nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒02‒29
99 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Does Lack of Financial Stability Impair the Transmission of Monetary Policy? By Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel
  2. On the Redistributional Effects of Long-Run Inflation in a Cash-in-Advance Economy By Kakar, Venoo
  3. Output gaps, inflation and financial cycles in the United Kingdom By Melolinna, Marko; Tóth, Máté
  4. RBC Methodology and the Development of Aggregate Economic Theory By Prescott, Edward C.
  5. О некоторых успехах ЦБ России в 2015 году By BLINOV, Sergey
  6. Designing a Simple Loss Function for the Fed: Does the Dual Mandate Make Sense? By Davide Debortoli; Jinill Kim; Jesper Linde; Ricardo Nunes
  7. Precise measurement of macroeconomic variables in time domain using three dimensional wave diagrams By Ledenyov, Dimitri O.; Ledenyov, Viktor O.
  8. Forward guidance and "lower for longer": The case of the ECB By Bletzinger, Tilman; Wieland, Volker
  9. On the Redistributional Effects of Long-Run Inflation in a Cash-in-Advance Economy By Kakar, Venoo
  10. Corporate Deleveraging and Macroeconomic Policies: Evidence from China By Sun, Lixin
  11. Stagnation Traps By Gianluca Benigno; Luca Fornaro
  12. On Origins and Implications of the Sovereign Debt Crisis in the Euro Area By Mirdala, Rajmund; Ruščáková, Anna
  13. Search and Matching Frictions and Business Cycle Fluctuations in Bulgaria By Aleksandar Vasilev
  14. Regional Inflation and Financial Dollarization By Brown, Martin; Haas, Ralph De; Sokolov, Vladimir
  15. The tale of two great crises By Fratianni, Michele; Giri, Federico
  16. Trend Fundamentals and Exchange Rate Dynamics By Florian Huber; Daniel Kaufmann
  17. Government expenditure in India: Composition, cyclicality and multipliers By Ashima Goyal; Bhavyaa Sharma
  18. The Effects of Asymmetric Shocks in Oil Prices on the Performance of the Libyan Economy By Troug, Haytem; Murray, Matt
  19. Financial conditions and density forecasts for US output and inflation By Piergiorgio Alessandri; Haroon Mumtaz
  20. Assessing the Effects of Housing Market Shocks on Output: The Case of South Africa By Njindan Iyke, Bernard
  21. The "Mystery of the Printing Press" Monetary Policy and Self-fulfilling Debt Crises By Corsetti, Giancarlo; Dedola, Luca
  22. Searching for the FED's Reaction Function By Katrin Woelfel; Christoph Weber
  23. Business Uncertainty and the Effectiveness of Fiscal Policy in Germany By Berg, Tim Oliver
  24. Trend growth, unemployment and optimal monetary policy By Lechthaler, Wolfgang; Tesfaselassie, Mewael
  25. Predetermined Exchange Rate, Monetary Targeting, and Inflation Targeting Regimes By Shigeto Kitano
  26. Wholesale Banking and Bank Runs in Macroeconomic Modeling of Financial Crises By Gertler, Mark; Kiyotaki, Nobuhiro; Prestipino, Andrea
  27. An Empirical Analysis of Excess Interbank Liquidity: A Case Study of Pakistan By Muhammad Omer; Jakob de Haan; Bert Scholtens
  28. Does austerity pay off? By Born, Benjamin; Müller, Gernot; Pfeifer, Johannes
  29. Socio-economic disparities in the European Union countries By Agata Gadek
  30. Monetary transmission in Africa: a review of official sources By McKenzie, Rex A
  31. The origins, development, and fate of Clower's stock-flow general equilibrium program By Plassard, Romain
  32. Is there a crowding-out effect in the Moroccan context ? Evidence from structural VAR Analysis By BOUNADER, Lahcen
  33. Simple models to understand and teach business cycle macroeconomics for emerging market and developing economies By Duncan, Roberto
  34. Interaction between monetary policy and bank regulation: lessons for the ECB By Marek D¹browski
  35. Taxing Capital? The Importance of How Human Capital is Accumulated By Peterman, William B.
  36. How do Average Hours Worked Vary with Development? Cross-Country Evidence and Implications By Bick, Alexander; Fuchs-Schündeln, Nicola; Lagakos, David
  37. Potential Output and Recessions: Are We Fooling Ourselves? By Martin, Robert; Munyan, Tenyanna; Wilson, Beth Anne
  38. The dynamics of business investment following banking crises and normal recessions By Jannsen, Nils
  39. Public Expenditure, Demography and Growth: Theory and Evidence from India By Das, Pranab Kumar; Kar, Saibal
  40. Optimal Time-Consistent Government Debt Maturity By Davide Debortoli; Ricardo Nunes; Pierre Yared
  41. Estimation of NAIRU with Inflation Expectation Data By Wei Cui; Wolfgang K. Härdle; Weining Wang;
  42. The geography of the economic crisis in Europe: national macroeconomic conditions, regional structural factors and short-term economic performance. By Riccardo Crescenzi; Davide Luca; Simona Milio
  43. Wage- versus profit-led growth in the context of international interactions and public spending: The political aspects of wage-led recovery By Özlem Onaran
  44. Fiscal policy and the term structure of interest rates in a DSGE model By Marsal, Ales; Kaszab, Lorant; Horvath, Roman
  45. Interpreting Shocks to the Relative Price of Investment with a Two-Sector Model By Guerrieri, Luca; Henderson, Dale W.; Kim, Jinill
  46. An examination of inter-regional spillover effects of macroeconomic policies in Nigeria By Olajide, Victor
  47. Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets By Emin M. Dinlersoz; Henry R. Hyatt; Hubert P. Janicki
  48. Un Indicador del Desempeño Industrial Colombiano “IDI” By Jurany Beccie RAMÍREZ GALLEGO
  49. Trade Competition, Technology and Labor Re-allocation By Bahar Baziki, Selva; Ginja, Rita; Borota Milicevic, Teodora
  50. Efficient Bailouts? By Bianchi, Javier
  51. An economic growth model: Evaluating the interaction of market consumption with GDP growth rate in Afghanistan By Azimi, Mohammad Naim
  52. Existence, uniqueness and computation of solutions to dynamic models with occasionally binding constraints By Holden, Tom D.
  53. Multi-country decentralized agent based model: Macroeconomic dynamics and vulnerability in a simplified currency union By Catullo, Ermanno; Gallegati, Mauro
  54. Forecasting Inflation using Survey Expectations and Target Inflation: Evidence for Brazil and Turkey By Altug, Sumru G.; Cakmakli, Cem
  55. Is macroprudential policy instrument blunt? By Katsurako Sonoda; Nao Sudo
  56. The National Wealth of Sweden, 1810–2014 By Waldenström, Daniel
  57. Labour reallocation and productivity dynamics: financial causes, real consequences By Claudio Borio; Enisse Kharroubi; Christian Upper; Fabrizio Zampolli
  58. Uninsured risk, stagnation, and fiscal policy By Braun, R. Anton; Nakajima, Tomoyuki
  59. A Tractable Framework for Analyzing a Class of Nonstationary Markov Models By Lilia Maliar; Serguei Maliar; John B. Taylor; Inna Tsener
  60. Growth and Public Debt: What Are the Relevant Tradeoffs? By Kazuo Nishimura; Carine Nourry; Thomas Seegmuller; Alain Venditti
  61. Decomposing Euro Area Sovereign Debt Yields into Inflation Expectations and Expected Real Interest Rates By Mirdala, Rajmund
  62. Model pooling and changes in the informational content of predictors: An empirical investigation for the euro area By Schwarzmüller, Tim
  63. Diversification through trade By Francesco Caselli; Miklos Koren; Milan Lisicky; Silvana Tenreyro
  64. A cobweb model with alternating demand and supply functions By Fausto, Cavalli
  65. Fluctuations in emerging economies: regional and global factors By Zouhair Ait Benhamou
  66. On the Existence of Equilibrium in Bewley Economies with Production By Acikgoz, Omer
  67. Measuring the Natural Rate of Interest Redux By Laubach, Thomas; Williams, John C.
  68. Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Jobseekers By Robert E. Hall; Sam Schulhofer-Wohl
  69. A note on banking and housing crises and the strength of recoveries By Boysen-Hogrefe, Jens; Jannsen, Nils; Meier, Carsten-Patrick
  70. Quarterly Bayesian DSGE Model of Pakistan Economy with Informality By Waqas Ahmed; Muhammad Jahanzeb Malik; Muhammad Rehman
  71. Law, Coercion, And Socioeconomic Equilibrium By Soldatos, Gerasimos T.
  72. The Equity Premium, Long-Run Risk, & Optimal Monetary Policy By Diercks, Anthony M.
  73. Output and unemployment, Portugal, 2008–2012 By José R. Maria
  74. Remarks at the New York Fed’s Economic Press Briefing on the Household Debt and Credit Report By Dudley, William
  75. The transfer paradox in a pay-as-you-go pension system By Kojun Hamada; Akihiko Kaneko; Mitsuyoshi Yanagihara
  76. Trends and preferences in consumer payments: updates from the visa payment panel study By Herbst-Murphy, Susan
  77. Determinants of Co-movement and of Lead and Lag Behavior of Business Cycles in the Eurozone By Hasan Engin Duran; Alexandra Ferreira-Lopes
  78. The Cause of the Great Recession: What Caused the Downward Shift of the GDP Trend in the United States? By Harashima, Taiji
  79. Euro money market trading during times of crisis By Fecht, Falko; Reitz, Stefan
  80. Encadenamientos, Clústeres y Flujos de Trabajo en la Economía Colombiana By Julián VILLAMIL S; Gustavo HERNANDEZ
  81. Measuring economic policy uncertainty By Scott R. Baker; Nicholas Bloom; Steven J. Davis
  82. Estimating (Markov-Switching) VAR Models without Gibbs Sampling: A Sequential Monte Carlo Approach By Bognanni, Mark; Herbst, Edward
  83. Volume of the steady-state space of financial flows in a monetary stock-flow-consistent model By Aurélien Hazan
  84. Business and Development in Myanmar: A Policy Handbook for Private Sector Development By Kamile Puusaag; David Abonyi; Masato Abe
  85. Industry Dynamics and the Minimum Wage: A Putty-Clay Approach By Aaronson, Daniel; French, Eric Baird; Sorkin, Isaac
  86. Trade finance and international currency: a moneatary search approach By Liu, Tao
  87. Macro Determinants of the Real Exchange Rate in a Small Open Small Island Economy: Evidence from Mauritius via BMA By Njindan Iyke, Bernard
  88. Integrated Macroeconomic Production Function for Open Economies: A New Schumpeterian Solow Model for Globalization By Welfens, Paul J. J.
  89. Bitcoin as an example of a virtual currency By Anna Wiœniewska
  90. The Path-Dependence Bias in Approximating Local Price Levels by CPIs By Gluschenko, Konstantin
  91. Latest Developments In Romanian Legislation Regarding The Collective Dismissal In The Case Of An Insolvent Employer By Mihai, Luiza-Corina
  92. Aggregate Productivity under an Energy-Based Approach By Arora, Vipin
  93. Optimal Growth and Debt Dynamics under GDP-Based Collaterals By Daria Onori
  94. Credit, Money and Asset Equilibria with Indivisible Goods By Han Han; Benoit Julien; Asgerdur Petursdottir; Liang Wang
  95. A Historical Welfare Analysis of Social Security: Whom Did the Program Benefit? By Peterman, William B.; Sommer, Kamila
  96. Energy consumption and the size of the informal economy By Basbay, Mustafa Metin; Elgin, Ceyhun; Torul, Orhan
  97. Dynamic Model of the Price Dispersion of Homogeneous Goods By Kaldasch, Joachim
  98. The world trade data distortion and its contagious impact. A brief comment on the WTO “Made in the World” initiative By Georgescu, George
  99. The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements By CHENAF-NICET Dalila; ROUGIER Eric

  1. By: Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel
    Abstract: We investigate the transmission of central bank liquidity to bank deposit and loan spreads of European firms over the January 2006 to June 2010 period. When the European Central Bank (ECB) allocated liquidity to banks in a competitive tender at the beginning of the crisis, higher “aggregate” central bank liquidity (i.e. the total liquidity in the banking system that is held at the ECB) reduces bank deposit rates of low risk banks but has no effect on deposit rates of high risk banks or on corporate loan spreads of high or low risk banks. After the ECB started to fully allot all liquidity requested by banks via its refinancing operations on October 8, 2008, an increase in liquidity decreases deposit rates of both high and low risk banks. While loan spreads of low risk banks decrease, those of high risk banks remain unchanged also under full allotment of liquidity. We find that borrowers of high risk banks refinance term loans drawing down loan commitments. They have lower payouts, lower capital expenditures and lower asset growth compared with borrowers of low risk banks. Our results suggest a differential transmission of central bank liquidity of low versus high risk banks, and an impaired transmission to corporate borrowers of high risk banks.
