 E58 F44 G01
    Date: 2015
  15. By: Guo, Lingyi; Xu, Wenli; Xu, Kun
    Abstract: This paper construct the NK model with Cosummer’s Heterogenicity included three sectors, in which government is divided into three type of fiscal sector, social security department and central bank. The tax shocks, social security fees rate shock and fiscal expenditure shock are incorporated with the NK model to explord the contribution and the dynamic effect of the fiscal policy shocks on macroeconomic volatility. The results show that (1) the shocks of good taxation contribute most in real economy than the shocks of other fiscal policy, and the size of contribution on macroeconomic volatility is 65%; (2) reducing of the tax rates, social security fees rate and fiscal spending stimulate economic growth, and it is more important that cutting the tax rate of labour income and lowering social security fees rate are better measures; (3) cutting tax rates and lowering of social security fees rate improve the fiscal sustainability; (4)the inflation is a joint monetary-fiscal phenomenon. On this basis, this paper propose that government should adopt active tax and fee policies---cutting labour income taxation rate and lower social security fees rate, to spur stable economic growth, simultaneously raise benchmark interest rate to prevent inflation.
    Keywords: NK model; Tax Policies Shocks; Social Security Fees Rate Shock; Fiscal Expenditure shocks; Macroeconomic Effect
    JEL: E62 H3
    Date: 2016–01–15
  16. By: Dovern, Jonas; Jannsen, Nils
    Abstract: Using real-time data, we analyze how the systematic expectation errors of professional forecasters in 19 advanced economies depend on the state of the business cycle. Our results indicate that the general result that forecasters systematically overestimate output growth (across all countries) masks considerable differences across different business-cycle states. We show that forecasts for recessions are subject to a large negative systematic forecast error (forecasters overestimate growth), while forecasts for recoveries are subject to a positive systematic forecast error. Forecasts made for expansions have, if anything, a small systematic forecast error for large forecast horizons. When we link information about the business-cycle state in the target year with quarterly information about its state in the forecasting period, we find that forecasters realize business-cycle turning points somewhat late. Using cross-country evidence, we demonstrate that the positive relationship between a change in trend growth rates and forecast bias, as suggested in the literature, breaks down when only focusing on forecasts made for expansions.
    Keywords: macroeconomic expectations,forecasting,forecast bias,survey data
    JEL: C5 E2 E3
    Date: 2015
  17. By: Zaghdoudi, Taha
    Abstract: This paper examines the relationship between monetary policy and banks excessive risk-taking and banking crisis. We use a panel of data consisting of 22 Latin American countries, the OECD and South-East Asia, which experienced banking crises between 1990 and 2013. Our empirical results show that the adoption of an expansionary monetary policy via an increase in the money supply and the application of low interest rates over an extended period of time may induce an increase in banks risk-taking. However, a restrictive monetary policy with high interest rates increases the risk of banking crisis.
    Keywords: Monetary policy, bank risk, panel co-integration test
    JEL: E44 E51 E52 G21
    Date: 2015–07
  18. By: Tesfaselassie, Mewael F.
    Abstract: The paper analyzes the effects of disembodied technological progress on steady state hours worked in the workhorse New-Keynesian model, which features a neoclassical labor market, and its extension that allows for equilibrium unemployment. Both versions of the model are shown to imply a positive effect of growth on hours. Thus they can rationalize the long-term trend decline in productivity growth and the average number of hours per person observed across major industrialized countries during the postwar period. In the workhorse model slower growth decreases hours worked by reducing the effective discount rate and thus increasing the price markup, which acts like a tax hike on labor supply. This effect vanishes when the inflation rate is zero, because of the constancy of the price markup. In the extended version, the price markup effect interacts with a negative capitalization effect, whereby slower growth decreases hours by reducing the effective discount rate and in turn increasing employment and the marginal rate of substitution between consumption and hours.
    Keywords: productivity growth,working hours,employment,nominal price rigidity,trend inflation
    JEL: E24 E31
    Date: 2016
  19. By: Domeij, David (Dept. of Economics); Ellingsen, Tore (Dept. of Economics)
    Abstract: We extend the Bewley-Aiyagari-Huggett model by incorporating an incomplete stock market and a persistent income process. In this quantitative general equilibrium framework, non-fundamental asset values are both large and desirable for realistic parameter values. However, if expectations shift from one equilibrium to another, some markets may crash as others soar. In the presence of nominal assets and contracts, such movements can be highly detrimental. Our analysis is consistent with the view that some of the world’s large recessions were caused by an avoidable failure of monetary and fiscal policy to prevent deflation in the aftermath of bursting asset price bubbles.
    Keywords: Bubbles; Incomplete Markets; Depressions; Fiscal Policy; Monetary Policy
    JEL: E31 E32 E41 E63
    Date: 2015–02–13
  20. By: Jonung, Lars (Department of Economics, Lund University); Begg, Iain (European Institute, London School of Economics and Political Science); Tutty, Michael G. (Irish Fiscal Advisory Council)
    Abstract: This paper presents an independent evaluation of the Irish Fiscal Advisory Council (IFAC) carried out in 2015. IFAC was set up as an independent fiscal institution in 2011 to monitor the fiscal policy of the Irish government. Similar fiscal “watchdogs” have emerged across Europe following the crisis in the euro area. This report presents conclusions and recommendations concerning the performance of IFAC. The focus is on five main issues: the mandate, the financial and human resources, the output, the impact (communication strategy) of IFAC and the relationship between the EU fiscal framework and the Irish framework. A general conclusion is that IFAC has, so far, served the Irish fiscal policy process well. With Ireland having exited its macroeconomic adjustment programme and a return to economic health, IFAC now faces new challenges in keeping Ireland on a sustainable fiscal path.
    Keywords: Ireland; fiscal policy council; independent fiscal agency; fiscal stabilization; fiscal rules and fiscal crisis
    JEL: E62 E63 E65 F42
    Date: 2016–02–08
  21. By: Grégory Claeys; Alvaro Leandro
    Abstract: HIGHLIGHTS The European Central Bank (ECB) has made a number of significant changes to the original guidelines of its quantitative easing (QE) programme since the programme started in January 2015. These changes are welcome because the original guidelines would have rapidly constrained the programme’s implementation. The changes announced expand the universe of purchasable assets and give some flexibility to the ECB in the execution of its programme. However, this might not be enough to sustain QE throughout 2017, or if the ECB wishes to increase the monthly amount of purchases in order to provide the necessary monetary stimulus to the euro area to bring inflation back to 2 percent. To increase the programme’s flexibility, the ECB could further alter the composition of its purchases. The extension of the QE programme also raises some legitimate questions about its potential adverse consequences. However, the benefits of this policy still outweigh its possible negative implications for financial stability or for inequality. The fear that the ECB’s credibility will be undermined because of its QE programme also seems to be largely unfounded. On the contrary, the primary risk to the ECB’s credibility is the risk of not reaching its 2 percent inflation target, which could lead to expectations becoming disanchored. EXECUTIVE SUMMARY The European Central Bank (ECB) has made a number of significant changes to the original design of its quantitative easing (QE) programme since the programme started in January 2015. The bank has expanded the list of national agencies whose securities are eligible for the Public Sector Purchase Programme (PSPP); it has changed the issue share limit (ensuring that the Eurosystem will not breach the prohibition on monetary financing), which was originally set at 25 percent, to 33 percent (at least for securities without collective action clauses); it has added regional and local government bonds to the list of eligible assets; it has announced that the programme would continue past September 2016, the previously-announced minimum end-date, to March 2017 “or beyond, if necessary”; and it has declared its intention to reinvest the principal payments on the securities purchased under the programme as they mature. As explained in Claeys et al (2015b), the programme’s original guidelines would have constrained the size and duration of the programme, especially if it was sustained throughout 2017. The changes to the design of the programme announced during 2015 greatly expand the universe of purchasable assets and should therefore delay the point at which limits will be reached. However, the decision to reinvest the principal payments as bonds mature, by increasing the monthly monetary purchase after March 2017, would also lead to the limits being reached sooner. In the same way, a decision by the ECB to increase the amount of PSPP purchases each month, for instance from €44 billion to €64 billion, would also frontload the purchases. In the end, because of the issue share limit, for a given set of securities there will always be a trade-off between larger monthly purchases and a prolonged programme. Further changes to the design of the programme will have to be implemented in order to increase the duration of the programme if the limit is binding in a major country before inflation is on the path towards 2 percent. These could include waiving the issue limit for AAA-rated bonds, or purchasing senior uncovered bank bonds as well corporate bonds. A more radical change could be to move away from an allocation of asset purchases between countries based on the ECB capital keys to an allocation based on the actual size of their outstanding debt. We also discuss the possible financial stability risks of a prolonged and large-scale QE programme, and conclude that the benefits of large-scale asset purchases outweigh their potential risks in terms of financial stability. However, micro- and macro-prudential policies should be used forcefully to prevent such risks from materialising. We also consider the potential effects that a prolonged asset-purchase programme could have on inequality. The increase in inequality observed in many advanced countries in recent decades is a long-term trend and primarily the result of deep structural changes. Our view is that the primary mandate of the ECB is to maintain price stability, and considerations of inequality are not within its purview, unless inequality prevents the transmission of monetary policy in some way. The ECB should therefore focus on fulfilling its price stability mandate by supporting the fragile recovery now taking place in the euro area. This is the best way for monetary policy to contribute to the avoidance of an increase in inequality. The fear that the ECB will lose its credibility solely because it is currently buying a large amount of sovereign bonds appears to be largely unfounded. The primary risk to the ECB’s credibility is the risk of not reaching its inflation target.
