nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒03‒06
94 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU By António Afonso; Luis Martins
  2. Quantitative Easing and the Labor Market in Japan By Chun-Hung Kuo; Hiroaki Miyamoto
  3. Financial Frictions, Asset Prices, and the Great Recession By Rios-Rull, Jose-Victor; Huo, Zhen
  4. Collective Household Economics: Why borrowers rather than banks should have been rescued! By De Koning, Kees
  5. Risky Mortgages, Bank Leverage and Credit Policy By Ferrante, Francesco
  6. New Result in Consumption Theory: Change in Savings and Income Growth – Nineteen Years Later By Wu, Cheng
  7. The asymmetric effects of monetary policy on housing across the level of development By Juan C. Medina; Robert R. Reed; Ejindu S. Ume
  8. Over-the-Counter Markets, Intermediation, and Monetary Policy By Han, Han
  9. Differential Mortality and the Progressivity of Social Security? By Shantanu Bagchi
  10. Credit Market Frictions and Coessentiality of Money and Credit By Ohik Kwon; Manjong Lee
  11. Monetary transmission under competing corporate finance regimes By De Grauwe, Paul; Gerba, Eddie
  12. Transmission of Volatility of Money Market Overnight Repo Rate along the Yield Curve in Pakistan By Asif Mahmood
  13. Optimal Monetary and Macroprudential Policies: Gains and Pitfalls in a Model of Financial Intermediation By Kiley, Michael T.; Sim, Jae W.
  14. La deuda pública: El bálsamo financiero del régimen de Franco (1939-1975) By Francisco Comín Comín
  15. Equity Premium and Monetary Policy in a Model with Limited Asset Market Participation By Roman Horvath; Lorant Kaszab
  16. Inflation Expectations and Monetary Policy Design: Evidence from the Laboratory By Pfajfar, Damjan; Žakelj, Blaž
  17. The persistence of a banking crisis By Kilian Huber
  18. Inflation Dynamics and the Hybrid Neo Keynesian Phillips Curve: The Case of Chile By Carlos Medel
  19. Did quantitative easing affect interest rates outside the US? New evidence based on interest tate differentials By Belke, Ansgar; Gros, Daniel; Osowski, Thomas
  20. Eliciting GDP Forecasts from the FOMC’s Minutes Around the Financial Crisis By Ericsson, Neil R.
  21. Layoff taxes, unemployment insurance, and business cycle fluctuations By Ahrens, Steffen; Nejati, Nooshin; Pfeiffer, Philipp L.
  22. Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan By Muhammad Omer; Jakob de Haan; Bert Scholtens
  23. Oil prices and the world business cycle: A causal investigation By Tapia, Jose
  24. Self-oriented monetary policy, global financial markets and excess volatility of international capital flows By Ryan Niladri Banerjee; Michael B Devereux; Giovanni Lombardo
  25. Tax Reforms and the Underground Economy: A Simulation-Based Analysis By Barbara Annicchiarico; Claudio Cesaroni
  26. Are all the fiscal policy shocks identical? Analysing the effects on private consumption of civilian and military spending shocks By Luca, Pieroni; Lorusso, Marco
  27. Are all the fiscal policy shocks identical? Analysing the effects on private consumption of civilian and military spending shocks By Luca, Pieroni; Lorusso, Marco
  28. Managing price and financial stability objectives - what can we learn from the Asia-Pacific region? By Soyoung Kim; Aaron Mehrotra
  29. Forecasting euro area recessions in real-time By Pirschel, Inske
  30. International Dollar Flows By Banegas, Ayelen; Judson, Ruth; Sims, Charles; Stebunovs, Viktors
  31. Monetary policy and the asset risk-taking channel By Abbate, Angela; Thaler, Dominik
  32. Why may large economies suffer more at the zero lower bound? By Michał Brzoza-Brzezina
  33. Model Averaging in Markov-Switching Models: Predicting National Recessions with Regional Data By Pierre Guérin; Danilo Leiva-Leon
  34. Exchange Rate Uncertainty and Firm Investment Plans: Evidence from Swiss Survey Data By Andreas Dibiasi; Garret Binding
  35. Experts, firms, consumers or even hard data? Forecasting employment in Germany By Lehmann, Robert; Wohlrabe, Klaus
  36. Time-Varying Correlations between Inflation and Stock Prices in the United States over the Last Two Centuries By Nikolaos Antonakakis; Rangan Gupta; Aviral K. Tiwari
  37. Dette Extérieure, Croissance Économique et Crises dans Les Pays En Développement : Un Bref Aperçu Théorique, Historique et Statistique By Gharyeni, Abdellatif
  38. Consumption Taxes and Divisibility of Labor under Incomplete Markets By Tomoyuki Nakajima; Shuhei Takahashi