    Keywords: Central Bank Liquidity, Corporate Deposits, ECB, Financial Crisis, Loans
    JEL: E43 E58 G01 G21
    Date: 2015–06
  2. By: Kakar, Venoo
    Abstract: This paper analyses the redistributional effects of long-run inflation on income, wealth and consumption in the United States in a model economy with heterogeneous agents where money is introduced via a cash-in-advance constraint. In the case with transfers, we find that consumption inequality reduces as inflation increases since the low income households hold a relatively higher cash-wealth ratio. The bottom 60% of the population gains and the top 40% loses. In the case without transfers, we find that all income groups lose with the losses being more pronounced in the low income households.
    Keywords: Consumption, Inequality, Inflation, Heterogeneity
    JEL: E21 E31 E4 E5 E52
    Date: 2014–05–03
  3. By: Melolinna, Marko (Bank of England); Tóth, Máté (European Central Bank)
    Abstract: This paper aims at constructing potential output and output gap measures for the United Kingdom which are pinned down by macroeconomic relationships as well as financial indicators. The exercise is based on a parsimonious unobserved components model which is estimated via Bayesian methods where the time-paths of unobserved variables are extracted with the Kalman filter. The resulting measures track current narratives on macroeconomic cycles and trends in the United Kingdom reasonably well. The inclusion of summary indicators of financial conditions leads to a more optimistic view on the path of UK potential output after the crisis and adds value to the model via improving its real-time performance. The models augmented with financial conditions have some inflation forecasting ability over the monetary policy relevant two to three-year horizon during the last fifteen years, although this ability diminishes in a real-time setting. Finally, we also introduce a new approach to constructing financial conditions indices, with emphasis on their real-time performance and ability to track the evolution of macrofinancial imbalances. Our results can be relevant from both monetary and macroprudential policy perspectives.
    Keywords: Bayesian estimation; business cycle; forecasting; financial conditions; real-time data; unobserved components model.
    JEL: C11 C32 E31 E32 E52
    Date: 2016–02–12
  4. By: Prescott, Edward C. (Federal Reserve Bank of Minneapolis)
    Abstract: This essay reviews the development of neoclassical growth theory, a unified theory of aggregate economic phenomena that was first used to study business cycles and aggregate labor supply. Subsequently, the theory has been used to understand asset pricing, growth miracles and disasters, monetary economics, capital accounts, aggregate public finance, economic development, and foreign direct investment. {{p}} The focus of this essay is on real business cycle (RBC) methodology. Those who employ the discipline behind the methodology to address various quantitative questions come up with essentially the same answer—evidence that the theory has a life of its own, directing researchers to essentially the same conclusions when they apply its discipline. Deviations from the theory sometimes arise and remain open for a considerable period before they are resolved by better measurement and extensions of the theory. Elements of the discipline include selecting a model economy or sometimes a set of model economies. The model used to address a specific question or issue must have a consistent set of national accounts with all the accounting identities holding. In addition, the model assumptions must be consistent across applications and be consistent with micro as well as aggregate observations. Reality is complex, and any model economy used is necessarily an abstraction and therefore false. This does not mean, however, that model economies are not useful in drawing scientific inference. {{p}} The vast number of contributions made by many researchers who have used this methodology precludes reviewing them all in this essay. Instead, the contributions reviewed here are ones that illustrate methodological points or extend the applicability of neoclassical growth theory. Of particular interest will be important developments subsequent to the Cooley (1995) volume, Frontiers of Business Cycle Research. The interaction between theory and measurement is emphasized because this is the way in which hard quantitative sciences progress.
    Keywords: Neoclassical growth theory; Aggregate economic theory; RBC methodology; Aggregation; Business cycle fluctuations; Development; Aggregate financial economics; Prosperities; Depressions
    JEL: B40 C10 E00 E13 E32 E60
    Date: 2016–02–08
  5. By: BLINOV, Sergey
    Abstract: Money supply statistics based on the Year 2015 results show that «money starvation» is coming to an end in Russia. That has always been truly indicative of exit from the crisis. The depth of money supply decline in 2015 (it declined by 11%) proved to have been the smallest one in the whole history of post-Soviet Russia. This constitutes a relative success of the policy conducted by the Central Bank of Russia. The reason for this success is that it has been keeping positive growth rates of the nominal money supply and keeping inflation under control. Continuation of such policy would mean independence of economic growth in Russia of oil prices.
    Keywords: Monetary Policy, Central Banking, Interest Rates, Economic Growth, Money Supply
    JEL: E31 E32 E40 E51 E52 E58 E65 G01 N10 O11
    Date: 2016–02–13
  6. By: Davide Debortoli (UPF and Barcelona GSE); Jinill Kim (Department of Economics, Korea University, Seoul, Republic of Korea); Jesper Linde (Sveriges Riksbank, Stockholm School of Economics and CEPR); Ricardo Nunes (Federal Reserve Bank of Boston)
    Abstract: Yes, it makes a lot of sense. Using the Smets and Wouters (2007) model of the U.S. economy, we ?nd that the role of the output gap should be equal to or even more important than that of annualized in?ation when designing a simple loss function to represent household welfare. The high weight on the output gap is driven by several important characteristics in the estimated model, including a low elasticity of substitution between monopolistic goods, price indexation, and sticky wages. Moreover, we document that a loss function with nominal wage in?ation and the hours gap provides an even better approximation of the true welfare function than a standard objective based on in?ation and the output gap. Our results hold up when we introduce interest rate smoothing in the simple mandate to capture the observed gradualism in policy behavior and to ensure that the probability of the federal funds rate hitting the zero lower bound is negligible.
    Keywords: Central banks' objectives, simple loss function, monetary policy design, Smets-Wouters model
    JEL: C32 E58 E61
    Date: 2016
  7. By: Ledenyov, Dimitri O.; Ledenyov, Viktor O.
    Abstract: Article considers a research problem on the precise measurement of the macroeconomic variables changes in the time domain in the macroeconomics science. We propose to use the three dimensional (3D) wave diagram in the macroeconomics science for the first time, aiming to accurately characterize and to clearly visualize the GIP(t)/GDP(t)/GNP(t)/PPP(t) dependences changes in the time domain. We explain that the three dimensional (3D) wave diagram in the macroeconomics science has been created, using the theory on the continuous-time waves with the rotating polarization vector in the electrodynamics science. We show that the three dimensional (3D) wave diagram in the macroeconomics science can be used to accurately characterize and finely display the GIP(t), GDP(t), GNP(t), PPP(t) dependences changes in the time domain in the two possible cases: 1) the continuous-time waves of GIP(t), GDP(t), GNP(t), PPP(t) and 2) the discrete-time waves of GIP(t), GDP(t), GNP(t), PPP(t). We conclude that an introduction of the three dimensional (3D) wave diagram in the macroeconomics science can help to solve a challenging research problem on the precise measurement of the macroeconomic variables changes in the time domain.
    Keywords: three dimensional (3D) wave diagram, dependence of general information product on time GIP(t), dependence of general domestic product on time GDP(t), dependence of general national product on time GDP(t), dependence of purchase power parity on time PPP(t), continuous-time signals, spectrum analysis of continuous-time signals, amplitude / frequency / wavelength / period / phase of continuous-time signal, mixing / harmonics / nonlinearities of continuous-time signals, continuous-time waves with rotating polarization vector, continuous-time signal generators, discrete-time signals, spectrum analysis of discrete-time signals, amplitude / frequency / wavelength / period / phase of discrete-time digital signal, mixing / harmonics / nonlinearities of discrete-time digital signals, Ledenyov discrete-time digital waves, discrete-time digital signals generators, Juglar fixed investment cycle, Kitchin inventory cycle, Kondratieff long wave cycle, Kuznets infrastructural investment cycle, nonlinear dynamic economic system, economy of scale and scope, macroeconomics science, econometrics science, electrodynamics science, econophysics science
    JEL: E0 E01 E17 E20 E27 E3 E30 E32 E37 E50 E58 E60 O3 O33
    Date: 2016–02–17
  8. By: Bletzinger, Tilman; Wieland, Volker
    Abstract: A number of contributions to research on monetary policy have suggested that policy should be asymmetric near the lower bound on nominal interest rates. As inflation and economic activity decline, policy should ease more aggressively than it would in the absence of the lower bound. As activity recovers and inflation picks up, the central bank should act to keep interest rates lower for longer than without the bound. In this note, we investigate to what extent the policy easing implemented by the ECB since summer 2013 mirrors the rate recommendations of a simple policy rule or deviates from it in a way that indicates a "lower for longer" approach to policy near zero interest rates.
    Keywords: European Central Bank; forward guidance; interest rates; Monetary policy; zero bound
    JEL: E43 E47 E52 E58
    Date: 2016–02
  9. By: Kakar, Venoo
    Abstract: This paper analyzes the redistributional effects of long-run inflation on income, wealth and consumption in the United States in a model economy with heterogeneous agents where money is introduced via a cash-in-advance constraint. A calibrated version of our model is able to generate patterns of income inequality that are very similar to those observed in the United States. On an aggregate level, the cost of 5% inflation is 2.5% consumption. On an disaggregate level, uniform monetary transfers by the central bank result in inflation acting as a progressive tax on consumption.
    Keywords: Consumption, Inequality, Inflation, Heterogeneity
    JEL: E21 E31 E4 E5 E52
    Date: 2014–05–03
  10. By: Sun, Lixin
    Abstract: In this paper, we estimate the dynamic equilibrium debt level for China’s non-financial corporates using an error correction model (ECM), and then analyse China’s corporate deleveraging and its consequence. Furthermore, we examine the effects of macroeconomic policies on China’s corporate deleveraging with a VAR model. The empirical results suggest that contractive monetary policy and fiscal policy rather than easy macroeconomic policies help reduce the non-financial corporate leverage in China.
    Keywords: Corporate Deleveraging; VAR/VEC Model; Dynamic Equilibrium Debt Level; Macroeconomic Policies; China’s Economy
    JEL: E32 E62 E63
    Date: 2016–01–28
  11. By: Gianluca Benigno; Luca Fornaro
    Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
    Keywords: secular stagnation, liquidity traps, growth traps, endogenous growth, multiple equilibria
    JEL: E32 E43 E52 O42
    Date: 2016–02
  12. By: Mirdala, Rajmund; Ruščáková, Anna
    Abstract: The current crisis in the Euro Area is mostly a serious crisis of confidence. Its solutions have to be systematic and consistent. Our paper discusses its main systematic reasons while keeps in mind the European integration and globalization issues of the world economy and economic financial markets. Recent problems in the Euro area are based on the diagnostic of the origins of the balance of payments and self-fulfilling crisis, and discussed in the context of suggested remedies and solutions based on diversification of the monetary policy management in the Euro Area to eliminate the moral hazard from its financial sector, creation of a functioning system of fiscal transfers and finding a compromise between centralization and decentralization and government interventionism and “laissez faire”.
    Keywords: Euro, Euro Area, economic crisis, fiscal policy, monetary policy
    JEL: E58 E62 F15 F32
    Date: 2015–10
  13. By: Aleksandar Vasilev (American University in Bulgaria, Department of Economics)
    Abstract: In this paper we investigate the quantitative importance of search and matching fric- tions in Bulgarian labor markets. This is done by augmenting an otherwise standard real business cycle model a la Long and Plosser (1983) with both a two-sided costly search and fiscal policy. This introduces a strong propagation mechanism that allows the model to capture the business cycles in Bulgaria better than earlier models. The model performs well vis-a-vis data, especially along the labor market dimension, and in addition dominates the market-clearing labor market framework featured in the stan- dard RBC model, e.g Vasilev (2009), as well as the indivisible labor extension used in Hansen (1985).