    Date: 2016–02
  22. By: Nick Butt (Bank of England); Rohan Churm (Bank of England); Michael McMahon (Centre For Economic Policy Research; Centre For Macroeconomics (CFM); University of Warwick); Arpad Morotz (Bank of England); Jochen Schanz (Bank for International Settlements)
    Abstract: We test whether quantitative easing (QE), in addition to boosting aggregate demand and in ation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives `flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.
    Keywords: Monetary policy, bank lending channel, quantative easing
    JEL: E51 E52 G20
    Date: 2015–10
  23. By: Alexander Herzog-Stein; Patrick Nüß
    Abstract: This article analyses the relevance of the extensive and the intensive margin of labour adjustment over the business cycle in Germany and in the United States. Previous research has found that, firstly, the extensive margin dominates and that, secondly, the relative relevance of the two margins is of similar magnitude in both countries. This is in contrast with results from the research on the German employment performance in the Great Recession which attributed part of the employment success to the widespread use of instruments of internal flexibility. Our results confirm that generally, the extensive margin is still the dominant margin of labour adjustment over the business cycle in both countries. While our reassessment shows that the relative importance of the extensive and intensive margin for the United States is stable over time, in Germany it is quite volatile over time. In general the intensive margin in Germany is more important than in the United States. However, its actual size depends crucially on the choice of the smoothing parameter of the Hodrick-Prescott Filter. In the Great Recession and the subsequent time period the intensive margin is dominant in Germany independent of the choice of the smoothing parameter.
    Keywords: Germany, United States, aggregate labour adjustment, extensive and intensive margin, business cycle, total hours worked, employment, hours per employee, Great Recession
    JEL: E24 E32 J2
    Date: 2016
  24. By: Didier Faivre (Centre d'Economie de la Sorbonne)
    Abstract: The relationship between Credit to private sector, Growth and investment is in a first step evaluated empirically through Error Correction model (ECM), using Credit Level for various national economies. The more important results are the following: the quality of estimation results for the relationship between Investment (with a separate analysis for Business and Households) and Credit is much better than for the relationship between GDP and Credit and in most cases it's the Investment cycle that explains the Credit cycle. In addition, specific results for United States are given, replacing Credit Level data by Credit Flow data. In this case, both cycles drive each other for Business, whereas for Households, it's the investment cycle that drives the Credit cycle
    Keywords: Private Credit; Credit Cycle; Cointegration; Error Correction Model
    JEL: E32 E51
    Date: 2016–02
  25. By: Girum D. Abate (Aarhus University and CREATES); Luc Anselin (Arizona State University)
    Abstract: This paper investigates the impact of house price movements on output in a space-time dynamic framework. The transmission of house price fluctuations to the macroeconomy both across space and over time is explicitly considered through spatial econometric modeling techniques. Using 373 metropolitan areas in the US from 2001 to 2013, it is shown that house price fluctuations have detrimental effect on output growth and spillover from one location to another. The loss of output due to house price fluctuations is more pronounced during the recent financial crisis. The time varying recursive estimation of the space-time econometric model shows that the coefficient of spatial correlation has been increasing over time, reflecting an increasing trend in house price synchronization.
    Keywords: House price fluctuations, output growth, space-time modeling
    JEL: E30 E32
    Date: 2016–01–26
  26. By: Gospodinov, Nikolay (Federal Reserve Bank of Atlanta); Wei, Bin (Federal Reserve Bank of Atlanta)
    Abstract: In this paper, we examine the forecasting ability of an affine term structure framework that jointly models the markets for Treasuries, inflation-protected securities, inflation derivatives, and oil future prices based on no-arbitrage restrictions across these markets. On the methodological side, we propose a novel way of incorporating information from these markets into an affine model. On the empirical side, two main findings emerge from our analysis. First, incorporating information from inflation options can often produce more accurate inflation forecasts than those based on the Survey of Professional Forecasters. Second, incorporating oil futures tends to improve short-term inflation and longer-term nominal yield forecasts.
    Keywords: bond prices; TIPS; inflation derivatives; oil prices; no-arbitrage; affine models; out-of-sample forecasting
    JEL: C32 E43 E44 G12
    Date: 2016–02–01
  27. By: BLINOV, Sergey
    Abstract: In 2015, many countries had to deal with the weakening of their currencies. Issues regarding exchange rate management by the Central Banks have again become the focal point of heated debate. This article compares two approaches to devaluation of local currency under the pressure of external circumstances: smooth devaluation and swift or instantaneous devaluation (drastic, stepped-up). Negative consequences of the «smooth» weakening of the exchange rate are shown, including the example of George Soros' famous attack on the British pound in 1992. Using «only» £5 bn. then, Soros managed to break the resistance of the Bank of England, which ended up investing £15 bn. to fight him. The ideas of Robert Shiller, the Nobel Laureate, have been reviewed which allow this phenomenon to be explained. Recommendations are given regarding a more rational way of managing exchange rate using the example of actions taken by the Bank of Kazakhstan in February 2014.
    Keywords: Monetary Policy, Central Banking, Business Cycles, International Finance, Foreign Exchange
    JEL: E30 E52 E58 E65 F30 F31
    Date: 2016–02–05
  28. By: Víctor Antonio Luque de Haro (Universidad de Almería, Almería, Spain)
    Abstract: Este trabajo intenta explicar algunas de las claves del proceso de transformación productiva y débil crecimiento que ha experimentado Alemania en el período 1995-2007 a través del análisis de un conjunto de variables principales que relacionan la evolución de la demanda y la distribución de la renta con la estructura productiva. El análisis combina el estudio a nivel agregado del comportamiento de la economía con el estudio desagregado por grupos de ramas productivas. De esa forma se constatan las grandes diferencias que, en prácticamente todas las variables analizadas, existen entre la evolución de las manufacturas con mayor intensidad tecnológica y el resto de ramas. Como consecuencia, el análisis permite formular una explicación del modo en que la economía alemana experimentó al mismo tiempo una profunda transformación productiva y un lento crecimiento durante el período que antecede a la crisis financiera internacional iniciada en 2008.
    Keywords: Alemania, Distribución, Estructura productiva, Exportaciones, Intensidad tecnológica
    JEL: E22 E23 E24
    Date: 2015–07
  29. By: Kiley, Michael T. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The equilibrium real interest rate (r*) is the short-term real interest rate that, in the long run, is consistent with aggregate production at potential and stable inflation. Estimation of r* faces considerable econometric and empirical challenges. On the econometric front, classical inference confronts the "pile-up" problem. Empirically, the co-movement of output, inflation, unemployment, and real interest rates is too weak to yield precise estimates of r*. These challenges are addressed by applying Bayesian methods and examining the role of several "demand shifters", including asset prices, fiscal policy, and credit conditions. We find that the data provide relatively little information on the r* data-generating process, as the posterior distribution of this process lies very close to its prior. This result contrasts sharply with those for the trend growth or natural rate of unemployment processes. Second, credit spreads are very important for the estimated links between output and interest rates and hence for estimates of r*. Estimates of r* that account for this range of considerations are more stable than other estimates, with r* at the end of 2014 equal to approximately 1-1/4 percent.
    Keywords: Bayesian Methods; Equilibrium real interest rate; Potential Output
    JEL: E30 E40 E50
    Date: 2015–08–26
  30. By: Olivo, Victor
    Abstract: This paper argues that the theoretical origin of QE programs, as a general concept, clearly links to Friedman’s (and monetarist) ideas, but that the specific implementation of QE operations to cope with the 2008 financial crisis does not comply with key principles developed by Friedman. Based on Friedman’s work during the sixties, I contend that his monetary framework links to QE through what he (and Anna Schwartz) called the “monetary” effects of monetary policy and not the portfolio balance effect highlighted by Nelson (2011) and Bernanke (2012). The combination of the “monetary” effects and the stabilizing role of monetary policy should produce QE programs with a path of the monetary base (central bank assets) and M2 that differs dramatically from what transpired under the 2008-2014 QE arrangements based on the portfolio balance effect.
    Keywords: Monetary policy,monetarism,quantitative easing,open market operations, financial crisis, monetary effects, portfolio balance effect
    JEL: E52 E58
    Date: 2015–06–17
  31. By: Gospodinov, Nikolay (Federal Reserve Bank of Atlanta)
    Abstract: This note documents a curious finding about the substantial forecast ability of a simple aggregator of three commodity futures prices for U.S. core inflation. The proposed aggregator reduces the out-of-sample root mean squared error for 12-month-ahead inflation forecasts of the benchmark AR(1) model by 28 percent (20 percent) for the PCE (CPI) measure of core inflation. To avoid obfuscation of the sources of forecast ability, the model is intentionally kept simple, although extensions for improving and increasing the robustness of the forecast procedure are also discussed.