  39. Will BRICS New Development Bank focus on off-US Dollar currencies as major currency- A review By Jermy, Amanda
  40. Electricity Use as an Indicator of U.S. Economic Activity By Arora, Vipin; Lieskovsky, Jozef
  41. Collateralized Borrowing and Risk Taking at Low Interest Rates By Cociuba, Simona; Shukayev, Malik; Ueberfeldt, Alexander
  42. Endogenous firm competition and the cyclicality of markups By Afrouzi, Hassan
  43. Dynamic stochastic general equilibrium (dsge) modelling: Theory and practice By Dilip M. Nachane
  44. Identifying Uncertainty Shocks Using the Price of Gold By Michele Piffer; Maximilian Podstawski
  46. Prospects of Romania’s international investment position and financial stability risks By Georgescu, George
  47. Revisiting the Macroeconomic Impact of Oil Shocks in Asian Economies By Juncal Cunado; Soojin Jo; Fernando Perez de Gracia
  48. The effect of monetary policy on bank wholesale funding By Choi, Dong Boem; Choi, Hyun-Soo
  49. Post Reunification Economic Fluctuations in Germany: A Real Business Cycle Interpretation By Michael Flor
  50. Extending the Labour Market Indicator to the Canadian Provinces By Alexander Fritsche; Katherine Ragan
  51. Volatility spillovers in EMU sovereign bond markets By Fernando Fernández-Rodríguez; Marta Gómez-Puig; Simón Sosvilla-Rivero
  52. Knowledge Spillovers, absorptive capacity and growth: An Industry-level Analysis for OECD Countries By Ioannis Bournakis; Dimitris Christopoulos; Sushanta Mallick
  53. New Housing Registrations as a Leading Indicator of the BC Economy By Calista Cheung; Dmitry Granovsky
  54. What Is Behind the Weakness in Global Investment? By Maxime Leboeuf; Robert Fay
  55. Uncertainty and Employment Dynamics in the Euro Area and the US By Aleksei Netsunajev; Katharina Glass; ;
  56. The Risky Steady State and the Interest Rate Lower Bound By Hills, Timothy S.; Nakata, Taisuke; Schmidt, Sebastian
  57. Dynamics of Political Budget Cycle By Manjhi, Ganesh; Keswani Mehra, Meeta
  58. Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households By Gross, Marco; Población García, Francisco Javier
  59. Financial Stress and Equilibrium Dynamics in Money Markets By Yoldas, Emre; Senyuz, Zeynep
  60. Regime-Switching Models for Estimating Inflation Uncertainty By Nalewaik, Jeremy J.
  61. Top Incomes, Rising Inequality, and Welfare By Kevin J. Lansing; Agnieszka Markiewicz
  62. Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the "Shadow Economy" By Feige, Edgar L.
  63. Evaluating Forecasts of a Vector of Variables: A German Forecasting Competition By Tara M. Sinclair; Hans Christian Müller-Dröge; Herman Stekler
  64. The U.S. economic outlook and implications for monetary policy By Dudley, William
  65. Informational Rigidities and the Stickiness of Temporary Sales By Malin, Benjamin A.; Anderson, Eric; Nakamura, Emi; Simester, Duncan; Steinsson, Jon
  66. Evaluating reliability of some symmetric and asymmetric univariate filters By Anusha
  67. The Comparative Economics of Catch-Up in Output per worker, total factor productivity and technological gain in Sub-Saharan Africa By Ssozi, John; Asongu, Simplice A
  68. Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Countercyclical Capital Buffer (CCB) By Basten, Christhoph; Koch, Cathérine
  69. Dette extérieure et croissance économique dans les pays à revenu intermédiaire : Essai empirique By Gharyeni, Abdellatif; Jouili, Mustapha
  70. Accounting of pay-as-you-go pension schemes using accrued-to-date liabilities: An example for Switzerland By Metzger, Christoph
  71. Welfare Potential of Zakat: An Attempt to Estimate Economy wide Zakat Collection in Pakistan By Shaikh, salman Ahmed
  72. Income Inequality and the Cost of Recessions By Mostafa Shahee; Glenn P. Jenkins
  73. Monetary Policy, Incomplete Information, and the Zero Lower Bound By Gust, Christopher J.; Johannsen, Benjamin K.; Lopez-Salido, J. David
  74. Consommation d’énergie électrique et croissance économique au Togo By KPEMOUA, Palakiyem
  75. Trade, Relative Prices, and the Canadian Great Depression By Amaral, Pedro S.; MacGee, James
  76. Firm types, price-setting strategies, and consumption-tax incidence By Tuomas Kosonen; Jarkko Harju; Skans Nordström; Oskar
  77. Fiscal sustainability in CEE countries – the case of the Czech Republic, Hungary and Poland By Joanna Mackiewicz-Lyziak