    Keywords: general equilibrium, unemployment and wages, business cycles, fiscal policy
    JEL: D51 E24 E32 J40
    Date: 2016–02
  14. By: Brown, Martin; Haas, Ralph De; Sokolov, Vladimir
    Abstract: We exploit variation in consumer price inflation across 71 Russian regions to examine the relationship between the perceived stability of the domestic currency and financial dollarization. Our results show that regions with higher inflation experience an increase in deposit dollarization and a decrease in the dollarization of loans to households and firms in non-tradable sectors. The negative impact of inflation on credit dollarization is weaker in regions with less integrated banking markets. This suggests that the asset-liability management of banks constrains the currency-portfolio choices of both households and firms without a natural currency hedge.
    Keywords: Financial dollarization, financial integration, regional inflation
    JEL: E31 E42 E44 F36 G21 P22 P24
    Date: 2015–06
  15. By: Fratianni, Michele; Giri, Federico
    Abstract: The great depression of 1929 and the great financial crisis of 2008 have been the two big events of the last 75 years. Not only have they produced serious economic consequences but they also changed our view of economics and policymaking. The aim of this work is to compare these two great crises and highlight similarities as well as differences. Monetary policy, the exchange rate system and the role of the banks are our fields of investigation. Our findings are that two big events have more similarities than dissimilarities.
    Keywords: Great Depression,Great Financial Crisis,gold standard,Eurozone,money multiplier,shadow banking
    JEL: E5 E31 E42 G21
    Date: 2015
  16. By: Florian Huber (Department of Economics, Vienna University of Economics and Business); Daniel Kaufmann (KOF Swiss Economic Institute, ETH Zurich)
    Abstract: We estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the US Dollar. The empirical model is based on the assumption that both countries' monetary policy strategies may be well described by Taylor rules with a time-varying inflation target, a time-varying natural rate of unemployment, and interest rate smoothing. The estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered. The model generally outperforms a benchmark model that does not account for changes in trend inflation and trend unemployment.
    Keywords: Exchange rate models, trend inflation, natural rate of unemployment, Taylor rule, unobserved components stochastic volatility model
    JEL: F31 E52 F41 C5 E31
    Date: 2016–01
  17. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Bhavyaa Sharma (Indira Gandhi Institute of Development Research)
    Abstract: We first assess the fiscal space and cyclicality of total Indian Central Government expenditure and its major components. Next we estimate multipliers for total, capital, and revenue expenditure. We extend the Structural Vector Auto-Regression (SVAR) to include supply shocks and the monetary policy response sequentially and together. The long-run capex multiplier is much larger than the revex. Capex also reduces inflation more over the long-term. Despite this, capex is more volatile. Monetary policy accommodates capex and tightens in response to revex, but absence of active accommodation during supply shocks reduces the capex multiplier. Implications follow for fiscal-monetary coordination.
    Keywords: Fiscal multiplier; SVAR; Revenue expenditure; Capital expenditure; Fiscal-Monetary coordination; Supply shocks
    JEL: C32 E31 E62 E63 H50
    Date: 2015–12
  18. By: Troug, Haytem; Murray, Matt
    Abstract: This essay examines the presence of asymmetry in the response of the Libyan economy to fluctuations in oil prices, subsequent to the discovery of oil in the country. Three Vector Autoregressive (VAR) models are illustrated and estimated along with a multivariate rolling VAR approach. All of the examined sectors of the economy are found to react asymmetrically to shocks in oil prices over the 1962-2012 period. The magnitude of the adverse effect of the negative oil shocks on the manufacturing and agriculture sector appears to outweigh the positive effect of the positive oil shocks. The services sector, on the other hand, is able to overcome the shocks of the oil prices, due to absence of external competition. In addition, the results of the Multivariate rolling VAR highlight the existence of structural changes in the relationship between the sectors of the Libyan economy and oil prices. The essay promotes implementing reform to the fiscal policy to de-link the real sector from fluctuations in oil prices. It also advises on enabling the financial sector in order for it to contribute in the diversification process of the economy.
    Keywords: Asymmetric Oil Shocks; Fiscal Policy; Rolling-VARs; OPEC.
    JEL: C13 E6 E62 H5
    Date: 2015–10
  19. By: Piergiorgio Alessandri (Banca d'Italia); Haroon Mumtaz (Queen Mary University of London)
    Abstract: When do ?nancial markets help in predicting economic activity? With incomplete markets, the link between ?nancial and real economy is state- dependent and ?nancial indicators may turn out to be useful particularly in forecasting "tail" macroeconomic events. We examine this conjecture by studying Bayesian predictive distributions for output growth and in?ation in the US between 1983 and 2012, comparing linear and nonlinear VAR models. We ?nd that ?nancial indicators signi?cantly improve the accuracy of the dis- tributions. Regime-switching models perform better than linear models thanks to their ability to capture changes in the transmission mechanism of ?nancial shocks between good and bad times. Such models could have sent a credible advance warning ahead of the Great Recession. Furthermore, the discrepan- cies between models are themselves predictable, which allows the forecaster to formulate reasonable real-time guesses on which model is likely to be more accurate in the next future.
    Keywords: Financial Frictions, Predictive Densities, Great Recession, Threshold VAR
    JEL: C53 E32 E44 G01
    Date: 2014–03
  20. By: Njindan Iyke, Bernard
    Abstract: This paper assessed the effects of housing market shocks on real output in South Africa over the period 1969Q4 – 2014Q4, by emphasizing the real private consumption channel. The agnostic identification procedure employed in this paper has delivered impulse responses that are overall consistent with the existing literature. The paper appropriately identified housing market shocks as non-monetary housing demand shocks. 20% of the variation in house prices are explained by the housing market shocks. The effects of housing demand shocks on real private consumption are short-lived, explaining why real output responded transitorily to these shocks. Housing demand shocks have managed to explain nearly 13% and 14% variations in real private consumption and real output, respectively, over 20-quarters ahead forecast revision.
    Keywords: Agnostic Identification, Housing Market Shocks, Real Output, SVAR, South Africa
    JEL: C11 C32 E21 E31 R31
    Date: 2015–09–01
  21. By: Corsetti, Giancarlo; Dedola, Luca
    Abstract: We study the mechanism by which unconventional (balance-sheet) monetary policy can rule out self-fulfilling sovereign default in a model with optimizing but discretionary fiscal and monetary policymakers. By purchasing sovereign debt, the central bank effectively swaps risky government paper for monetary liabilities only exposed to inflation risk, thus yielding a lower interest rate. We characterize a critical threshold for central bank purchases beyond which, absent fundamental fiscal stress, the government strictly prefers primary surplus adjustment to default. Since default may still occur for fundamental reasons, however, the central bank faces the risk of losses on sovereign debt holdings, which may generate inefficient inflation. This risk does not undermine the credibility of a backstop, nor the ability of a central bank to pursue its inflation objectives when the latter enjoys fiscal backing or fiscal authorities are sufficiently averse to inflation.
    Keywords: Inflationary financing; Lender of last resort; Seigniorage; Sovereign risk and default
    JEL: E58 E63 H63
    Date: 2016–02
  22. By: Katrin Woelfel; Christoph Weber
    Abstract: There is still some doubt about those economic variables that really matter for the FED’s decisions. In comparison to other estimations, this study uses the approach of Bayesian Model Averaging (BMA). The estimations show that over the long run in?ation, unemployment rates, and long-term interest rates are the crucial variables in explaining the Federal Funds Rate. In the other two estimation samples, also the federal de?cit and M2 were of relevance. In addition, we present the best models in more detail. Finally, a model average is constructed via BMA. The model average substantially outperforms a simple Taylor rule.
    Keywords: FED, Monetary Policy Reaction Functions, Model Uncertainty, Bayesian Model Averaging
    JEL: E43 E52 E58
    Date: 2014–07
  23. By: Berg, Tim Oliver
    Abstract: This paper explores how business uncertainty affects the effectiveness of fiscal policy in Germany in the years 1970 to 2014. I use measures of business uncertainty that are derived from the firm-level data of the Ifo Business Climate Survey and interact them with the parameters of a structural vector autoregression to produce state-dependent spending multipliers. I observe that fiscal policy is most effective when uncertainty is high and that the difference in multipliers across uncertainty levels is largest for longer-term horizons. The results also point to a prominent role for business confidence in the state-dependent transmission of spending shocks to output. The findings have an important implication for stabilization policies. Since monetary policy is less effective during volatile episodes, fiscal policy is the better tool to stimulate the economy in uncertain times.
    Keywords: Business Uncertainty, Government Spending Multiplier, Interacted Vector Autoregression, Germany
    JEL: E32 E62
    Date: 2016–02–01
  24. By: Lechthaler, Wolfgang; Tesfaselassie, Mewael
    Abstract: We analyze the implications of changes in the trend growth rate for optimal monetary policy in the presence of search and matching unemployment. We show that trend growth in itself does not generate a trade-off for the monetary authority, but that it interacts importantly with the inefficiencies stemming from the labor market. Higher trend growth exacerbates the inefficiencies of the labor market and therefore calls for larger deviations from price stability.
    Keywords: trend growth,trend inflation,unemployment
    JEL: E12 E24 E52
    Date: 2015
  25. By: Shigeto Kitano (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: Many works analyzing the Mundell-Fleming dictum compare the predetermined exchange rate regime and the monetary targeting regime under flexible exchange rates. Reflecting on the fact that many emerging market countries have shifted to the regime of inflation targeting, this paper aims to extend the literature to include the inflation targeting regime. The results of our analysis show that the interest rule with an inflation target is superior (or at least equal) to the two abovementioned regimes in absorbing both real and monetary shocks.
    Keywords: Optimal exchange rate regimes, Predetermined exchange rate, Flexible exchange rate, The Mundell-Fleming dictum, Small open economy
    JEL: E42 E58 F31 F41 O24
    Date: 2011–08
  26. By: Gertler, Mark (NYU); Kiyotaki, Nobuhiro (Princeton University); Prestipino, Andrea (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: There has been considerable progress in developing macroeconomic models of banking crises. However, most of this literature focuses on the retail sector where banks obtain deposits from households. In fact, the recent financial crisis that triggered the Great Recession featured a disruption of wholesale funding markets, where banks lend to one another. Accordingly, to understand the financial crisis as well as to draw policy implications, it is essential to capture the role of wholesale banking. The objective of this paper is to characterize a model that can be seen as a natural extension of the existing literature, but in which the analysis is focused on wholesale funding markets. The model accounts for both the buildup and collapse of wholesale banking, and also sketches out the transmission of the crises to the real sector. We also draw out the implications of possible instability in the wholesale banking sector for lender-of-last resort policy as well as for macroprudential policy.
    Keywords: financial crises; wholesale banking; interbank markets; rollover risk
    JEL: E44
    Date: 2016–01–29
  27. By: Muhammad Omer (State Bank of Pakistan); Jakob de Haan (De Nederlandsche Bank, Amsterdam, The Netherlands); Bert Scholtens (CESifo, Munich, Germany)
    Abstract: We investigate the drivers of excess interbank liquidity in Pakistan, using the Autoregressive Distributed Lag approach on weekly data for December 2005 to July 2011. We find that the financing of the government budget deficit by the central bank and non-banks leads to persistence in excess liquidity. Moreover, we identify a structural shift in the interbank market in June 2008. Before June 2008, low credit demand was driving the excess liquidity holdings by banks. After June 2008, banks’ precautionary investments in risk-free securities drive excess liquidity holdings. Monetary policy is less effective if banks hold excess liquidity for precautionary reasons.
    Keywords: Excess liquidity, interbank money market, Pakistan, structural breaks, bound test, Autoregressive Distributed Lag approach
    JEL: E44 E61 E63
    Date: 2014–05
  28. By: Born, Benjamin; Müller, Gernot; Pfeifer, Johannes
    Abstract: We ask whether cuts of government consumption lower or raise the sovereign default premium. To address this question, we set up a new data set for 38 emerging and advanced economies which contains quarterly time-series observations for sovereign default premia, government consumption, and output. We find that whether austerity pays off depends on a) initial conditions and b) the time-horizon under consideration. Spending cuts in times of fiscal stress raise default premia, but lower premia in benign times. These findings pertain to the short run. Austerity always pays off in the long run, but particularly so if initial conditions are bad.
    Keywords: austerity; default premium; fiscal policy; fiscal stress; local projections; panel VAR; sovereign risk
    JEL: C32 E43 E62
    Date: 2015–02
  29. By: Agata Gadek (Nicolaus Copernicus University, Poland)
    Abstract: The European Union (EU) is a political and economic union of democratic European countries. One of his goals was and is to equalize living conditions in all countries. Unfortunately, it is not. Today, still, there are clear disparities both economic and social. It is worth a closer look, how does the situation in the UE at the national level. The aim of this study is to analyze the most current size selected macroeconomic and social at the EU member states to show that, despite the common policy of these countries are different.