    Keywords: core inflation; commodity futures; convenience yields; forecasting
    JEL: C53 E37 G12
    Date: 2016–02–01
  32. By: Lucy Goodhart
    Abstract: The Financial Crisis that started in 2007 ushered in new responsibilities for central banks, particularly for what is termed “macro-prudential policy,” or MPP. The goal of this policy is to monitor and contain overall risk in the financial sector. Implementing MPP, however, carries the potential for distributional conflict with the largest financial firms and the politicization of central bank policy. In light of this risk, this essay analyses the institutional implications of MPP for a leading central bank, the U.S. Federal Reserve. Specifically, how will MPP affect the autonomy of the Fed to set the policy it thinks right? The analysis is based on interviews with financial regulators, including Fed staffers and policymakers, and with journalists who report on financial regulation. It is also informed by a case study of the “Volcker Revolution” in monetary policy. Based on these sources, I identify the factors that contributed to Fed autonomy in the conduct of monetary policy during the Volcker Revolution and assess the extent to which those same factors hold for MPP. I close with an assessment of what MPP means for the new political economy of the Fed in particular and developed world central banks more broadly.
    Keywords: Sovereign Default; Debt Crises; Political Survival; Networks; Voter Behavior.
    JEL: R21
    Date: 2015–01–08
  33. By: Gudmundsson, Gudmundur S.; Zoega, Gylfi
    Abstract: This paper describes the relationship between central bank interest rates and exchange rates under a capital control regime. Higher interest rates may strengthen the currency by inducing owners of local currency assets not to sell local currency off shore. There is also an effect that goes in the opposite direction: higher interest rates may also increase the flow of interest income to foreigners through the current account, making the exchange rate fall. The historical financial crisis now under way in Iceland provides excellent testing grounds for the analysis. Overall, the experience does not suggest that cutting interest rates moderately from a very high level is likely to make a currency depreciate in a capital control regime, but it highlights the importance of effective enforcement of the controls.
    Keywords: financial crises,capital controls,policy rates,exchange rates
    JEL: G01 E42 E52 E58
    Date: 2016
  34. By: Reinhart, Carmen M.; Reinhart, Vincent; Trebesch, Christoph
    Abstract: Capital flow and commodity cycles have long been connected with economic crises. Sparse historical data, however, has made it difficult to connect their timing. We date turning points in global capital flows and commodity prices across two centuries and provide estimates from alternative data sources. We then document a strong overlap between the ebb and flow of financial capital, the commodity price super-cycle, and sovereign defaults since 1815. The results have implications for today, as many emerging markets are facing a double bust in capital inflows and commodity prices, making them vulnerable to crises.
    Keywords: capital flows; commodity prices; financial crises; sudden stops
    JEL: E3 E44 F44 G01 N10 N20
    Date: 2016–02
  35. By: Fujita, Shigeru (Federal Reserve Bank of Philadelphia); Nakajima, Makoto (Federal Reserve Bank of Philadelphia)
    Abstract: This paper studies quantitative properties of a multiple-worker firm search/matching model and investigates how worker transition rates and job flow rates are interrelated. We show that allowing for job-to-job transitions in the model is essential to simultaneously account for the cyclical features of worker transition rates and job flow rates. Important to this result are the distinctions between the job creation rate and the hiring rate and between the job destruction rate and the layoff rate. In the model without job-to-job transitions, these distinctions essentially disappear, thus making it impossible to simultaneously replicate the cyclical features of both labor market flows.
    Keywords: Job flows; Worker flows; Multiple-worker firm; and Search and matching
    JEL: E24 E32 J63 J64
    Date: 2016–02–05
  36. By: Eriksson, Stefan (Department of Economics, Uppsala University); Stadin, Karolina (Department of Economics, Uppsala University)
    Abstract: In this paper, we study the relative importance of demand and supply factors for hiring. We use a search-matching model with imperfect competition in the product market to derive an equation for total hiring in a local labor market and estimate it on Swedish panel data. If product markets are imperfectly competitive, product demand shocks should have a direct effect on employment. Our main finding is that product demand is important for hiring. This highlights the importance of taking imperfect competition in the product market into account in studies of employment dynamics and hiring. We also find that the number of unemployed workers has a positive effect on hiring, confirming the importance of search frictions. Hence, both demand and supply factors seem to matter for hiring.
    Keywords: Hiring; search-matching; imperfect competition; unemployment
    JEL: E24 J23 J64
    Date: 2015–06–17
  37. By: Troug, Haytem Ahmed; Murray, Matt
    Abstract: The research finds that the actions of the BoJ were more successful in raising aggregate levels of output and price than those of the BoE. In Japan, all financial variables analysed were found to transmit the benefits of QME, whilst in the UK the effect only occurs through the stock market and bank lending. The overall results however, are found to be small. To analyse the effects of the most recent policies of QME by the Bank of Japan (BoJ) and the Bank of England (BoE) on aggregate levels of output and prices in Japan and the UK, We perform two-step VAR and VEC analysis to first identify the effects of QMEP before determining the financial transmission mechanism by which these effects take place. This analysis aims to make contribution to the research surrounding the effects of QMEP. It is wholly reasonable to presume that both the Japanese and UK economies may experience similar economic difficulties in the future and further understanding of the effects of QMEP will enable more targeted policy decisions to be implemented to effectively protect stable inflation levels and stimulate future economic growth.
    Keywords: Quantitative Easing, Monetary Policy, Bank of Japan, Bank of England, Vector Auto-Regression, Vector Error Correction
    JEL: C1 C13 E5 E52 E58
    Date: 2015–09
  38. By: Mickelsson, Glenn (Department of Economics)
    Abstract: DSGE models are typically estimated using Bayesian methods, but a researcher may want to estimate a DSGE model with full information maximum likelihood (FIML) so as to avoid the use of prior distributions. A very robust algorithm is needed to find the global maximum within the relevant parameter space. I suggest such an algorithm and show that it is possible to estimate the model of Smets and Wouters (2007) using FIML. Inference is carried out using stochastic bootstrapping techniques. Several FIML estimates turn out to be significantly diffrent from the Bayesian estimates and the reasons behind those differences are analyzed.
    Keywords: Bayesian methods; Maximum likelihood; Business Cycles; Estimate DSGE models
    JEL: C11 E32 E32 E37
    Date: 2015–12–22
  39. By: Simon van Norden
    Abstract: Growth forecasts are the foundation of fiscal planning. Risk management in fiscal planning therefore requires an appreciation of the uncertainty associated with the underlying growth forecasts. This paper estimates such uncertainty by examining medium-term government and private-sector forecasts for Québec as well as private sector forecasts for Canada. It shows the distribution of forecast errors for both real and potential output forecasts by forecast horizon. It also examines a variety of decompositions to better understand key sources of forecast uncertainty.  The results indicate that forecast uncertainty increases linearly with forecast horizon. Five-year ahead forecast errors for real output of ±5% are common, while those for potential output are roughly half the size, suggesting that the cumulative impact of cyclical factors play an important role. Of the two forecasts for Québec, the private sector forecast showed larger mean forecast errors while the government forecast had somewhat higher mean-squared forecast errors. The latter also tended to have offsetting mean errors in its forecasts of output gaps and trend productivity growth. Productivity growth together with labour force participation rates were a key contributor to most forecast errors while population growth tended to play a significant secondary role at longer horizons and variations in employments were generally minor.
    Date: 2015–01–14
  40. By: Vasilev, Aleksandar
    Abstract: This study follows Rotemberg and Woodford (1998) and estimates a three-equation model of output, interest rate and inflation, in order to evaluate alternative rules by which the UK monetary authority may decide on setting the main interest rate. As in the original paper, the model setup is a rational-expectations setup, augmented with nominal price-setting frictions a la Calvo (1983). The model-generated impulse responses match quite well the estimated responses to a monetary shock. In addition, when additional technology and taste shocks are added, the theoretical model can account for the fluctuations in the UK data as well as an unrestricted VAR(1) does.
    Keywords: VAR,Taylor rule
    JEL: E37
  41. By: Sun, Lixin; Huang, Yuqin
    Abstract: In this paper, employing several econometric techniques, the authors construct a financial stress index (CNFSI) and a financial conditions index (CNFCI) to measure the instability of China's financial system. The indices are based on the monthly data collected from China's inter-bank markets, stock markets, foreign exchange markets and debt markets. Using these two indices, they identify the episodes of systemic financial stress, and then evaluate the indices. The empirical results suggest that the CNFSI performs better than the CNFCI. Furthermore, the authors propose four leading indicators for monitoring China's financial instability, and provide a primary early warning system for China's macroprudential regulations.