  78. Oil Prices, Inflation and U.S. Monetary Policy By Bullard, James B.
  79. Does government promote or hinder capital accumulation? Evidence from Japanfs high-growth era By Mariko Hatase; Yoichi Matsubayashi
  80. To Cut or Not to Cut? On the Impact of Corporate Taxes on Employment and Income By Ljungqvist, Alexander; Smolyansky, Michael
  81. Is Economics Research Replicable? Sixty Published Papers from Thirteen Journals Say "Usually Not" By Chang, Andrew C.; Li, Phillip
  82. Exchange Rate Pass-Through in the Euro Area By Mirdala, Rajmund
  83. Plausibility of big shocks within a linear state space setting with skewness By Koloch, Grzegorz
  84. Does Banknote Quality Affect Counterfeit Detection? Experimental evidence from Germany and the Netherlands By Frank van der Horst; Martina Eschelbach; Susann Sieber; Jelle Miedema
  85. Interconnectedness in the Interbank Market By Brunetti, Celso; Harris, Jeffrey H.; Mankad, Shawn; Michailidis, George
  86. The Signaling Effect and Optimal LOLR Policy By Mei Li; Frank Milne; Junfeng Qiu
  87. Nowcasting Business Cycles: a Bayesian Approach to Dynamic Heterogeneous Factor Models By D'Agostino, Antonello; Giannone, Domenico; Lenza, Michele; Modugno, Michele
  88. A Novel Approach to Measuring Consumer Confidence By de Bruijn, L.P.; Segers, R.; Franses, Ph.H.B.F.
  89. Explaining the Cyclical Volatility of Consumer Debt Risk By Carlos Madeira
  90. Bitcoin as a virtual currency By Anna Wisniewska
  91. Return Migration and Economic Outcomes in the Conflict Context By Sonja Fransen; Isabel Ruiz; Carlos Vargas-Silva
  92. Inheritance and wealth inequality: Evidence from population registers By Elinder, Mikael; Erixson, Oscar; Waldenström, Daniel
  93. The Great Recession and Financial Shocks By Rios-Rull, Jose-Victor; Huo, Zhen
  94. Does Realized Volatility Help Bond Yield Density Prediction? By Shin, Minchul; Zhong, Molin

  1. By: António Afonso; Luis Martins
    Abstract: We provide new insights into the existence of expansionary fiscal consolidations in the Economic and Monetary Union, using annual panel data from 14 European Union countries, over the period of 1970-2013. Different measures were calculated for assessing fiscal consolidations, based on the changes in the cyclically adjusted primary balance. A similar ad-hoc approach was used to compute monetary episodes. Panel estimations for private consumption show that, in some cases, when fiscal consolidations are coupled with monetary expansions, the traditional Keynesian signals are reversed for general government final consumption expenditure, social transfers and taxes. Keynesian effects prevail when fiscal consolidations are not matched by monetary easing. Panel probit estimations suggest that longer consolidations contribute positively to its success, whilst the opposite is the case for revenue-based ones.
    JEL: C23 E21 E5 E62 H5 H62
    Date: 2016
  2. By: Chun-Hung Kuo (International Univeristy of Japan); Hiroaki Miyamoto (The University of Tokyo)
    Abstract: This paper studies the effectiveness of unconventional monetary policy on the labor market. By using the Japan's data, we estimate structural vector autoregressive models. Our empirical analysis demonstrates that while unconventional monetary policy boosts output and employment significantly, its effects on inflation and nominal wages are limited.
    Keywords: Quantitative easing, unemployment, wages, Japanese economy
    JEL: E24 E52 J60
    Date: 2016–02
  3. By: Rios-Rull, Jose-Victor (Federal Reserve Bank of Minneapolis); Huo, Zhen (New York University)
    Abstract: We study financial shocks to households’ ability to borrow in an economy that quantitatively replicates U.S. earnings, financial, and housing wealth distributions and the main macro aggregates. Such shocks generate large recessions via the negative wealth effect associated with the large drop in house prices triggered by the reduced access to credit of a large number of households. The model incorporates additional margins that are crucial for a large recession to occur: that it is difficult to reallocate production from consumption to investment or net exports, and that the reductions in consumption contribute to reductions in measured TFP.