    Keywords: European Union, cohesion policy, disparities, HDI
    JEL: E20 E24 F02 F15
    Date: 2015–06
  30. By: McKenzie, Rex A (Kingston University London)
    Abstract: This paper focuses on the subject of monetary transmission in Africa. It begins with a report on the effects of the financial crisis of 2008 in Africa. In the countries with more developed financial systems, the financial channel proved to be the most important in transmitting the crisis. In the more peripheral countries, the trade channel proved to be the most important. Where countries were able to withstand the global shock coming from the financial crisis, they did so with a diversified group of trading partners in fast growing economies. The paper then turns to examine three post crisis institutional developments and asks how a) an increased momentum towards regional integration, b) the rise of Pan African banking and, c) an increase in cross border flows, are affecting the monetary transmission mechanism (MTM) in Africa. It is clear from the literature that the rise of Pan African banking and the regionalization thrust of the authorities are deepening the financial channels between countries. But, with respect to cross border flows, the huge size of deposits maintained by Africa’s BIS reporting banks suggests relatively low levels of bank intermediation and competition. Thus, the benefits that are assumed to accrue as a result of increased cross border flows are withdrawn from the local economy and stored up in the BIS banks. We know large deposits reflect the expectations of the deposit holders. But beyond that, very little is known about the role of expectations and the workings of the expectations channel in monetary transmission in Africa. Even less is known about how such expectations would interact with those formed as a result of operations in the large informal sectors which characterise African macro economies. Until research can bridge this gap, the increasing cross border flows with the large deposits held in BIS banks form the basis for yet another explanation for the historical weakness of the MTM in Africa.
    Keywords: Africa; Economic Development; Monetary Policy; Central Banking
    JEL: E50 E60 G10 O16
    Date: 2015–09–16
  31. By: Plassard, Romain
    Abstract: Before becoming the hallmark of macroeconomics à la Wynne Godley, the ‘stock-flow’ analysis was already developed in microeconomics and general equilibrium theory. Basically, the goal was to study the formation of economic plans and the determination of market prices when individuals were supposed to consume, produce, and hold commodities. It is acknowledged that Robert W. Clower was a central figure in this theoretical context. Yet, for both his contemporaries and for historians, his contributions remained essentially technical. No attention was paid to the theoretical project underlying the statics and dynamics analyses of his ‘stock-flow’ price theory. My paper aims to fill this gap. In light of his doctoral dissertation, I show that the elaboration of ‘stock-flow’ market models was part of a project aiming at offering sound microfoundations to a Keynesian business cycle model. I analyze the origins of this microfoundation program, trace its development, and discuss its fate.
    Keywords: microfoundations of macroeconomics, trade cycle, stock-flow analysis, Bushaw and Clower.
    JEL: B21 B22 D40 E12 E3 E32
    Date: 2015–10
  32. By: BOUNADER, Lahcen
    Abstract: This paper investigates the crowding out effect hypothesis in Morocco. Accordingly, the interest rate reacts to the change of the level of government spending. The Empirical results obtained from the impulse response analysis of the structural VAR model indicate the absence of such an effect. Spending in infrastructure, in communication and in welfare seem to build the basis of modern economy that will attract private investments, and the result will not be materialized in the immediat short term.
    Keywords: SVAR, Fiscal policy, Real interest rate.
    JEL: E22 E43 E62
    Date: 2016–01–18
  33. By: Duncan, Roberto (Ohio University)
    Abstract: The canonical neoclassical model is insufficient to understand business cycle fluctuations in emerging market and developing economies (EMDEs). I reformulate the models proposed by Aguiar and Gopinath (2007) and Neumeyer and Perri (2005) in simple settings that can be used to do back-of-the-envelope analysis and teach business cycle macroeconomics for EMDEs at the undergraduate level. The simplified models are employed for qualitatively explaining facts such as the countercyclicality of the trade balance and the real interest rate, and the higher volatility of output, consumption, and real wages compared with those observed in advanced countries. Simple extensions can be used to understand other empirical facts such as large capital outflows and output drops, small government spending he cyclical behavior of prices, and the negative association between currency depreciations and output.
    JEL: A22 E32 F32
    Date: 2015–09–01
  34. By: Marek D¹browski
    Abstract: The European Central Bank (ECB) recently became engaged in macro-prudential policies and the micro-prudential supervision of the largest Euro area banks. These new tasks should help complete financial integration, and make the Euro area more resilient to financial instability risks. However, the multiplicity of mandates and instruments involves a risk of their inconsistency which could compromise the ECB’s core price-stability mandate as well as its independence. The experience of central banks during the recent global financial crisis confirms that such risks are not purely hypothetical.
    Keywords: monetary policy, macro-prudential policy, banking regulation, banking supervision, money multiplier, money velocity, financial stability, European Central Bank
    JEL: E51 E52 E58 G01 G18 G28
    Date: 2016–02
  35. By: Peterman, William B. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper considers the impact of how human capital is accumulated on optimal capital tax policy in a life cycle model. In particular, it compares the optimal capital tax when human capital is accumulated exogenously, endogenously through learning-by-doing, and endogenously through learning-or-doing. Previous work demonstrates that in a simple two generation life cycle model with exogenous human capital accumulation, if the utility function is separable and homothetic in each consumption and labor, then the government has no motive to condition taxes on age or tax capital. In contrast, this paper demonstrates analytically that adding either form of endogenous human capital accumulation creates a motive for the government to use age-dependent labor income taxes. Moreover, if the government cannot condition taxes on age, then a capital tax can be optimal in order to mimic such taxes. This paper quantitatively explores the strength of this channel and finds that, including human capital accumulation with learning-by-doing, as opposed to exogenously, causes the optimal capital tax to increase by between 7.3 and 14.5 percentage points. In contrast, introducing learning-or-doing causes a much smaller increase in the optimal capital tax of between 0.7 and 3.7 percentage points. Taken as a whole, this paper finds that the specific formulation by which human capital is accumulated can have notable implications on the optimal capital tax.
    Keywords: Optimal Taxation; Capital Taxation; Human Capital
    JEL: E24 E62 H21
    Date: 2015–12–29
  36. By: Bick, Alexander; Fuchs-Schündeln, Nicola; Lagakos, David
    Abstract: How do average hours worked vary across the world income distribution? To answer this question, we build a new internationally comparable database of hours worked covering countries of all income levels. We document that average hours worked per adult are substantially higher in low-income countries than in high-income countries. This pattern holds for both men and women, for adults of all ages and education levels, and along both the extensive margin (employment rates) and intensive margin (hours per worker). Our results imply that labor productivity and welfare differences across countries are larger than suggested by differences in consumption per capita.
    Keywords: hours worked; labor supply
    JEL: E01 E24 J21 J22
    Date: 2016–02
  37. By: Martin, Robert (Barclays Investment Bank); Munyan, Tenyanna (Vanderbilt University); Wilson, Beth Anne (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper studies the impact of recessions on the longer-run level of output using data on 23 advanced economies over the past 40 years. We find that severe recessions have a sustained and sizable negative impact on the level of output. This sustained decline in output raises questions about the underlying properties of output and how we model trend output or potential around recessions. We find little support for the view that output rises faster than trend immediately following recessions to close the output gap. Indeed, we find little evidence that growth is faster following recessions than before; if anything post-trough growth is slower. Instead, we find that output gaps close importantly through downward revisions to potential output rather than through rapid post-recession growth. The revisions are made slowly (over years)--a process that leads to an initial underestimation of the effect of recessions on potential output and a corresponding under-prediction of inflation.
    Keywords: business fluctuations; cycles; general macro; international business cycles
    JEL: E20 E32 F44
    Date: 2015–09–11
  38. By: Jannsen, Nils
    Abstract: I empirically analyze the dynamics of business investment following normal recessions (declines in business investment that are not associated with banking crises) and banking crises. Using a panel of 16 advanced economies, I find evidence for significant non-linear trend reversion or bounce-back effects on the level of business investment following normal recessions, i.e., the deeper the previous recession was, the higher the growth rate of business investment will be. The trend reversion effect is absent when a decline in business investment is associated with a banking crisis. As a consequence, normal recessions do not have significant permanent effects on the level of business investment, whereas banking crises have large and significant permanent effects. The results are in line with important theories and other empirical results on business cycle dynamics.
    Keywords: business investment,business cycle,recovery,banking crises,asymmetries
    JEL: E32 C33
    Date: 2015
  39. By: Das, Pranab Kumar (Centre for Studies in Social Sciences, Calcutta); Kar, Saibal (Centre for Studies in Social Sciences, Calcutta)
    Abstract: Many countries in the developed world are ageing in terms of their distribution of population. Conversely, a number of countries in the south have younger population. India for example, has 60% of its population in the age group of 15-59, with the mean age close to 27 years as of present times. The lower share of population in the higher and lower age brackets make the dependency ratio lower than that of the ageing countries. The economic growth such a large share of working age population can usher in lies at the core of the demographic dividends. However, low human capital, poor health and inadequate physical infrastructure seems to create significant hurdles in the potential growth path such countries can achieve. We investigate through an endogenous growth model applied to the Indian macroeconomic data, as to whether public expenditures in education, health and physical infrastructure are conducive to rapid economic growth commensurate with the projected demographic dividends for India. We deploy a Structural Vector Autoregressive Model on data for shares of public expenditure on education and health as the main pillars of growth of human capital in the country, on the per capita GDP growth rate, the working age population, etc. Importantly, we find that a rise in expenditure on health imparts a positive impact on the working age population through greater participation. However, higher allocations for education and training draws workers away from the labor market in a country with large share of unskilled workers and employment opportunities in the large informal sector.
    Keywords: human capital, health, endogenous growth, demographic dividend, public expenditure
    JEL: E24 E6 J2 N3
    Date: 2016–02
  40. By: Davide Debortoli; Ricardo Nunes; Pierre Yared
    Abstract: This paper develops a model of optimal government debt maturity in which the government cannot issue state-contingent bonds and cannot commit to fiscal policy. If the government can perfectly commit, it fully insulates the economy against government spending shocks by purchasing short-term assets and issuing long-term debt. These positions are quantitatively very large relative to GDP and do not need to be actively managed by the government. Our main result is that these conclusions are not robust to the introduction of lack of commitment. Under lack of commitment, large and tilted positions are very expensive to finance ex-ante since they exacerbate the problem of lack of commitment ex-post. In contrast, a flat maturity structure minimizes the cost of lack of commitment, though it also limits insurance and increases the volatility of fiscal policy distortions. We show that the optimal time-consistent maturity structure is nearly flat because reducing average borrowing costs is quantitatively more important for welfare than reducing fiscal policy volatility. Thus, under lack of commitment, the government actively manages its debt positions and can approximate optimal policy by confining its debt instruments to consols.
    Keywords: public debt, optimal taxation, fiscal policy
    JEL: H63 H21 E62
    Date: 2016–01
  41. By: Wei Cui; Wolfgang K. Härdle; Weining Wang;
    Abstract: Estimating natural rate of unemployment (NAIRU) is important for understanding the joint dynamics of unemployment, in ation, and in Nation expectation. However, existing literature falls short in endogenizing inflation expectation together with NAIRU in a model consistent way. We develop and estimate a structural model with forward and backward looking Phillips curve. Inflation expectation is treated as a function of state variables and we use survey data as its observations. We find out that the estimated NAIRU using our methodology tracks the unemployment process closely except for the high in ation period around 1970. Moreover, the estimated Bayesian credible sets are narrower and our model leads to better inflation and unemployment forecasts. These results suggest that monetary policy was very effective during the sample periods and there was not much room for policy improvement..
    Keywords: NAIRU; Inflation Expectation; Targeting
    JEL: C32 E23 E24
    Date: 2015–02
  42. By: Riccardo Crescenzi; Davide Luca; Simona Milio
    Abstract: This paper explores the linkages between pre-2008 crisis national macro-economic conditions, regional resistance factors and depth of the crisis in the regions of the EU27. The results suggest that only a limited set of macro-economic factors shape the regional reaction to the crisis. A healthy current account surplus is associated with stronger economic performance during the post-2008 recession. Conversely, high public debt countries are more successful in sheltering their regional economies in the short-run. When looking at regional-level resistance, human capital is the single most important positive factor. Conversely, research and development-intensive regions are more exposed to negative shocks.