    Keywords: financial stress index,financial conditions index,China's financial system,leading indicators,early warning system
    JEL: G18 C43 E44
    Date: 2016
  42. By: Fernández-Villaverde, Jesús; Levintal, Oren
    Abstract: This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with rare disasters along the line of those proposed by Rietz (1988), Barro (2006}, Gabaix (2012), and Gourio (2012). DSGE models with rare disasters require solution methods that can handle the large non-linearities triggered by low-probability, high-impact events with sufficient accuracy and speed. We solve a standard New Keynesian model with Epstein-Zin preferences and time-varying disaster risk with perturbation, Taylor projection, and Smolyak collocation. Our main finding is that Taylor projection delivers the best accuracy/speed tradeoff among the tested solutions. We also document that even third-order perturbations may generate solutions that suffer from accuracy problems and that Smolyak collocation can be costly in terms of run time and memory requirements.
    Keywords: DSGE models; perturbation; rare disasters; Smolyak; solution methods; Taylor projection
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2016–02
  43. By: Weber, Enzo
    Abstract: This comment discusses the consequences of a potential fourth industrial-digital revolution (“Industry 4.0”) from a labour market perspective. In particular, we look at the development through the lens of a comprehensive macroeconomic modelling approach for Germany. Additionally, the significance for public policies is addressed.
    Keywords: Industry 4.0, digitalisation, job creation and destruction, occupations, qualification
    JEL: E24 J23 J24 O14
    Date: 2016–01
  44. By: Boysen-Hogrefe, Jens; Jannsen, Nils; Plödt, Martin; Schwarzmüller, Tim
    Abstract: The EU's macroeconomic surveillance mechanism, namely the Macroeconomic Imbalance Procedure (MIP), is based on the so-called Scoreboard, which comprises a set of indicators that serve as a signalling device for potentially harmful macroeconomic developments. We first evaluate the early warning properties of the Scoreboard indicators with regard to financial crises. We then analyze the role of emerging crisis signals from the Scoreboard for the subsequent steps of the MIP (In-Depth Reviews), in which the gravity of imbalances and policy recommendations are specified. The results of our study help to identify ways to improve the current set-up and ultimately to deliver more transparent and effective policy advice.
    Keywords: Macroeconomic Imbalance Procedure,early warning indicators,signals approach,financial crises
    JEL: E02 E61 C25
    Date: 2015
  45. By: Waldenström, Daniel (Department of Economics)
    Abstract: This paper uses new data on Swedish national wealth over a period of two hundred years to study whether the patterns in wealth-income ratios previously found by Piketty and Zucman (2014) for some very rich and large Western economies extend to smaller countries that were historically backward and developed a different set of political and economic institutions during the twentieth century. The findings point to both similarities and differences. In the pre-industrial era, Sweden had much lower wealth levels than the rest of Europe, and the main explanation is that the Swedes were too poor to save their income. Over the twentieth century, Swedish aggregate trends and levels are much more similar to those of the rest of Europe, but the structure of national wealth differs. In Sweden, govern-ment wealth grew much faster and became more important, not least through its relatively large public pension system. This suggests an explicit role of historical economic and political institutions for the long-run evolution of wealth-income ratios.
    Keywords: Wealth-income ratios; National wealth; Household portfolios; Pension wealth; Welfare state; Institutions; Economic history
    JEL: D30 E01 E02 N30
    Date: 2015–10–07
  46. By: Svitlana Maksymenko
    Abstract: The paper investigates potential effects of euroization on the economy of Poland. It develops an empirical framework to provide estimations of the euro adoption costs arising from a loss of exchange rate regime as a macro-stabilization tool. The paper quantifies how a replacement of zloty with the euro, and thus the elimination of exchange rate would affect output fluctuations in Poland. Our analysis of the forecast error variance decomposition confirms that the real exchange rate served as an external shock absorber for Polish economy in 1990-2014. We find that external shocks on average explain up to 12-13% of the exchange rate variation and up to 5% in variation of Polish log-transformed output. We also find that over the past two decades the Poland’s economy has become more resilient to external shocks, and thus it is reasonable to expect the cost of euro adoption to decline with further EU integration.
    Date: 2015–01
  47. By: Mushtaq, Saba; Siddiqui, Danish Ahmed
    Abstract: Banking sector is the backbone of any country’s economy and bank deposits are major tool of banking sector’s success. Bank deposits are also a major part and determinant of country’s saving. According to economic theories and practical considerations, interest rate is considered one of the major elements that can affect savings as well as bank deposits. But as we knows that in Islam interest is considered forbidden, So the basic purpose of this study is to know the fact that either religious factors have any effect on Muslim decision while saving in banks. We used panel least square with fixed effect model by using 55 non-Islamic and 15 Islamic countries data from 2005 to 2013 for this study. Results showed that in Islamic countries interest rate don’t have any impact on bank deposits however money supply and inflation do have positive significant impact. But in the case of non-Islamic countries interest rate and money supply both have positive significant impact on bank deposit however inflation seems to be insignificant. Hence there is need of Islamic banks in countries with more Muslim population and there should be different economic policies for Islamic countries as religious factor affects decision of Muslims.
    Keywords: Interest rate, Bank deposits, Islamic, Panel data.
    JEL: C8 E43 G21 Z12
    Date: 2016–02–03
  48. By: Christian Schoder
    Abstract: An empirical approach to model estimation and evaluation based on Bayesian Maximum Likelihood is introduced to the post-Keynesian literature. To illustrate the method, it is applied to a neo-Kaleckian type of model of Euro Area business cycle fluctuations including endogenous fiscal and monetary policy as well as endogenous wage formation. To evaluate its empirical performance, the marginal likelihood and impulse-responses conditional on the proposed model are contrasted to those conditional on the corresponding Bayesian vector auto-regression models after relaxing the theory-implied cross-coefficient restrictions. The estimated parameter distributions are broadly in line with the empirical literature. Yet, a Bayesian vector auto-regression with loose theory-implied restrictions on the prior outperforms the neo-Kaleckian model considerably indicating misspecification. Further, a baseline Dynamic Stochastic General Equilibrium model is superior in terms of the marginal likelihood. Comparative impulse-response analysis indicates a failure of the neo-Kaleckian model to satisfyingly capture the fiscal and monetary policy transmission mechanisms.
    Keywords: Post-Keynesian economics, Bayesian Maximum Likelihood,Bayesian Vector Auto-Regression, model estimation, model evaluation
    JEL: E12 E32
    Date: 2016
  49. By: Lechman, Ewa; Dominiak, Piotr
    Abstract: In literature, there is ongoing discussion whether entrepreneurial activity, approximated by, for instance, changes in self-employment, tends to behave pro-cyclically, counter-cyclically or rather is a-cyclical. Thus far, both theoretical and empirical evidence, where various multiple methodological approaches are used, does not provide clear answer to the latter; while widely offered explanations are scattered and lack robustness. Regarding the latter, some evidence may be traced in works of Kollinger and Thurik (2012), which using data for 22 OECD countries over the period 1972-2007, use Granger-causality tests to verify if entrepreneur activities are leading or lagging indicator over the business cycles; and their findings they show that entrepreneurship is leading indicator of the business cycle. Rampini (2004), using canonical real business cycle model, finds that entrepreneurship behaves pro-cyclical, which is associated with changes in risk aversion during respective phases of business cycle. Carmona et al. (2010), using quarterly data for self-employment and GDP in Spain and the United States, over the period 1987-2004, adopt the cross-correlations and VAR models to demonstrate that the hypothesis on pro-cyclicality of self-employment cannot be confirmed. At the same time, they present rather mixed results for various groups of self-employed. Klapper et al. (2014), using data for 109 countries over the period 2002-2012, find that entrepreneurial behavior demonstrates strong pro-cyclical patterns. More recent evidence may be also found in works of, inter alia, Parker (2002), Parker et al. (2012a,b), Milan et al. (2012), Baptista and Preto (2011). This paper is designed to contribute to the present state of the art, by presenting a novel methodological approach to identification of the relationship between the intensity of entrepreneurial activity and business cycle. Put differently, we aim unveil if entrepreneurship (approximated by changes in self-employment) behaves pro-cyclically, counter-cyclically or a-cyclically. To exemplify our new conceptual approach, we use quarterly data on deflated gross domestic product and self-employment. The empirical evidence presents the case of Italy. The period of analysis is restricted to the years 1995-2014. All statistics are extracted from OECD datasets on Annual Labor Force and Gross Domestic Product.
    Keywords: entrepreneurship, self-employment, vulnerability, small and medium sized enterprises, business cycle, economic growth
    JEL: A1 B41 D22 E3
    Date: 2016
  50. By: Grodecka, Anna (Financial Stability Department, Central Bank of Sweden); Kotidis, Antonis (Department of Economics)
    Abstract: We investigate the effects of the abolition of double liability requirement imposed on bank shareholders in Canada on bank risk-taking and lending behavior. Under the double liability rule, the shareholders of a bank were liable up to twice the amount of their subscribed shares in the case of bankruptcy. With the establishment of the Bank of Canada in 1934, the double liability requirement became less stringent and depended on the pace of the redemption of notes in circulation issued by the individual chartered commercial banks. Using historical balance sheet and accounting data, we show that the abolition of double liability was not accompanied by increased bank risk taking in Canada. Our ndings are consistent with the literature that focuses on uniform regulations and nationwide branching as key nancial stability elements in Canada.
    Keywords: Double Liability; Bank Risk-Taking; Leverage; Canadian banks; Financial Stability
    JEL: E44 G21 G28 N22
    Date: 2016–02–01
  51. By: Duncan, Roberto (Ohio University)
    Abstract: Traditionally, the literature that attempts to explain the link between the current account and output finds a linear negative relationship (e.g., Backus et al., 1995). Using nonparametric regressions, we find a robust U-shaped relationship between the U.S. current account and the GDP cycle. When output is above (below) its trend the current account and detrended output are positively (negatively) correlated. We argue that this nonlinearity might be caused by persistent productivity shocks coupled with uncertainty shocks about future productivity.
    JEL: E3 F3 F4
    Date: 2015–09–01
  52. By: Bartzsch, Nikolaus; Seitz, Franz
    Abstract: This paper models the demand for banknotes issued in Germany. It highlights that all motives for holding banknotes are present in this case. Inter alia, special attention is paid to the role of card payments. For small and large denomination notes we are able to establish meaningful vector error correction models (VECM). The results suggest that the long-run demand for German small denomination notes is mainly driven by domestic transactions and demand from outside the euro area. The transaction motive in the rest of the euro area and non-cash payments are part of the short-term dynamics. The long-run demand for German large denomination notes is mainly driven by foreign demand both from the rest of the euro area and outside the EMU. The global financial crisis led to a one-time increase in the (real) demand for these notes. Our results are in line with estimates according to which the level and dynamics of banknote demand are largely determined by foreign demand. It was not possible to setup a VECM for medium denominations for which we resort to a singleequation approach. Card payments do not play any role for the medium and large denomination categories.
    Abstract: Das vorliegende Papier modelliert die Nachfrage nach Euro-Banknoten, die von der Deutschen Bundesbank emittiert wurden. Dabei wird offensichtlich, dass alle Motive der Bargeldhaltung in diesem Fall relevant sind. Ein spezielles Augenmerk wird darauf gerichtet, welche Rolle bargeldlose Zahlungen in Form von Kartenzahlungen spielen. Für große und kleine Stückelungen gelingt es, aussagekräftige Vektorfehlerkorrekturmodelle (VECM) mir ökonomischem Gehalt aufzustellen. Langfristig wird die Nachfrage nach kleinen Stückelungen vor allem getrieben von inländischen Transaktionen und der Nachfrage außerhalb des Euro-Währungsgebietes. Das Transaktionsmotiv in den anderen Euro-Ländern und Kartenzahlungen treiben die Kurzfristdynamik. Die langfristige Nachfrage nach großen Stückelungen wird dagegen hauptsächlich von der Auslandsnachfrage innerhalb und außerhalb des Euro-Währungsgebiets getrieben. Die globale Finanzkrise führte dabei zu einem einmaligen Sprung in der realen Nachfrage nach diesen Noten. Für die mittleren Stückelungen konnte kein VECM aufgestellt werden. Deshalb musste auf einen Einzelgleichungsansatz zurückgegriffen werden. Kartenzahlungen beeinflussen weder die Nachfrage nach großen noch nach mittleren Stückelungen.
    Keywords: banknotes,vector error correction,card payments
    JEL: C22 C32 E41
    Date: 2015
  53. By: Alexius, Annika (Dept. of Economics, Stockholm University); Spång, Daniel (The Fourth Swedish National Pension Fund)
    Abstract: Previous studies have documented long run equilibrium relationships between e.g. stock prices and labour income or dividends and consumption. In general equilibrium, output, consumption, labour income, stock prices, and dividends are endogenous variables that are determined by the same stochastic productivity trend. We show that stock prices are cointegrated with domestic and foreign output in the G7 countries, which arguably is a more fundamental relationship than the connection between consumtion and dividends.
    Keywords: Stock prices; GDP; Long run risks; Cointegration
    JEL: E44 G12
    Date: 2015–06–26
  54. By: Sánchez-Fung , José R. (BOFIT)
    Abstract: The paper estimates the impact of monetary policy on income inequality in China. The empirical modelling finds that a battery of monetary indicators, including a monetary overhang measure derived from a money demand equation, and the change in the unemployment rate lead to increases in the Gini coefficient. However, only unemployment is statistically significant. The lack of significance of the monetary indicators is robust to alternative specifications with variability in nominal aggregate demand instead of unemployment.
    Keywords: monetary policy; inequality; inflation; unemployment; China
    JEL: D31 E52
    Date: 2015–05–13
  55. By: Porzecanski, Arturo C.
    Abstract: In the 1970s, while a leftist military dictatorship ruled Peru, more than 22 million acres of cultivated or grazing farmland -- one-third of Peru’s total agricultural acreage -- were expropriated from thousands of large owners as part of a property reform intended to benefit up to 400,000 landless peasant families. The compensation provided to landowners was miserly, however: on average, it was less than one-tenth the then-prevailing market price of water-accessible, cultivated land. Moreover, about 85 percent of total recognized land values were settled not in cash but with long-term Agrarian Debt Bonds, which committed future governments to honor fixed coupons on obligations maturing in 20 to 30 years. These bonds became worthless during the 1980s, however, because hyperinflation raged and the Peruvian currency lost most of its value. In the wake of the filing of hundreds of lawsuits seeking judicial redress, in 2001 the country’s Constitutional Tribunal ruled that the government should resume payment of the land-reform debt after updating its nominal value on an actuarial basis. And yet, successive administrations did not act on this ruling, despite the fact that since the mid-1990s Peru has exhibited vigorous economic growth, significantly strengthened public finances, and substantially improved creditworthiness, such that governments have had more than the necessary ample fiscal resources to redeem the land-reform bonds at their full, original value. This paper examines the evidence and concludes that we are in the presence of a case of blatant unwillingness to pay, one which undermines Peru’s claim to be a nation that is creditworthy, investor-friendly, and respectful of the rule of law.
    Keywords: Peru, Latin America, default, debt, sovereign, litigation, land reform, credit rating
    JEL: D23 E6 F34 F51 H63 K4 N26 Q15
    Date: 2016–01–28
  56. By: Leo Kaas (Department of Economics, University of Konstanz, Germany); Georgi Kocharkov (Department of Economics, University of Konstanz, Germany); Edgar Preugschat (Technical University Dortmund, Germany)
    Abstract: It is well known that homeowners are richer than renters, even after controlling for observable characteristics. This is often used as an argument for policies that foster homeownership. However, the causal link between homeownership and wealth is difficult to establish due to many potential sources of endogeneity. Utilizing the Household Finance and Consumption Survey for the Euro area, we correct for endogeneity by using inheriting the household’s main residence as an instrument. The exclusion restriction is that conditional on the total amount of inheritance, inheriting a home affects the wealth position of the household only through homeownership. For the sample of inheritors we find that the local average treatment effect for households that inherit a home and stay homeowners is negative. Owning a home reduces riches due to sizable reductions in the net holdings of financial and other real wealth of the treated households.
    Keywords: Homeownership, Wealth accumulation, Inheritance, Instrumental variables
    JEL: E21 D14 D31 C26
    Date: 2016–02–01
  57. By: Scott R. Baker; Nicholas Bloom; Steven J. Davis
    Abstract: We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence – including human readings of 12,000 newspaper articles – indicate that our index proxies for movements in policy-related economic uncertainty. Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction. At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies. Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s.
    JEL: D80 E22 E66 G18 L50
    Date: 2015–09
  58. By: Odhiambo, Nicholas. M; Nyasha, Sheilla
    Abstract: This paper examines the impact of bank-based financial development on economic growth inGhana during the period from 1970 to 2014 ??? using the autoregressive distributed lag(ARDL) bounds testing approach. Unlike some previous studies, the current study uses fiveproxies to measure the level of bank-based financial development, including a compositeindex of bank-based financial development derived from various financial developmentindicators. The empirical results of this study show that the impact of bank-based financialdevelopment on economic growth in Ghana is sensitive to the proxy used to measure bankbasedfinancial development. The results also tend to vary over time. Overall, our resultsshow that when the ratio of domestic credit extension to the private sector by banks to GDP,and the composite index are used as proxies, bank-based financial development has apositive impact on economic growth in Ghana. However, when the ratio of deposit moneybanks' assets to GDP is used as a proxy, bank-based financial development has a negativeimpact on economic growth. These results apply, irrespective of whether the analysis is donein the short run or in the long run. Other results show that when the ratio of the claims ofdeposit money banks on the private sector to broad money is used as a proxy for bank-basedfinancial development, bank-based financial development is found to have a negative impacton economic growth in the short run, but a positive impact in the long run. However, whenthe ratio of quasi liquid liabilities to GDP is used, the relationship tends to be positive in theshort run, but negative in the long run.
    Keywords: Ghana, Bank-Based Financial Development, Economic Growth
    Date: 2015–10
  59. By: Horioka, Charles Yuji
    Abstract: In this paper, I find (1) that Japan showed massive and persistent current account surpluses from at least 1981 and until at least 2011, (2) that Professor Ronald McKinnon was correct, at least in the case of Japan, and that these large and persistent current account surpluses were due primarily to Japan's large and persistent IS imbalances (the excess of saving over investment), (3) that the specific causes of the IS imbalances have changed dramatically over time, and (4) that future trends in Japan's IS imbalances (current account surpluses) are difficult to project but that they will probably not change dramatically in either direction in the foreseeable future.