    Keywords: economic crisis; crisis consequences; European Union; regional resistance; spatial heterogeneity.
    JEL: E32 O52 P48 R11
    Date: 2016–01–11
  43. By: Özlem Onaran (University of Greenwich)
    Abstract: This paper presents the empirical evidence about the impact of the simultaneous race to the bottom in labour’s share on growth after taking global interactions into account based on the Post-Kaleckian theoretical framework developed by Bhaduri and Marglin (1990). The world economy and large economic areas are likely to be wage-led; and parameter shifts in different periods are unlikely to make a difference in this finding. The effects that can come from a wage-led recovery on growth and hence employment are positive, however they are also modest in magnitude. We then present an alternative scenario based on a policy mix of wage increases and public investment. A coordinated mix of policies in the G20 targeted to increase the share of wages in GDP by 1%-5% in the next 5 years and to raise public investment in social and physical infrastructure by 1% of GDP in each country can create up to 5.84% more growth in G20 countries. The final section addresses the political aspects and barriers to a wage-led recovery.
    Keywords: wage share, wage-led growth, globalization, public investment
    JEL: E12 E22 E25
    Date: 2016–02
  44. By: Marsal, Ales; Kaszab, Lorant; Horvath, Roman
    Abstract: We examine the role of government spending in the dynamics of the term structure of interest rates. Is the quantity of risk related government spending important for the price of risk? How does it depend on monetary policy conduct? Can fiscal policy immunize its impact on the term structure of interest rates? To answer this questions, we explore asset pricing implications of fiscal policy in what become paradigm in dynamic general equilibrium macro-finance literature. We break down the transmission of the government spending to macroeconomic attributes driving the dynamic response of the yield curve, both analytically and numerically. The novelty of our approach lies in the way we quantify the decomposition of pricing kernel. We find that rise in fiscal uncertainty amplifies the hedging property of bonds against real and nominal risks. Depending on the size of uncertainty monetary policy drives up the price of nominal risk. Spending reversals break the link between quantity and price of fiscal risk.
    Date: 2016
  45. By: Guerrieri, Luca (Board of Governors of the Federal Reserve System (U.S.)); Henderson, Dale W. (Center for Applied Macroeconomic Analysis); Kim, Jinill (Korea University)
    Abstract: Consumption and investment comove over the business cycle in response to shocks that permanently move the price of investment. The interpretation of these shocks has relied on standard one-sector models or on models with two or more sectors that can be aggregated. However, the same interpretation continues to go through in models that cannot be aggregated into a standard one-sector model. Furthermore, such a two-sector model with distinct factor input shares across production sectors and commingling of sectoral outputs in the assembly of final consumption and investment goods, in line with the U.S. Input-Output Tables, has implications for aggregate variables. It yields a closer match to the empirical evidence of positive comovement for consumption and investment.
    Keywords: DSGE Models; Long-Run Restrictions; Multi-Sector Models; Vector Auto-Regressions
    JEL: E13 E32
    Date: 2016–02–08
  46. By: Olajide, Victor
    Abstract: Regions in a federal system, as in the case Nigeria, tend to have economic characteristics that diverge from each other and while monetary and fiscal policies appear to be strongly nationally oriented their importance and relevance appear to be regionally determined. However, also important, and more important for this study, is the view that regional macroeconomic policies – that is, the fiscal policies of the state or regional governments and the implications of national monetary policies for regional economies – do not only impact on the source region but can also transcend the borders of the source region to other neighboring regions and cause adjustments or distortions that may have important macroeconomic implications for the regions in a federating system. Towards this end, this article investigates, using the aggregate supply, aggregate demand and balance of payment (AS/AD/BP) framework with special assumptions that capture the characteristics of the regions in a federating system typical of Nigeria, the macroeconomic interconnectedness of regions in a federating unit and considers the macroeconomic spillover effects of the fiscal policies of regional governments as well as the regional implications of national monetary policies.
    Keywords: Regional, Macroeconomic Policies, Aggregate Demand, Aggregate Supply, Balance of Payment
    JEL: E6
    Date: 2015–10–12
  47. By: Emin M. Dinlersoz; Henry R. Hyatt; Hubert P. Janicki
    Abstract: Young and small firms are typically matched with younger and nonemployed individuals, and they provide these workers with lower earnings compared to other firms. To explore the mechanisms behind these facts, a dynamic model of entrepreneurship is introduced, where individuals can choose not to work, become entrepreneurs, or work in one of the two sectors: corporate or entrepreneurial. The differences in production technology, financial constraints, and labor market frictions lead to sector-specific wages and worker sorting across the two sectors. Individuals with lower assets tend to accept lower-paying jobs in the entrepreneurial sector, an implication that finds support in the data. The effect on the entrepreneurial sector of changes in key parameters is also studied to explore some channels that may have contributed to the decline of entrepreneurship in the United States.
    Keywords: Entrepreneurship, borrowing constraints, financial frictions, labor market frictions, worker sorting, decline in entrepreneurship
    JEL: L26 J21 J22 J23 J24 J30 E21 E23 E24
    Date: 2015–01
  48. By: Jurany Beccie RAMÍREZ GALLEGO
    Abstract: En este documento se expone la construcción de un indicador de desempeño económico de la industria en Colombia “IDI”, desde un enfoque de ciclos de negocios. Para ello fueron tenidas en cuenta cien variables asociadas a la producción, con periodicidad mensual y disponibilidad anticipada a la variable proxi de referencia, en este caso el “IPR” como proxi del PIB Industrial, en el periodo 1990-2014. Del conjunto se identificaron cinco variables líderes de la actividad industrial, mediante criterios como: coherencia espectral, correlación y adelanto medio de puntos de giro. Estas variables son: : (1) M1, (2) las expectativas de producción a tres meses de la industria, (3) la situación económica actual de la industria, (4) la demanda actual del comercio y (5) la situación económica en el comercio. Estas últimas cuatro corresponden a las encuestas de Fedesarrollo de opinión empresarial en la industria (EOEI) y del comercio (EOEC).Finalmente, las variables líderes fueron sintetizadas en un solo indicador mediante la técnica de componentes principales con lo que se obtuvo el IDI que adelanta en promedio 2,5 meses a la serie proxy
    Keywords: Industria, ciclos, series líderes, indicador
    JEL: C32 E23 E32 E37
    Date: 2015–04–13
  49. By: Bahar Baziki, Selva (Central Bank of the Republic of Turkey); Ginja, Rita (Department of Economics); Borota Milicevic, Teodora (Department of Economics)
    Abstract: This paper studies the changes in labor allocation across firms and industries in response to changes in technology (captured by the adoption of information and communication technologies, ICT) and import competition, due to increased exposure to trade competition from China. We use detailed matched worker-firm data from the Swedish manufacturing sector. We provide new evidence on the mobility of heterogeneous workers across firms and document increased assortative matching of workers in ICT intensive industries. However, the sorting patterns are not uniform across industries within this group. The adoption of ICT along with stronger Chinese import competition results in a significant skill upgrade within high-wage firms. Incontrast, in the absence of strong pressures in import competition, sorting occurs at the low end of the worker-firm distribution, i.e. low-skill workers allocate to low-wage firms. Industries with low ICT intensity do not exhibit any of these sorting patterns. We rationalize our empirical findings through a labor market matching model which is able to explain the increased assortative matching in ICT intensive industries through an increase in the relative demand for qualifiedd workers.
    Keywords: Wage Inequality; Employment Dynamic; Assortative Matching; Import Competition; Technological Change
    JEL: E24 F16 J31 J63 O33
    Date: 2015–12–26
  50. By: Bianchi, Javier (Federal Reserve Bank of Minneapolis)
    Abstract: We develop a quantitative equilibrium model of financial crises to assess the interaction between ex-post interventions in credit markets and the buildup of risk ex ante. During a systemic crisis, bailouts relax balance sheet constraints and mitigate the severity of the recession. Ex ante, the anticipation of such bailouts leads to an increase in risk-taking, making the economy more vulnerable to a financial crisis. We find that moral hazard effects are limited if bailouts are systemic and broad-based. If bailouts are idiosyncratic and targeted, however, this makes the economy significantly more exposed to financial crises.
    Keywords: Bailouts; Moral hazard; Credit crunch; Financial shocks; Macroprudential policy
    JEL: E32 E44 F40 G18
    Date: 2016–01–19
  51. By: Azimi, Mohammad Naim
    Abstract: In this paper, we argue that the market consumption is one of the major and significant elements of Gross Domestic Product driver in Afghanistan for which the competeting null hypothesis that consumption drives the GDP growth is tested. The statistical analysis based on Semi-long regression economic growth model shows a significant corresponding probability value of 0.000 which shows that consumption drives GDP growth while the coefficient exhibits 0.1534 or 15.34% growth of GDP driven by consumption throughout the period 2001 to 2014. Further statistical analysis obtained from the Breusch-Godfrey and Breusch – Pegan-Godfrey LM tests for investigating the existence of any serial correlation within the series support us to reject the null hypothesis that there is no serial correlation within the series. On the other hand, the Jarque-Bera test of normality shows a p-value of 0.3099 which is significant and further documents that the residuals are random and normally distributed within the series.
    Keywords: Market Consumption; GDP; Homoskedasticity; Heteroskedasticity; Economic Growth
    JEL: E0 E01 G1 O4
    Date: 2016–01–06
  52. By: Holden, Tom D.
    Abstract: We present the first necessary and sufficient conditions for the existence of a unique perfect-foresight solution, returning to a given steady-state, in an otherwise linear model with occasionally binding constraints. We derive further conditions on the existence of a solution in such models, and provide a proof of the inescapability of the “curse of dimensionality” for them. We also construct the first solution algorithm for these models that is guaranteed to return a solution in finite time, if one exists. When extended to allow for other non-linearities and future uncertainty, our solution algorithm is shown to produce fast and accurate simulations. In an application, we show that widely used New Keynesian models with endogenous states possess multiple perfect foresight equilibrium paths when there is a zero lower bound on nominal interest rates. However, we show that price level targeting is sufficient to restore determinacy in these situations.
    Keywords: occasionally binding constraints,zero lower bound,existence,uniqueness,price targeting,DSGE,linear complementarity problem
    JEL: C61 C62 C63 E17 E3 E4 E5
    Date: 2016–02–11
  53. By: Catullo, Ermanno; Gallegati, Mauro
    Abstract: We developed a multi country agent based simulation model with endogenous incremental technological change. Macroeconomic dynamics derive from simple behavioral and interacting rules defining the actions of adaptive firms, banks and households (Delli Gatti et al., 2008; Riccetti et al., 2014; Caiani et al., 2015). Countries join a currency union with a perfectly integrated good market, while labor and capital are not ex- changed across countries. We observe that credit dynamics are strictly associated to business cycle: phases of credit growth are associated with increasing leverage and connectivity that creates the conditions for crisis. Moreover, we tested the effects of different fiscal regimes on output dynamics, showing that in a common currency area restrictive fiscal regimes may increase country inequality and systemic vulnerability. Inequality between countries derives from differences in technological progress patterns which open competitiveness gaps. Conversely, in fiscal regimes where public deficits are excessively high the public debt burden tends to increase transferring risk from the private sector to the public one.
    Date: 2015
  54. By: Altug, Sumru G.; Cakmakli, Cem
    Abstract: In this paper, we formulate a statistical model of inflation that combines data on survey expectations and the inflation target set by central banks.. Our model produces inflation forecasts that are aligned with survey expectations, thereby integrating the predictive power of the survey expectations together with the baseline model. We further incorporate the inflation target set by the monetary authority to examine the effectiveness of monetary policy in forming inflation expectations and therefore, predicting inflation accurately. Results indicate superior predictive power of the proposed framework compared to the model without survey expectations as well as several popular benchmarks such as the backward and forward looking Phillips curves and naive forecasting rule.
    Keywords: Inflation forecasting; inflation targeting; state space models; survey-based expectation; term structure of inflation expectations
    JEL: C32 C51 E31 E37
    Date: 2015–02
  55. By: Katsurako Sonoda; Nao Sudo
    Abstract: Since the global financial crisis of 2008, macroprudential instruments have attracted an increasing amount of attention as potentially the best tools for stabilizing boom-and-bust cycles. This is because, in contrast to short-term interest rates, macroprudential instruments are regarded as particularly precise tools that act only on the area of concern. In this paper, we conduct an empirical examination to determine if this is the case by studying relevant areas of the Japanese economy from the 1970s to 1990s. We focus on a policy instrument called Quantitative Restriction (QR) implemented by the government. QR explicitly required banks to curb their lending to the real estate industry and related activities, and was used in the wake of the credit boom. We construct shocks to QR using narrative records of the government, and estimate their impact on the macroeconomy. We find that QR affected the aggregate economy as well as the real estate sector and land prices. In order to see why QR was a "blunt" instrument, we conduct a cross-sectional analysis using individual bank data and disaggregated industry group data. We find evidence that shocks to QR affected the aggregate economy by damaging the balance sheets of banks and non-financial firms.