    Keywords: IS imbalances, IS balances, saving-investment balances, global imbalances, current account surpluses, current account balances, trade balances, saving, household saving, corporate saving, government saving, investment, population aging, Ronald McKinnon, Japan
    JEL: D14 D91 E21 F21 F32 H62
    Date: 2015–08
  60. By: Wensheng Kang; Ronald A. Ratti; Kyung Hwan Yoon
    Abstract: A mixture innovation time-varying parameter VAR model is used to examine the impact of structural oil price shocks on U.S. stock market return. Time variation is evident in both the coefficients and the variance-covariance matrix. The standard deviations of the demand side structural shocks reached forty year peaks during the global financial crisis and have remained high since. In the real stock return equation the coefficient of global real economic activity has declined since the late 1990s and that of oil-market specific demand oil shock has been lower since the early 1990s than before. The structural oil shocks account for 25.7% of the long-run variation in real stock returns overall, with substantial change in levels and sources of contribution over time. The contribution of shocks to global real economic activity to real stock return variation rose sharply to 22% in 2009 (and remains 17% over 2009-2012). The contribution of oil-market specific demand price shocks rose unevenly from 5% in the mid-1970s to about 15% in 2007, with a subsequent decline. The contribution of oil supply shocks has trended downward from 17% to 5% over 1973-2012.
    Keywords: mixture innovation, oil shocks, real stock return, time-varying parameter VAR
    JEL: E44 G10 Q41 Q43
    Date: 2015–08
  61. By: Josselin Thuilliez (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: This study uses aggregate panel data on 96 French départements from 1982 to 2012 to investigate the relationship between macroeconomic conditions, gender and mortality. I use previously employed panel data methods, based on mortality variation across French départements and years. The novelty is to analyze the effect of gender-specific unemployment on gender-specific mortality. Within this “area-gender approach”, I give a particular attention to gender-cause-specific mortality such as prostate cancer, maternal mortality, female breast cancer, cervical cancer and ovarian cancer in addition to other cause-specific mortality. The analysis is undertaken for several age-groups, several time windows and different geographical aggregates of unemployment. The results reveal that the relationship between unemployment and mortality in France is weak and confirm recent conclusions from U.S. state-level analysis by Rhum [Ruhm, C.J., 2015. Recessions, Healthy no more?. Journal of Health Economics 42, 17-28]
    Keywords: Health; Mortality; Recessions; Gender; Macroeconomic conditions
    JEL: E32 I12 J2
    Date: 2016–01
  62. By: Koenig, Felix (CEP, London School of Economics); Manning, Alan (London School of Economics); Petrongolo, Barbara (Queen Mary, University of London)
    Abstract: Wages are only mildly cyclical, implying that shocks to labour demand have a larger short-run impact on unemployment rather than wages, at odds with the quantitative predictions of the canonical search model – even if wages are only occasionally renegotiated. We argue that one source of the wage flexibility puzzles is plausibly the model for the determination of reservation wages, and consider an alternative reservation wage model based on reference dependence in job search. This extension generates less cyclical reservation wages than the canonical model, as long as reference points are less cyclical than forward-looking components of reservation wages such as the arrival rate of job offers. We provide evidence that reservation wages significantly respond to backward-looking reference points, as proxied by rents earned in previous jobs. In a model calibration we show that backward-looking reference dependence markedly reduces the predicted cyclicality of both wages and reservation wages and can reconcile theoretical predictions of the canonical model with the observed cyclicality of wages and reservation wages.
    Keywords: job search, reservation wages, wage cyclicality, reference dependence
    JEL: E24 J31 J64
    Date: 2016–02
  63. By: Koenig, Felix; Manning, Alan; Petrongolo, Barbara
    Abstract: Wages are only mildly cyclical, implying that shocks to labour demand have a larger short-run impact on unemployment rather than wages, at odds with the quantitative predictions of the canonical search model – even if wages are only occasionally renegotiated. We argue that one source of the wage flexibility puzzles is plausibly the model for the determination of reservation wages, and consider an alternative reservation wage model based on reference dependence in job search. This extension generates less cyclical reservation wages than the canonical model, as long as reference points are less cyclical than forward-looking components of reservation wages such as the arrival rate of job offers. We provide evidence that reservation wages significantly respond to backward-looking reference points, as proxied by rents earned in previous jobs. In a model calibration we show that backward-looking reference dependence markedly reduces the predicted cyclicality of both wages and reservation wages and can reconcile theoretical predictions of the canonical model with the observed cyclicality of wages and reservation wages.
    Keywords: job search; reference dependence; reservation wages; wage cyclicality
    JEL: E24 J31 J64
    Date: 2016–02
  64. By: Paul Maarek (University of Cergy-Pontoise - THEMA UMR CNRS 8184, France); Elsa Orgiazzi (University of Rennes1 - CREM UMR CNRS 6211, France)
    Abstract: We highlight a U-shaped relationship between development and the labor share of in- come. We exploit the within dimension of a panel dataset for the wage bill and value added in the manufacturing sector for developing countries. Data is available at the aggregate man- ufacturing level and also at the disaggregate level for 28 manufacturing subsectors. We show that the U-shaped pattern of the labor share that we observe at the aggregate level is also observed at the subsector level suggesting it does not correspond to reallocation forces across sectors that occur during the development process. Our theory emphasizes the role of firms’ monopsony power when labor market has frictions in a dual labor market in which modern, high productivity firms coexist with traditional, low productivity firms. At earlier stages of development, productivity gains are not compensated by wage increases, as most of workers’ outside opportunities depend on the low productivity traditional sector. At later stages, the labor share increases as a result of wage competition in the modern sector.
    Keywords: Development, Labor Share, Matching frictions
    JEL: E25 J42 O17
    Date: 2014–06
  65. By: Julián VILLAMIL S; Gustavo HERNÁNDEZ
    Abstract: Conocer de manera profunda las relaciones de interdependencia de la estructura económica es de gran importancia en el ejercicio de diseño de políticas económicas. Este trabajo usa el modelo insumo-producto para el análisis de impacto. Se aplican dos enfoques no usados tradicionalmente para la economía colombiana: análisis de descomposición espectral (Dietzenbacher, 1992) e identificación de clústeres (Garbellini & Wirkierman, 2014). El resultado es la construcción de indicadores de encadenamientos sin sesgo de sobrestimación o subestimación; y la identificación de clústeres de manera endógena. Adicionalmente se derivan los flujos de trabajo involucrado que se propagan a través de la red productiva. Cada uno de estos flujos se descompone en indicadores que permiten caracterizar los clústeres de acuerdo a: su cercanía con la demanda final, a su grado de cohesión con la red y a su importancia para el resto del sistema
    Keywords: Clústeres, Insumo Producto, Encadenamientos, Descomposición Espectral.
    JEL: C38 C67 E01 Y B51
    Date: 2015–03–13
  66. By: Scheuer, Florian; Wolitzky, Alexander
    Abstract: This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, sustainable policies are those that will continue to attract enough political support in the future. We find that optimal marginal capital taxes are either progressive or U-shaped, so that savings are subsidized for the poor and/or the middle class but are taxed for the rich. U-shaped capital taxes always emerge when the salient reform threat consists of radically redistributing capital and individuals' political behavior is purely determined by economic motives.
    Keywords: Coalition Formation; Inequality; Tax Reforms; Wealth Taxation
    JEL: D3 D6 D9 E6 H2 P5
    Date: 2015–02
  67. By: John FitzGerald (Department of Economics, Trinity College Dublin); Philip Lane (Department of Economics, Trinity College Dublin)
    Abstract: Governments actively manage the public balance sheet during episodes of financial distress. Under these circumstances, the stock of gross public debt is not a sufficient statistic for fiscal sustainability. In this paper, we examine the roles of financial asset acquisition, liquidity management, debt management and the central bank balance sheet in determining the fiscal health of a government. We argue that a strategy of “under-promising and over-delivering” is essential in restoring market access.
    Keywords: Government balance sheet, public debt, management of debt
    JEL: H63 E58
    Date: 2016–02
  68. By: Harker, Patrick T. (Federal Reserve Bank of Philadelphia)
    Abstract: President Patrick T. Harker gives his economic outlook at the 2016 Economic Forecast hosted by the Lyons Companies and the Lerner College Center for Economic Education & Entrepreneurship at the University of Delaware. He also presents his views on monetary policy.
    Keywords: Economic outlook; Monetary policy; Equity markets; Real estate; inflation; Delaware;
    Date: 2016–02–16
  69. By: Jorge Fornero; Markus Kirchner; Andrés Yany
    Abstract: We study the effects of commodity price shocks in small open commodity-exporting economies, focusing on metals prices and their impact on sectoral investment. First, using a standard SVAR approach, we conduct estimations for major commodity exporters (Australia, Canada, Chile, New Zealand, Peru and South Africa) to identify general cross-country patterns. Second, we use a DSGE model for Chile to study the propagation channels of commodity price changes and to implement counterfactual policy exercises. Our results suggest expansionary effects of commodity price increases in most countries, driven by positive responses of commodity investment that spill over to non-commodity sectors. The magnitude of these responses depends mainly on the size of the share of commodity exports and on the degree of persistency of the shock. Finally, our policy exercises highlight the importance of flexible inflation targeting, floating exchange rates and structural fiscal rules to efficiently manage commodity price volatility.