    Keywords: Short-term interest rates, macroprudential instrument, boom-and-bust cycle
    Date: 2016–01
  56. By: Waldenström, Daniel (Department of Economics)
    Abstract: This study presents a new database, the Swedish National Wealth Database (SNWD), which contains annual data on private, public and national wealth and sectoral saving rates in Sweden over the past two centuries. The paper reviews previous investigations of national wealth, compares their estimates with the new ones and discusses method approaches and measurement problems. Then the main data series are presented for assets and liabilities and their subcomponents, for the private and public do-mestic and foreign sectors. Complementing the traditional focus on economic flow variables in the past literature on long-run economic developments, this new database offers potentially new perspec-tives of a number of important issues in the modern economic history of Sweden.
    Keywords: National wealth; Household portfolios; Saving; Pension wealth; Economic history
    JEL: E21 H31 N33 N34
    Date: 2015–09–11
  57. By: Claudio Borio; Enisse Kharroubi; Christian Upper; Fabrizio Zampolli
    Abstract: We investigate the link between credit booms, productivity growth, labour reallocations and financial crises in a sample of over twenty advanced economies and over forty years. We produce two key findings. First, credit booms tend to undermine productivity growth by inducing labour reallocations towards lower productivity growth sectors. A temporarily bloated construction sector stands out as an example. Second, the impact of reallocations that occur during a boom, and during economic expansions more generally, is much larger if a crisis follows. In other words, when economic conditions become more hostile, misallocations beget misallocations. These findings have broader implications: they shed light on the recent secular stagnation debate; they provide an alternative interpretation of hysteresis effects; they highlight the need to incorporate credit developments in the measurement of potential output; and they provide a new perspective on the medium- to long-run impact of monetary policy as well as its ability to fight post-crisis recessions.
    Keywords: Labour reallocation, productivity, credit booms, financial crises, hysteresis
    Date: 2016–01
  58. By: Braun, R. Anton (Federal Reserve Bank of Atlanta); Nakajima, Tomoyuki (Kyoto University)
    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: economic stagnation; wage polarization; wealth inequality
    JEL: D31 E13
    Date: 2016–02–01
  59. By: Lilia Maliar; Serguei Maliar; John B. Taylor (Stanford University); Inna Tsener
    Abstract: We study a class of infinite-horizon nonlinear dynamic economic models in which preferences, technology and laws of motion for exogenous variables can change over time either deterministically or stochastically, according to a Markov process with time-varying transition probabilities, or both. The studied models are nonstationary in the sense that the decision and value functions are time-dependent, and they cannot be generally solved by conventional solution methods. We introduce a quantitative framework, called extended function path (EFP), for calibrating, solving, simulating and estimating such models. We apply EFP to analyze a collection of challenging applications that do not admit stationary Markov equilibria, including growth models with anticipated parameters shifts and drifts, unbalanced growth under capital augmenting technological progress, anticipated regime switches, deterministically time-varying volatility and seasonal fluctuations. Also, we show an example of estimation and calibration of parameters in an unbalanced growth model using data on the U.S. economy. Examples of MATLAB code are provided.
    Keywords: nonstationary models, unbalanced growth, time varying transition probabilities, time varying parameters, anticipated shock, shooting method, parameter shift, parameter drift, regime switch, stochastic volatility, capital augmenting, seasonality, Fair and Taylor, extended path, Smolyak method
    JEL: C61 C63 C68 E31 E52
    Date: 2015–03
  60. By: Kazuo Nishimura (KIER, Kyoto University - Kyoto University [Kyoto], RIEB, Kobe University - Kobe University); Carine Nourry (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Thomas Seegmuller (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Alain Venditti (Edhec Business School - Edhec - Edhec, AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)
    Abstract: The interplay between growth and public debt is addressed considering a Barro-type [1] endogenous growth model where public spending is financed through taxes on income and public debt. Debt is assumed to be a fixed proportion of GDP which is used as a policy parameter by the government. We first show that when debt is a large enough proportion of GDP, two distinct BGPs may co-exist, one being indeterminate. Therefore, local and global indeterminacy may arise and self-fulfilling expectations appear as a crucial ingredient to understand the impact of debt on growth and on macroeconomic fluctuations. We then exhibit two types of important trade-off associated with self-fulfilling expectations. First, we show that the lowest BGP is always decreasing with respect to the ratio of debt/GDP while the highest one is increasing. As a result, depending on the BGP selected by agents’ expectations, the relationship between debt and growth is not always negative. Second, we show that the highest BGP, which provides the highest welfare, is always locally indeterminate while the lowest is always locally determinate. Therefore, depending on the expectations of agents, when debt is increasing, large fluctuations associated to self-fulfilling believes may occur and be associated at the same time with welfare losses if there is a coordination on the low steady-state. Finally, a simple calibration exercise allows to provide an understanding of the recent experiences of many OECD countries.
    Keywords: endogenous growth,public spending,public debt,sunspot fluctuations
    Date: 2015–12
  61. By: Mirdala, Rajmund
    Abstract: Quantitative easing conducted by European central bank to fight persisting risks of deflation is drawing an attention of increasing number of empirical studies. Moreover, effectiveness of monetary policy at near zero inflation rates reveals lot of issues on whether interest rates really have a lower bound around zero percent. As a result, traditional views on the role of inflation expectations and expected real interest rates in the long-term interest rates determination face the challenge of fundamental revision. In the paper we analyze relative contributions of inflation expectations and expected real interest rates to long-term interest rates on government bonds leading path as well as their responses to both types of shocks in the Euro Area member countries using SVAR methodology. We also decompose long-term interest rates into transitory and permanent components. Our research revealed considerable differences in the role of inflation expectations and expected real interest rates shocks in determining long-term interest rates between core and periphery countries of the Euro Area. The crisis period even intensified this trend.
    Keywords: interest rates, inflation expectations, economic crisis, SVAR, variance decomposition, impulse-response function
    JEL: C32 E43 F41
    Date: 2015–09
  62. By: Schwarzmüller, Tim
    Abstract: I study the performance of single predictor bridge equation models as well as a wide range of model selection and pooling techniques, including Mallows model averaging and Cross-Validation model averaging, for short-term forecasting euro area GDP growth. I explore to what extend model selection and model pooling techniques are able to outperform a simple autoregressive benchmark model in the periods before, during and after the Great Recession. I find that single predictor bridge equation models suffer a great variation in the forecast performance relative to the benchmark model over the analysed sub-samples. Moreover, model selection techniques turn out to produce quite poor forecasts in some sub-samples. On the contrary, model pooling based on the Cross-Validation and the Mallows criterion provide a very stable and accurate forecast performance.
    Keywords: short-term forecasting,Great Recession,mixed frequency data,model selection and model pooling
    JEL: C53 E37
    Date: 2015
  63. By: Francesco Caselli; Miklos Koren; Milan Lisicky; Silvana Tenreyro
    Abstract: A widely held view is that openness to international trade leads to higher GDP volatility, as trade increases specialization and hence exposure to sector-specific shocks. We revisit the common wisdom and argue that when country-wide shocks are important, openness to international trade can lower GDP volatility by reducing exposure to domestic shocks and allowing countries to diversify the sources of demand and supply across countries. Using a quantitative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversification) and provide a new answer to the question of whether and how international trade affects economic volatility.
    Keywords: international trade; diversification; GDP
    JEL: E32 F0
    Date: 2015–08
  64. By: Fausto, Cavalli
    Abstract: In this work I present a cobweb model for markets characterized by two couples of demand and supply functions which cyclically alternate with period two, in a succession of peak and off-peak market phases. Starting from classical adaptive expectations, a new expectation formation mechanism is presented, to take into account such markets’ peculiarity. In particular, to adapt the previous in-phase expected price, agents use both in-phase and out-of-phase expectation errors, suitably weighted through a phase weight. It is shown that the resulting model is described by a non-autonomous difference equation. The local asymptotic stability of the steady state equilibrium is studied, showing that it depends on the expectation weight, the phase weight and on both the relative slopes, at the equilibrium, of the supply functions with respect to the demand functions. Several crucial differences with respect to the classical cobweb model are highlighted, showing the potentially ambiguous role of expectation weight and of relative slopes. It is shown that destabilization can occur both through a flip and a Neimark-Sacker bifurcation, which can occur for the same market conditions and different expectation weights.
    Keywords: Cobweb model, cyclic demand and supply, non-autonomous equations, complex dynamics
    JEL: E32 D84 C60 C62
    Date: 2016–02–07
  65. By: Zouhair Ait Benhamou
    Abstract: Discrepancies in output fluctuations between emerging and developed economies are welldocumented in the literature. Differences however within developing economies have not been sufficiently scrutinised. This paper argues that global and regional shocks primarily drive the business cycle in emerging economies, and provides estimated results for cycle variance decomposition. The paper also offers a theoretical framework to check on the set of stylised facts common and specific to emerging economies. It finds that the proposed model is robust in accounting for region-specific features.
    Keywords: International Business Cycles, Global Factors, Regional Factors, Emerging Economies.
    JEL: E32 E37 F44
    Date: 2016
  66. By: Acikgoz, Omer
    Abstract: I provide a proof of existence of stationary recursive competitive equilibrium in Bewley economies with production under very permissive assumptions. In particular, (i) utility function is allowed to be unbounded, and (ii) the underlying discrete idiosyncratic productivity process is allowed to take any form, aside from mild restrictions. Some of the intermediate results provide theoretical basis for assumptions often made in the quantitative macroeconomics literature.
    Keywords: Recursive Competitive Equilibrium, Bewley/Huggett/Aiyagari model
    JEL: C62 E00 E21
    Date: 2015–12–20
  67. By: Laubach, Thomas (Board of Governors of the Federal Reserve System (U.S.)); Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Persistently low real interest rates have prompted the question whether low interest rates are here to stay. This essay assesses the empirical evidence regarding the natural rate of interest in the United States using the Laubach-Williams model. Since the start of the Great Recession, the estimated natural rate of interest fell sharply and shows no sign of recovering. These results are robust to alternative model specifications. If the natural rate remains low, future episodes of hitting the zero lower bound are likely to be frequent and long-lasting. In addition, uncertainty about the natural rate argues for policy approaches that are more robust to mismeasurement of natural rates.
    Keywords: Econometrics; Money and interest rates
    Date: 2016–02–12
  68. By: Robert E. Hall (Hoover Institution); Sam Schulhofer-Wohl
    Abstract: Matching efficiency is the productivity of the process for matching jobseekers to available jobs. Job-finding is the output; vacant jobs and active jobseekers are the inputs. Measurement of matching efficiency follows the same principles as measuring a Hicks-neutral index of productivity of production. We develop a framework for measuring matching productivity when the population of jobseekers is heterogeneous. The efficiency index for each type of jobseeker is the monthly job-finding rate for the type adjusted for the overall tightness of the labor market. We find that overall matching efficiency declined over the period, at just below its earlier downward trend. We develop a new approach to measuring matching rates that avoids counting short- duration jobs as successes. And we show that the outward shift in the Beveridge curve in the post-crisis period is the result of pre-crisis trends, not a downward shift in matching efficiency attributable to the crisis.
    JEL: E24 J63
    Date: 2015–01
  69. By: Boysen-Hogrefe, Jens; Jannsen, Nils; Meier, Carsten-Patrick
    Abstract: We investigate whether recoveries following normal recessions differ from recoveries following recessions that are associated with either banking crises or housing crises. Using a parametric panel framework that allows for a bounce-back in the level of output during the recovery, we find that normal recessions are followed by strong recoveries in advanced economies. This bounce-back is absent following recessions associated with banking crises and housing crises. Consequently, the permanent output losses of recessions associated with banking crises and housing crises are considerably larger than those of normal recessions.