    Date: 2016–01
  70. By: López Parra, Elibeth; Cruz-Rodríguez, Alexis
    Abstract: The aim of this article is to examine the macroeconomic determinants of remittance flows to the countries of Central America and the Dominican Republic. Using panel data, the results indicate that migrants send remittances to this region mostly for reasons of altruism, being of main impact the variables of the host country. Also, it concludes that remittances are determined by variables that directly affect the income of migrants.
    Keywords: Remittances, migration, macroeconomic variables.
    JEL: F22 F24 J61
    Date: 2016–01–15
  71. By: Kappius, Robert; Neumärker, Bernhard
    Abstract: [Introduction] Exit rules allow for a temporary or permanent withdrawal from international cooperative regimes. For the ongoing crisis in the European Monetary Union (EMU), such rules are seen as a desirable solution to enhance flexibility in case of economic and political shocks in member countries and to restrict fiscal externalities in the Euro zone. As the EU acts as a union of sovereign countries, politically powerful nations like France or Germany are likely to blockade or circumvent such a rule, if it negatively affects their interest. The underlying strategic problem of self-enforceability is largely neglected with respect to an EU exit rule. This contribution to the political economy of exit and escape rules aims at assessing conditions of voluntary adherence to an exit scheme by all parties of a common currency union such as the EMU. [...]
    Date: 2015
  72. By: Bertola, Giuseppe; Lo Prete, Anna
    Abstract: We analyze the implications of labor market reforms for an open economy’s human capital investment and future production. A stylized model shows that labor market deregulation can imply more positive current account balances if financial markets are imperfect and labor market institutions not only distort labor allocation, but also smooth income. Empirically, in OECD country-level panel data, we find that labor market deregulation has been positively related to current account surpluses on average and more strongly so when and where financial market access was more limited. These results are robust to inclusion of standard determinants of current account imbalances, and do not appear to be driven by cyclical phenomena.
    Keywords: labor market deregulation; precautionary savings
    JEL: E44 F32 J08
    Date: 2015–02
  73. By: Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
    Abstract: Wages are an element of cost crucially aecting the competitiveness of individual firms. But the wage bill is also a crucial element of aggregate demand. Hence it could be that more "flexible" and fluid labour markets, while allowing for faster inter-firm reallocation of labour, may also render the whole economic system more fragile, more prone to recession, more volatile. In this work we investigate some conditions under which such a conjecture applies. The paper presents an agent- based model that investigates the effects of two "archetypes of capitalism", in terms of regimes of labour governance - defined by the mechanisms of wage determination, firing, labour protection and productivity gains sharing - upon (i) labour market regularities and (ii) macroeconomic dynamics (long-term rates of growth, GDP uctuations, unemployment rates, inequality, etc..). The model is built upon the "Keynes meets Schumpeter" family of models (Dosi et al., 2010), explicitly incorporating different microfounded labour market regimes. Our results show that seemingly more rigid labour markets and labour relations are conducive to coordination successes with higher and smoother growth.
    Keywords: Involuntary Unemployment, Aggregate Demand, Wage Determination, Labour Market Regimes, Keynesian Coordination Failures, Agent-Based Models
    Date: 2016–02–18
  74. By: Dominik Sadlakowski (Nicolaus Copernicus University, Poland)
    Abstract: In this article the author attempted to identify effects of the economic asymmetry in European Union in the context of international capital flows. The analysis concerns the effects of the functioning of the single European market, which are characterized by differing levels of economic development. According to the author this kind of asymmetry can lead to excessive economic dependence from leaders of this organization. In order to verify this statement in this article the author was based on data from Eurostat, UNCTAD, industry reports and available literature.
    Keywords: foreign direct investment, European single market, the economic asymmetries
    JEL: E01 E22 F21 F36 F52
    Date: 2015–06
  75. By: King, Thomas B. (Chicago FED); Lewis, Kurt F. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We reexamine the relative effects of credit risk and liquidity in the interbank market using bank-level panel data on Libor submissions and CDS spreads. Our model synthesizes previous work by combining the fundamental determinants of interbank spreads with the effects of strategic misreporting by Libor-submitting firms. We find that interbank spreads were very sensitive to credit risk at the peak of the crisis. However, liquidity premia constitute the bulk of those spreads on average, and Federal Reserve interventions coincide with improvements in liquidity at short maturities. Accounting for misreporting, which is large at times, is important for obtaining these results.
    Keywords: Bank Funding; Credit Risk; LIBOR; Liquidity; Misreporting
    JEL: E43 G21 L14
    Date: 2015–12–18
  76. By: Philipp Wegmueller
    Abstract: This paper provides international evidence on time-variation in trend productivity growth, based on the dataset for hours worked constructed by Ohanian & Raffo (2012). Applying both the endogenous break tests of Bai & Perron (1998, 2003) and the Stock & Watson (1996, 1998) TVP-MUB methodology, substantial evidence of time-variation in trend productivity growth is detected for most countries. For either Japan, or countries belonging to the Eurozone, evidence points towards a significant growth decline over the last several decades. Weaker evidence is reported for the United States, for which the 1990’s productivity acceleration is estimated to have been overall mild, and of a temporary nature.
    Keywords: Labor productivity; structural break tests; time-varying parameters; median-unbiased estimation; bootstrapping; Monte Carlo integration
    JEL: E30
    Date: 2015–02
  77. By: Anderson Cavalcante (Cedeplar-UFMG); João Pedro Figueira Amorim Parga (Face-UFMG)
    Abstract: The main purpose of this study is to establish a connection between the loans provided by BNDES, the National Bank of Economic e Social Development, to Brazilian exporters and the volume of exports, specifically from the year 2000 up to 2013. Therefore, using quarterly data, the export supply functions were estimated for both Brazil’s total exports and for manufactured goods. The empirical analysis of the estimation of supply exports functions was based on an error correction model (ECM). The results obtained from the estimations suggest a cointegration relationship between Brazilian exports and the variables used in the estimations, which were: the volume of world exports, the real exchange rate, the commodity price index and the disbursement made by BNDES for exports. In order to understand the role played by BNDES in Brazil's economic development process, this study carried a review of the literature on public financial institutions in Brazil, with an increased focus on the BNDES. Additionally, the main models of export and import functions in the literature were reviewed, so that the estimations could be made.
    Keywords: National Bank for Social and Economic Development (BNDES), Credit, Exports, Supply function, Error correction models (ECM)
    JEL: E42 F10 F14 G20
    Date: 2015–12
  78. By: Constantine, Collin (Kingston University London); Reissl, Severin (Kingston University London); Stockhammer, Engelbert (Kingston University London)
    Abstract: This paper analyses the causes of the Eurozone crisis. In doing so it carefully surveys authors from different economic schools of thought. The paper discusses competing explanations for European current account imbalances. Remarkably, opposing views on the relative importance of cost developments and of demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics and there is a remarkable variability of policy conclusions. Regarding the assessment of fiscal and monetary policy there is a clearer polarisation, with heterodox analysis regarding austerity as unhelpful and most of orthodox economics endorsing it. We advocate a post-Keynesian view which holds that current account imbalances are not a fundamental cause of the sovereign debt crisis. Rather, the economic policy architecture of the Eurozone, which aims at restricting the role of fiscal and monetary policy, is the key to understanding the crisis in Europe.
    Keywords: Euro crisis; neoliberalism; European economic policy; financial crisis; sovereign debt crisis; current account balance
    JEL: B50 E60
    Date: 2016–02–17
  79. By: Bellido, Héctor; Marcén, Miriam
    Abstract: This paper analyzes the role of the business cycle in fertility, using data from 30 European countries for the period 1991 to 2013. We find that the unemployment rate, utilized as a proxy for the evolution of the business cycle, negatively affects the fertility rate, at least in the short term. This is maintained even when we control for the welfare generosity of the European countries, and for other socio-economic variables and unobservable characteristics that can vary by country and/or over time. Our results suggest that fertility decisions behave in a pro-cyclical way, although the effect of the business cycle variations is quite moderate. By age of women, we observe differences in the response of the fertility rate, with the impact of economic problems being lower for those who are at the end of their childbearing years. Supplementary analysis, developed to explore the impact of the business cycle on the entire distribution of the fertility rate, indicates that the effect of the unemployment rate varies considerably, having a strong effect on the fertility rate at higher quantiles, corresponding with higher fertility rates.