    Keywords: business cycle,recovery,banking crisis,housing crisis
    JEL: E32 C33
    Date: 2015
  70. By: Waqas Ahmed (State Bank of Pakistan); Muhammad Jahanzeb Malik (State Bank of Pakistan); Muhammad Rehman (State Bank of Pakistan)
    Abstract: In this paper we use the Bayesian methodology to estimate the structural and shocks? parameters of the DSGE model in Ahmad et al. (2012). This model includes formal and informal firms both at intermediate and final goods production levels. Households derive utility from leisure, real money balances and consumption. Each household is treated as a unit of labor which is a composite of formal (skilled) and informal (unskilled) labor. The formal (skilled) labor is further divided into types “r” and households have monopoly over each type “r” labor which depends upon degree of education. We go a step further by converting the existing annually calibrated model to quarterly frequency. As a result our impulse response functions have more relevant and realistic policy implications. From the results we do find the shock absorbing role of the informal sector, however, with short term existence. The model estimation diagnostics also confirm robustness and reasonability of the estimation results.
    Keywords: Bayesian Estimation, DSGE Model, Shock Process
    JEL: E17
    Date: 2014–03
  71. By: Soldatos, Gerasimos T.
    Abstract: This paper investigates the economic conditions under which the performance of a Judiciary does not impede non-coercive fair socioeconomic allocations under “Strotz-myopia” regarding the law variable, i.e. under a static view of it in an otherwise dynamic context. The law, here, is the positive factor by which consumption volume is multiplied as a result of law introduction in an otherwise fully private social economy. Lexicographic preferences regarding the law is the keyword in establishing non-coercive equilibria either in the static context of a stone-age economy or in the dynamic context of a jungle economy, given in the latter the presence of farsightedness. Nevertheless, such equilibria are found here to exist even under myopia and regardless the presence of lexicographic preferences. We first detect them within a fully private social economy, and we next qualify them by introducing the Judiciary as state officials. The optimality regarding state finances imposes additional restrictions in establishing myopic non-coercive equilibria. In any case, an equilibrium will be stable if it is not influenced by the homotheticity or not of the preferences, i.e. by income distribution considerations. So, any suboptimal behaviour of the Judiciary should be attributed exclusively to the suboptimality of state finances: Macroeconomics does affect law administration.
    Keywords: Myopic law preferences; Non-coercive allocations, Homotheticity, Judiciary
    JEL: D60 K00 O40
    Date: 2015
  72. By: Diercks, Anthony M. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: In this study I examine the welfare implications of monetary policy by constructing a novel New Keynesian model that properly accounts for asset pricing facts. I find that the Ramsey optimal monetary policy yields an inflation rate above 3.5% and inflation volatility close to 1.5%. The same model calibrated to a counterfactually low equity premium implies an optimal inflation rate close to zero and inflation volatility less than 10 basis points, consistent with much of the existing literature. Relatively higher optimal inflation is due to the greater welfare costs of recessions associated with matching the equity premium. Additionally, the second order approximation allows monetary policy to have positive welfare effects on the labor share of income. I show that this channel is generally absent in standard macroeconomic models that do not take risk into account. Furthermore, the interest rate rule that comes closest to matching the dynamics of the optimal Ramsey policy puts a sizable weight on capital growth along with the price of capital, as it emphasizes stabilizing the medium to long term over the very short run.
    Keywords: Asset Pricing; Long-run risk; Monetary policy
    Date: 2015–09–21
  73. By: José R. Maria
    Abstract: The Portuguese economy experienced a dramatic 2008–2012 period. Gross Domestic Product fell around 10%, while the unemployment rate jumped 8 percentage points, reaching almost 17% by 2012Q4. A semi-structural model with rational expectations—named, for ease of reference, Model Q—largely assigns such developments to “non-cyclical disturbances” in product and labour markets. The economy was also severely hit by two recessive periods in the euro area, and to a lesser extent by abnormally high risk premia. Model Q embodies a relatively robust Okun’s law, but not without important revisions in trend components. Recursive estimates over 2008-2012 include a decrease in the longrun real interest rate, shared by both Portugal and the euro area, as well as a decrease in the long-run growth rate of the trend component of output, mirrored by an increase in long-run unemployment, which raises “secular stagnation” concerns. ModelQ fits the characteristics of a small economy integrated in the credible monetary union, and is parametrized with Bayesian techniques.
    JEL: C51 E32 E52
    Date: 2016
  74. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the New York Fed’s Economic Press Briefing, Federal Reserve Bank of New York, New York City.
    Keywords: expansion; household sector; household borrowing; Quarterly Report on Household Debt and Credit
    Date: 2016–02–12
  75. By: Kojun Hamada (Faculty of Economics, Niigata University); Akihiko Kaneko (Faculty of Political Science and Economics, Waseda University); Mitsuyoshi Yanagihara (Graduate School of Economics, Nagoya University)
    Abstract: We examine how international transfer affects welfare levels of a donor with a higher marginal propensity to save and a recipient with a lower marginal propensity to save, when both countries adopt a pay-as-you-go (PAYG) pension system using a one-sector overlapping generations model. A PAYG pension scheme is found to lead to impairment of the donor and of the recipient as a result of the transfer under the dynamic efficiency condition. This is because the transfer increases the divergence in the rate of return between PAYG and private savings.
    Keywords: ay-as-you-go pension, Transfer paradox, Overlapping generations model
    JEL: D91 E21 F35 F43 H55
    Date: 2014–07
  76. By: Herbst-Murphy, Susan (Federal Reserve Bank of Philadelphia)
    Abstract: Michael Marx, senior director, Visa Research Insights, conducted a workshop in 2009 at the Payment Cards Center (PCC) as the economy was emerging from a recession. At that time, it appeared that the recession had affected consumer payment preferences, especially those related to cash and credit cards. To get an update on consumers’ use of the various payment methods, the PCC invited Marx to facilitate another workshop in 2014. More recent findings from the Visa Payment Panel Study reveal declines in cash use ― a return to the long-term trend ― and increases in credit card use, perhaps signaling some return of confidence among consumers. Check use continued its unbroken long-term decline, and debit card growth has slowed. Private label cards have also registered a steady decline in their share of spending volume for a number of years. Their revolving credit utility, however, remains consequential in financing consumer purchases.
    Keywords: Consumer payments; Electronic payments; Private label credit
    JEL: D1
    Date: 2015–07–03
  77. By: Hasan Engin Duran; Alexandra Ferreira-Lopes
    Abstract: : In this paper we study business cycle correlations in the Eurozone, and its determinants. Additionally, we also analyze the determinants of the lead and lag behavior of business cycles in the Eurozone. We explore the relevance, in the Eurozone context, of the determinants of business cycle synchronization identified in the literature, namely bilateral trade intensity, dissimilarity of labor market rigidity, net external migration, dissimilarity in industrial structures, financial openness, and FDI relations. We estimate a simultaneous 4-equations model by OLS and 3SLS to investigate empirically the above mentioned determinants of business cycle correlation. Bilateral trade relations present a positive influence on business cycle correlations, while the dissimilarity of labor market rigidity presents a negative influence. The rest of the above mentioned variables are non-significant. In what concerns the determinants of the lead and lag behavior results show that the member states of the Eurozone that usually lead the cycle are the ones that are wealthier, with strict employment legislation, more specialized in construction and finance sectors, and more prone to international capital movements.
    Keywords: Bilateral Business Cycles Correlations, Lead and Lag Behavior of Business Cycles, Labor Market Flexibility, External Migration
    JEL: C3 E32 F15 F21 F22 F44
    Date: 2015–04–15
  78. By: Harashima, Taiji
    Abstract: The trend of the gross domestic product (GDP) of the United States clearly shifted downward after the Great Recession of 2008. This shift indicates that the cause of the Great Recession was a change in a fundamental factor that had the potential to significantly affect the steady state. In this paper, I examine three possible causes for the shift: a change in technology, a change in preferences, and a sudden malfunctioning of the price mechanism. I conclude that an upward shift of the expected rate of time preference is the most likely cause of the Great Recession. In addition, I estimated the yearly expected rate of time preference of the United States and found that the expected rate of time preference shifted upwards by 1–2 percentage points when the Great Recession began. I also estimated the expected rate of time preference for Japan and found that the rate increased prior to the extended period of economic stagnation during the 1990s.
    Keywords: The Great Recession; Time preference; Economic fluctuations
    JEL: E32 N12
    Date: 2016–04–02
  79. By: Fecht, Falko; Reitz, Stefan
    Abstract: This paper uses the order book for 2007 and 2008 of a key Euro area market maker in the unsecured money market to estimate a stylized pricing model which explicitly accounts for the over - the - counter structure and the unsecured nature of these transactions. The empirical results suggest that the market maker learns from order flow to update her beliefs about the fundamental value of the overnight rate, but this information aggregation via order flow was increasingly hampered as the crisis unfolded. In addition, order size was also used to infer the unobservable component of a counterparty's credit risk.
    Keywords: Euro money market,financial crisis,market microstructure,pricing behavior
    JEL: G15 E43 C32
    Date: 2015
  80. By: Julián VILLAMIL S; Gustavo HERNANDEZ
    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
  81. 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.
    Keywords: economic uncertainty; policy uncertainty; business cycles; fluctuations
    JEL: D80 E22 G18 L50
    Date: 2015–10
  82. By: Bognanni, Mark (Federal Reserve Bank of Cleveland); Herbst, Edward (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Vector autoregressions with Markov-switching parameters (MS-VARs) fit the data better than do their constant-parameter predecessors. However, Bayesian inference for MS-VARs with existing algorithms remains challenging. For our first contribution, we show that Sequential Monte Carlo (SMC) estimators accurately estimate Bayesian MS-VAR posteriors. Relative to multi-step, model-specific MCMC routines, SMC has the advantages of generality, parallelizability, and freedom from reliance on particular analytical relationships between prior and likelihood. For our second contribution, we use SMC's flexibility to demonstrate that the choice of prior drives the key empirical finding of Sims, Waggoner, and Zha (2008) as much as does the data.
    Keywords: Bayesian Analysis; Regime-Switching Models; Sequential Monte Carlo; Vector Autoregressions
    JEL: C11 C18 C32 C52 E3 E4 E5
    Date: 2015–12–18
  83. By: Aurélien Hazan (Synapse - LISSI - Laboratoire Images, Signaux et Systèmes Intelligents - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12)
    Abstract: We show that a steady-state stock-flow consistent macroeconomic model can be represented as a Constraint Satisfaction Problem (CSP). The set of solutions is a polytope, which volume depends on the constraints applied and reveals the potential fragility of the economic circuit, with no need to specify the dynamics. Several methods to compute the volume are compared, inspired by operations research methods and the analysis of metabolic networks, both exact and approximate. We also introduce a random transaction matrix, and study the particular case of linear flows with respect to money stocks.
    Keywords: random network,physics and society,economics,constraint satisfaction,monte-carlo,finance,convex polytope
    Date: 2015–12–18
  84. By: Kamile Puusaag (United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)); David Abonyi (United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)); Masato Abe (United Nations Economic and Social Commission for Asia and the Pacific (ESCAP))
    Abstract: Myanmar holds considerable promise, for businesses both domestic and foreign, as well as for development practitioners, confident of seeing a rapid transformation in economic conditions and quality of life in general. Nevertheless, while the country has attracted substantial interest from around the world, there are still many gaps in knowledge. In-depth information about the conditions facing the private sector, as well as the perspectives of the various members of the private sector, is still in the process of being uncovered. Against this background, the central purpose of this policy handbook is to provide policymakers, business communities, development organizations, and other interested parties with a thorough overview of the private sector environment in Myanmar today. The publication outlines the challenges faced by businesses in Myanmar, elaborates on the nature of the challenges and why they are significant, and offers a set of recommendations to improve the business environment in order to foster greater development of the private sector, and indeed, the country as a whole. Undeniably, the internal economic conditions and business environment will play a key role in determining the private sector’s future. Additionally, however, it is important to note that much of the excitement surrounding Myanmar stems from its 2011 shift towards greater economic openness to the rest of the world. Moreover, the upcoming ASEAN Economic Community 2015 is also likely to have a tremendous impact on the private sector in Myanmar. As a result, this policy handbook puts a sizeable focus on discussing issues affecting trade and investment in goods and services. It is ESCAP’s hope that this publication can serve as a reference point for those seeking such information, and that the publication can provide a wide-ranging understanding of the private sector’s current situation and how to help provide it with an equally-promising future.
    Keywords: Myanmar, business, private sector, development, policy handbook
    JEL: F0 F1 F2 F4 E2
    Date: 2015–02
  85. By: Aaronson, Daniel; French, Eric Baird; Sorkin, Isaac
    Abstract: We document three new findings about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, the rise in entry and exit is concentrated in chains. Third, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology and show that it is consistent with these findings. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs through exit of labor-intensive restaurants and entry of capital-intensive ones. We show these three findings are inconsistent with other models of industry dynamics.
    Keywords: employment; industry dynamics; minimum wage; putty-clay
    JEL: E24 L11
    Date: 2016–02
  86. By: Liu, Tao
    Abstract: The determinants of international currency received a lot of attention since the great recession. Classic literature focused on economy size and openness, but that couldn't explain why RMB remains largely national, while China is already leading in international trade. In this paper, I verified the importance of financial development for currency internationalization using SWIFT trade finance data. Then I built a two-country monetary search model where trade takes time, and lack of committment makes exporter and importer rely on bank-intermediated finance. The agent's currency choice is related with terms of trade, monetary policy, and financial efficiency. Optimal monetary policy differs according to currency regime. Related topic such as size effect and global imbalance is also discussed.
    Keywords: Trade finance; international currency; monetary search; global imbalance; optimal monetary policy
    JEL: E40 E50 F33 F41
    Date: 2016–01–14
  87. By: Njindan Iyke, Bernard
    Abstract: We assess the robust macro determinants of the real exchange rate in Mauritius under model uncertainty by utilizing Bayesian Model Averaging (BMA). We introduce a broader range of potential macro determinants of the real exchange rate in Mauritius. Then we tackle the issue of model uncertainty when identifying these macro determinants of the real exchange rate by exploring the impact of different priors on the model size, and different priors on model coefficients on the posterior estimates. We identify the real money supply, and the real productivity to be the robust macro determinants of the real exchange rate in Mauritius. Their coefficient signs are also theoretically consistent. The real money supply impact on the real exchange rate negatively, whereas the real productivity impact on it positively. Our results remain robust to different priors on the model size, and to different priors on model coefficients.
    Keywords: Model Uncertainty, Bayesian Model Averaging (BMA), Macro Determinants, Real Exchange Rate, Mauritius
    JEL: C11 C63 F31
    Date: 2015
  88. By: Welfens, Paul J. J. (University of Wuppertal)
    Abstract: The macroeconomic production function is a traditional key element of modern macroeconomics, as is the more recent knowledge production function which explains knowledge/patents by certain input factors such as research, foreign direct investment or international technology spillovers. This study is a major contribution to innovation, trade, FDI and growth analysis, namely in the form of a combination of an empirically relevant knowledge production function for open economies – with both trade and inward FDI as well as outward foreign direct investment plus research input – with a macro production function. Plugging the open economy knowledge production function into a standard macroeconomic production function yields important new insights for many fields: The estimation of the production potential in an open economy, growth decomposition analysis in the context of economic globalization and the demand for labor as well as long run international output interdependency of big countries; and this includes a view at the asymmetric case of a simple two country world in which one country is at full employment while the other is facing underutilized capacities. Finally, there are crucial implications for the analysis of broad regional integration schemes such as TTIP or TPP and a more realistic and comprehensive empirical analysis.
    Keywords: potential output, innovation, knowledge production function, macroeconomics, globalization
    JEL: E23 F02
    Date: 2016–02
  89. By: Anna Wiœniewska (Nicolaus Copernicus University, Poland)
    Abstract: Virtual currencies have recently become one of the most popular topics in the media. This paper focuses on economic aspects of Bitcoin, being an attempt to answer the question if Bitcoin can be considered money in the light of economic theories of money. On the basis of the reports published by the European Central Bank and the Financial Action Task Force, as well as the available Internet and primary sources, there have been presented the types, history and functioning of virtual currencies. The knowledge of virtual currencies makes it possible to foresee the problems arising from their existence, such as possible threats to international security, difficulties with taxation etc. The growing popularity of virtual currencies and cryptocurrencies is linked with the increase of importance of non-cash payments on global scale. Thus, Bitcoin may be considered next step in the evolution of digital money.
    Keywords: bitcoin, virtual currencies, cryptocurrencies, legal status of virtual currencies
    JEL: E40 G29 G28 K34
    Date: 2016–02
  90. By: Gluschenko, Konstantin
    Abstract: Lacking data on price levels across locations, economists are forced to proxy them. One method is to extrapolate the price levels known for locations in some point in time to another point by multiplying the initial price levels by the local CPIs. With the use of simulation experiments, this paper demonstrates that such a method is inadequate, since the path dependence of CPI alone produces considerable biases distorting cross-location comparisons of price levels.
    Keywords: spatial price index; inflation; Divisia index; nonhomothetic preferences; demand system
    JEL: C15 C43 E31 R19
    Date: 2016–01–21
  91. By: Mihai, Luiza-Corina
    Abstract: In the context of frequent changes occurring in the legislation related to business and especially when regulating the state of economic difficulty that might face a company, this study deals with the impact that the economic changes an insolvent employer goes through could have on its employees, the measures that might be taken and relevant regulations pertaining to this matter in terms of promoting domestic legislative changes in order to align Romanian legislation to the European one
    Keywords: insolvency, collective dismissal, collective redundancies, employees' protection, Romanian legislation on insolvency
    JEL: E20 G38 J28 K20
    Date: 2015–11–15
  92. By: Arora, Vipin
    Abstract: Obtaining reliable data on capital is a recurring challenge when estimating economy-wide productivity growth, especially for developing countries. In this paper I construct energy-based productivity series which use energy consumption instead of capital when making such estimates. I first show that—for the U.S. and select OECD countries—growth in the energy-based series are strongly correlated with other sources historically. I then estimate energy-based productivity growth for other OECD and non-OECD countries where data on capital and productivity is more limited.
    Keywords: total factor productivity,energy consumption,economic growth,international
    JEL: E00 O40 Q43
  93. By: Daria Onori (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans)
    Abstract: This paper analyzes the consequences of external debt collaterals on the optimal growth path of a country. To this end we develop a small open economy model of endogenous growth where public spending can be financed by borrowing on imperfect international financial markets, where the country's borrowing capacity is limited. In contrast to the existing literature, which assumes that debt is constrained by the stock of capital, we investigate the consequences and policy implications of GDP-based collaterals. First, we show that the economy may converge in a finite time to the regime with binding collateral constraint. Second, in such regime the steady state public expenditures-to-GDP ratio is greater than that of the existing literature's models. Finally, if the economy is not sufficiently developed, in financial and economic terms, the country will stay in autarky forever.
    Keywords: open economy, two-stage growth, external debt, GDP-based collaterals, imperfect nancial markets, multi-stage optimal control.
    Date: 2015
  94. By: Han Han (School of Economics Peking University); Benoit Julien (UNSW Australia); Asgerdur Petursdottir (University of Bath); Liang Wang (University of Hawaii at Manoa)
    Abstract: In a New Monetarist framework, we study the trade of indivisible goods under credit, divisible money and divisible asset in a frictional market. We show how indivisibility on the goods side, instead of the money or asset side, matters for equilibria. The bargaining solution generates a price that is independent of nominal interest rate, dividend value of the asset, or the number of active buyers carrying the asset for liquidity purposes. To reestablish this link, we consider price posting with competitive search. We derive conditions under which stationary equilibrium exists. With asset and bargaining, we find that for negative dividend value on the asset, multiple equilibria occur. Otherwise, in all possible combinations of liquidity and price mechanisms, including positive dividend value under asset, the equilibrium is unique or generically unique.
    Keywords: Nash Bargaining; Competitive Search; Indivisibility; Multiplicity; Uniqueness
    JEL: D51 E40
    Date: 2016–01
  95. By: Peterman, William B. (Board of Governors of the Federal Reserve System (U.S.)); Sommer, Kamila (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: A well-established result in the literature is that Social Security tends to reduce steady state welfare in a standard life cycle model. However, less is known about the historical effects of the program on agents who were alive when the program was adopted. In a computational life cycle model that simulates the Great Depression and the enactment of Social Security, this paper quantifies the welfare effects of the program's enactment on the cohorts of agents who experienced it. In contrast to the standard steady state results, we find that the adoption of the original Social Security tended to improve these cohorts' welfare. In particular, we estimate that the original program benefited households alive at the time of the program's adoption with a likelihood of over 80 percent, and increased these agents' welfare by the equivalent of 5.9% of their expected future lifetime consumption. The welfare benefit was particularly large for poorer agents and agents who were near retirement age when the program was enacted. Through a series of counterfactual experiments we demonstrate that the difference between the steady state and transitional welfare effects is primarily driven by a slower adoption of payroll taxes and a quicker adoption of benefit payments during the program's phase-in. Overall, the opposite welfare effects experienced by agents in the steady state versus agents who experienced the program's adoption might offer one explanation for why a program that potentially reduces welfare in the steady state was originally adopted.
    Keywords: Social Security; Recessions; Great Depression; Overlapping Generations
    JEL: D91 E21 H55
    Date: 2015–09–24
  96. By: Basbay, Mustafa Metin; Elgin, Ceyhun; Torul, Orhan
    Abstract: The authors empirically investigate the relationship between energy consumption and the size of the informal economy. Relying on panel data regression models, their results show that at the aggregate level, energy intensity is inversely related to the size of the informal sector, providing actual empirical evidence on the presence of high labor and low capital intensity in the informal economy. Furthermore, the authors also find some support towards the presence of non-linearity and asymmetry in this relationship.
    Keywords: informal sector,energy consumption,panel data
    JEL: O17 O13 P48 E26
    Date: 2016
  97. By: Kaldasch, Joachim
    Abstract: Presented is an analytic microeconomic model of the temporal price dispersion of homogeneous goods in polypoly markets. This new approach is based on the idea that the price dispersion has its origin in the dynamics of the purchase process. The price dispersion is determined by the chance that demanded and supplied product units meet in a given price interval. It can be characterized by a fat-tailed Laplace distribution for short and by a lognormal distribution for long time horizons. Taking random temporal variations of demanded and supplied units into account both the mean price and also the standard deviation of the price dispersion are governed by a lognormal distribution. A comparison with empirical investigations confirms the model statements.
    Keywords: Market dynamics; price dispersion; consumer goods; lognormal distribution; Laplace distribution
    JEL: D0 E3 L1
    Date: 2015–05–27
  98. By: Georgescu, George
    Abstract: The accuracy of indicators used both in economic research and for designing most appropriate policy tools by the decision makers is of crucial importance. As speeding up the globalization process, the relevance of various indicators has been affected because of the lowering connection to the changes in the world economy, reflecting increasingly less the new global realities, even unto loosing any rational meaningful. This was the case of statistical distortions in international trade data arising from the double and sometimes multi-counted record of the value of cross-border goods and services (engaged on the so called „global value-added chains”) due to the worldwide magnitude of the international fragmentation of production. This comment cautions on the remained unsolved problems, that still distorts data, even more serious, hindering the policy makers to achieve an accurate perception of realities, despite the review of the BoP international methodology and the debates on the WTO „Made in the World” initiative.
    Keywords: Inward/Outward processing trade; Global value-added chain; BoP current account balance; statistical distortions; WTO
    JEL: C18 E01 F13 F33
    Date: 2016–02–10
  99. By: CHENAF-NICET Dalila; ROUGIER Eric
    Abstract: In order to diversify their risks, firms facing uncertainty in their domestic market may choose to increase their investment abroad by transferring production to more stable host economies. By estimating a gravity model of foreign direct investment (FDI) flows from Europe and the Mediterranean region to the four main recipients of FDI in the Middle East and North Africa (MENA) region from 1985 to 2009, this article tests (1) the extent to which FDI inflows are affected by macroeconomic volatility in the source country and (2) whether regional trade and investment agreements could have increased this FDI sensitivity to source country’s macroeconomic volatility. We find that the incidence of FDI between two countries increases with source GDP instability and with host GDP stability. Moreover, FDI to MENA countries tends to be countercyclical with respect to the source country’s business cycle. We also find that although FDI reactivity to host country’s uncertainty is not conditioned by North-South trade and investment agreements, it becomes negative for South-South regional integration. Last, we show that although the source country’s instability certainly matters when explaining bilateral FDI flows in our sample, its impact may be less important when investments are driven by cost differentials, that is, for vertical investment.
    Keywords: Output volatility, FDI, gravity model, source country instability, European Union, Middle East and North Africa, regional trade integration, bilateral investment treaties, horizontal FDI, vertical FDI
    JEL: F21 F43 F4
    Date: 2016

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