    Keywords: Fertility, unemployment, business cycle
    JEL: J13 J64
    Date: 2016–02–09
  80. By: Sokolovska, Olena; Sokolovskyi, Dmytro
    Abstract: The article deals with investigation of principles, factors and conditions of the government’s tax behavior, notably by means of changing the tax burden. We define da set of potential indicators of the economic efficiency, based on the GDP and normalized in various ways on the level of consumer prices in the country, on per capita data and on per hour worked. By using the statistical analysis techniques we found the statistical dependence between government’s behavior and each of the selected indicators. We argued that the factor of labour of productivity per capita has the biggest impact on the government’s tax decisions. Also we showed that the governments mostly act as satisfiers. The obtained results allow to understand the principles of governments’ decision-making, and, therefore, to forecast in some way their behavior in certain economic conditions. Moreover, it could help to understand the reasons why the “race to the bottom” situation appears. The present paper differs from previous studies both by the topic, studying the relations between government’s tax behavior and economic efficiency of their jurisdictions and by the approach to define this dependence, since the latest can be observed only when each variant of government’s tax reaction is analyzed separately.
    Keywords: economic efficiency; corporate tax burden; tax compliance; satisfying behavior; GDP; labour productivity
    JEL: C12 E22 H30 J38
    Date: 2015–09
  81. By: Felix Koenig; Alan Manning; Barbara Petrongolo
    Abstract: Wages are only mildly cyclical, implying that shocks to labour demand have a larger short-run impact on unemployment rather than wages, at odds with the quantitative predictions of the canonical search model - even if wages are only occasionally renegotiated. We argue that one source of the wage flexibility puzzles is plausibly the model for the determination of reservation wages, and consider an alternative reservation wage model based on reference dependence in job search. This extension generates less cyclical reservation wages than the canonical model, as long as reference points are less cyclical than forward-looking components of reservation wages such as the arrival rate of job offers. We provide evidence that reservation wages significantly respond to backward-looking reference points, as proxied by rents earned in previous jobs. In a model calibration we show that backward-looking reference dependence markedly reduces the predicted cyclicality of both wages and reservation wages and can reconcile theoretical predictions of the canonical model with the observed cyclicality of wages and reservation wages
    Keywords: job search, reservation wages, wage cyclicality, reference dependence
    JEL: J63 J64 E24
    Date: 2016–02
  82. By: Radman Peša, Anita; Brajković, Ana
    Abstract: We tested the economic activity and stock exchange of Croatia as a new country of European Union (EU) in order to investigate the ‘Black Swan effect’ from 2000 to 2013. The empirical findings obtained in application of OLS methodology and Chow breaking point test provide evidence and show that resignation of the Croatian ex-Prime Minister did lead country successfully to EU. Also, ‘The Black Swan’ event, being unpredictable and having huge impact on political and economic environment in Croatia obtained through CROBEX, had effect on Croatian stock exchange indices. Authors conclude that, the resignation was connected to one of the first significant cases of corruption in Croatia which had a negative impact on the economic development of the country in general, dealing at the same time with global recession.
    Keywords: financial integration, stock exchange, world crisis, corruption, Black Swan
    JEL: E44 F36
    Date: 2015
  83. By: Aadil Nakhoda (Institute of Business Administration (IBA), Karachi, Pakistan.)
    Abstract: I determine the influence of the industry financial composition on the export flow between Pakistan and its trading partners. The importing countries are split according to their OECD membership status and their level of banking credit. The degree of financial dependence and asset tangibility of an industry may determine the ability of firms to obtain external finance and fund international trading activities. On the other hand, the level of financial development and exogenous shocks to the banking credit of the importing country is likely to impact the industry-level financial composition of the exports from Pakistan.
    Keywords: Financial Development, Financial Dependence, Asset Tangibility; Export Flow; Pakistan
    JEL: E32 F1 F4 F37 G01
    Date: 2014–03
  84. By: Barbarino, Alessandro (Board of Governors of the Federal Reserve System (U.S.)); Bura, Efstathia (George Washington University)
    Abstract: Factor models have been successfully employed in summarizing large datasets with few underlying latent factors and in building time series forecasting models for economic variables. When the objective is to forecast a target variable y with a large set of predictors x, the construction of the summary of the xs should be driven by how informative on y it is. Most existing methods first reduce the predictors and then forecast y in independent phases of the modeling process. In this paper we present an alternative and potentially more attractive alternative: summarizing x as it relates to y, so that all the information in the conditional distribution of y|x is preserved. These y-targeted reductions of the predictors are obtained using Sufficient Dimension Reduction techniques. We show in simulations and real data analysis that forecasting models based on sufficient reductions have the potential of significantly improved performance.
    Keywords: Diffusion Index; Dimension Reduction; Factor Models; Forecasting; Partial Least Squares; Principal Components
    JEL: C32 C53 E17
    Date: 2015–09–14
  85. By: Rasmané OUEDRAOGO; Somlanare Romuald KINDA (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Eric Nazindigouba KERE
    Abstract: According to several reports, natural disasters and climate change will intensify and dampen development if appropriate measures are not implemented. Our paper contributes to this literature and analyzes the impact of natural disasters on domestic resource mobilization in developing countries. Using propensity score matching estimators over the period of 1980-2012 for 120 developing countries, our results conclude that government revenues decrease in the aftermath of natural disasters. Moreover natural disasters that occur in border countries have a negative impact on government revenues of neighbor countries. However, the adverse effects of natural disasters are dampened in countries with high level of resilience capacity and stronger governance.
    Keywords: Natural disasters ; Tax revenue ; Resilience capacity ; Corruption.
    JEL: P52 E62 H20 O11 Q54
    Date: 2015–12
  86. By: Fallick, Bruce C. (Federal Reserve Bank of Cleveland,); Lettau, Michael (Bureau of Labor Statistics); Wascher, William L. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Rigidity in wages has long been thought to impede the functioning of labor markets. One recent strand of the research on wage flexibility in the United States and elsewhere has focused on the possibility of downward nominal wage rigidity and what implications such rigidity might have for the macroeconomy at low levels of inflation. The Great Recession of 2008-09, during which the unemployment rate topped 10 percent and price deflation was at times seen as a distinct possibility, along with the subsequent slow recovery and persistently low inflation, has added to the relevance of this line of inquiry. In this paper, we use establishment-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics to investigate the extent to which downward nominal wage rigidity is present in U.S. labor markets. We use several distinct methods proposed in the literature to test for downward nominal wage rigidity, and to assess whether such rigidity is more severe at low rates of inflation and in the presence of negative economic shocks than in more normal economic times. Like earlier studies, we find evidence of a significant amount of downward nominal wage rigidity in the United States. We find no evidence that the high degree of labor market distress during the Great Recession reduced the amount of downward nominal wage rigidity and some evidence that operative rigidity may have increased during that period.
    Date: 2016–01–29
  87. By: Bednarek, Peter; Dinger, Valeriya; von Westernhagen, Natalja
    Abstract: Our results uncover a so far undocumented ability of the interbank market to distinguish between banks of different quality in times of aggregate distress. We show empirical evidence that during the 2007 financial crisis the inability of some banks to roll over their interbank debt was not due to a failure of the interbank market per se but rather to bankspecific shocks affecting banks' capital, liquidity and credit quality as well as revised banklevel risk perceptions. Relationship banking is not capable of containing these frictions, as hard information seems to dominate soft information. In detail, we explore determinants of the formation and resilience of interbank lending relationships by analyzing an extensive dataset comprising over 1.9 million interbank relationships of more than 3,500 German banks between 2000 and 2012.
    Keywords: financial stability,interbank market,aggregate and idiosyncratic shocks,relationship banking,risk perception,market discipline
    JEL: E50 G01 G10 G21
    Date: 2015
  88. By: Cláudia Duarte; Paulo M.M. Rodrigues; António Rua
    Abstract: The recent worldwide development and widespread use of electronic payment systems opened the opportunity to explore new data sources for monitoring macroeconomic activity. In this paper, we analyse the usefulness of data collected from Automated Teller Machines (ATM) and Points-Of-Sale (POS) for nowcasting and forecasting quarterly private consumption. To take advantage of the high frequency availability of such data, we use Mixed Data Sampling (MIDAS) regressions. A comparison of several MIDAS variants proposed in the literature is conducted, both single- and multiple variable models are considered, as well as different information sets within the quarter. Given the high penetration of ATM/POS technology in Portugal, it becomes a natural case study to assess its information content for tracking private consumption behaviour. We find that ATM/POS data displays better forecast performance than typical indicators, reinforcing the potential usefulness of this novel type of data among policymakers and practitioner.
    JEL: C53 E27
    Date: 2016
  89. By: Mary F. Evans (The Robert Day School of Economics and Finance, Claremont McKenna College); Scott M. Gilpatric (Department of Economics, University of Tennessee); Jay P. Shimshack (Frank Batten School of Leadership and Public Policy, University of Virginia)
    Abstract: We explore mechanisms driving enforcement spillovers - when sanctions at one entity influence behavior at other entities. Our model illustrates when spillovers arise from a regulatory channel and when they arise from a channel not emphasized in the existing literature: product markets. Using facility-by-month data from Clean Water Act manufacturers, we find that penalties generate strong positive spillovers for other facilities facing the same authority. We find suggestive evidence that penalties generate negative spillovers for facilities in the same industry but facing a different authority. Results are consistent with spillovers driven by strategic interactions in both regulation and product markets.
    Keywords: general deterrence, strategic substitutes, strategic complements, pollution policy
    JEL: E32 R10
    Date: 2015–08

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