    Keywords: Balance sheet recession; Asset price; Goods market frictions; Labor market frictions
    JEL: E20 E32 E44
    Date: 2016–02–05
  4. By: De Koning, Kees
    Abstract: In a series of lectures Dr. Ben S. Bernanke , the former Chairman of the Federal Reserve, discussed the two main responsibilities of central banks-financial stability and economic stability. Financial stability is achieved by central banks standing ready to act as lenders of last resort by providing short-term liquidity to financial institutions, replacing lost funding. For economic stability, the principal tool is monetary policy; in normal times that involves adjusting short-term interest rates. Dr. Bernanke admits that when the U.S. financial crisis occurred in 2007-2008, no government entity was in overall control of the measures that needed to be taken to counteract the crisis. This was seen as a managerial shortcoming. There were various other factors at play, which made it difficult for governments to deal with and contain the crisis. The demand for new homes seemed to be out of touch with reality. The shift in borrowing patterns for new homes was taken for granted rather than being scrutinized. The freedom to introduce poor quality mortgage products was left unchallenged. The widespread conversion of long-term mortgage debt into daily liquidity products through securitization was also left to market forces. However what resulted in the financial crisis being unduly prolonged and at much greater expense was that, in sharp contrast to the focus on support for lenders, no serious consideration was given to help the legions of mortgage borrowers who found themselves in trouble. Financial stability won over economic stability; put simply, there was no plan ready to be implemented to assist the 21.3 million households who were faced with foreclosure proceedings during the period 2006-2013. There was also no plan for the homeowners of the 5.8 million homes that were repossessed. Financial stability measures were not for the short term either. The balance sheet of the Federal Reserve as at 7th January 2016 still shows a holding of $1.747 trillion in mortgage-backed securities and $2.461 trillion in U.S. Treasury securities; several years after they were acquired. For the mortgage sector this still represents 18.5% of all outstanding mortgages as at same date. In September 2007, a few members of Congress pushed for direct federal aid to help homeowners in trouble, but most members did not want to spend substantial taxpayers funds on the problem. With the benefit of hindsight, the latter view may be regarded as a serious error of judgment. As this paper will show, the total costs of helping homeowners in trouble would have been $1.173 trillion over the period 2007-2013, which is less than the $1.747 trillion in mortgage bonds still on the books of the Fed. More importantly the U.S. government debt increase would have much lower than the nearly $9 trillion over the period 2007-2014. The only choice on the table should not be between economic growth or inflation, but between individual households’ income stability or instability. Income instability is a major cause of recessions.
    Keywords: financial crisis, financial and economic stability, mortgage lending, Federal Reserve, rescue program for mortgage borrowers
    JEL: E3 E32 E4 E44 E5 E58 E6 E65
    Date: 2016–01–23
  5. By: Ferrante, Francesco (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Two key channels that allowed the 2007-2009 mortgage crisis to severely impact the real economy were: a housing net worth channel, as defined by Mian and Sufi (2014), which affected the wealth of leveraged households; and a bank net worth channel, which reduced the ability of financial intermediaries to provide credit. To capture these features of the Great Recession, I develop a DSGE model with balance-sheet constrained banks financing both risky mortgages and productive capital. Mortgages are provided to agents facing idiosyncratic housing depreciation risk, implying an endogenous default decision and a link between their borrowing capacity and house prices. The interaction among the housing net worth channel, the bank net worth channel and endogenous foreclosures generates novel amplification mechanisms. I analyze the quantitative implications of these new channels by considering two different shocks linked to the supply of mortgage credit: an increase in the variance of housing risk and a deterioration in the collateral value of mortgages for bank funding. Both shocks are able to produce co-movements in house prices, business investment, consumption and output. Finally, I study two types of policy interventions that are able to reduce the severity of a mortgage crisis: debt relief for borrowing households and central bank credit intermediation.
    Keywords: Bank runs; deposit insurance; large depositors
    JEL: E32 E44 E58 G21
    Date: 2015–12–18
  6. By: Wu, Cheng
    Abstract: This new version uses the definitions and some of the results found in Sargent’s Macroeconomic Theory. Hall’s (1978) proof of the corollary 4, ct+1 = ct, can be found in Flavin (1981). Writing the same consumption stated in Flavin, for period t+1, in a different way for the summation of the expected future incomes, it is possible to show that changes in savings is a function of income growth. This new result has implications, for instance, in Keynes’ (1936) saving and dissaving.
    Keywords: consumption; martingale; savings; growth; income
    JEL: B00 E2 E21 E6 E60 F0 F00 J3 J30 N1 N10
    Date: 2016–02–17
  7. By: Juan C. Medina (Universidad Autónoma de Ciudad Juárez); Robert R. Reed (Universidad de Alabama); Ejindu S. Ume (Universidad de Ohio)
    Abstract: We study the effects of money growth in a neoclassical growth model with wealth effects. As the capital stock is the only component of wealth which contributes to an individual’s utility, the model should be interpreted as a model of housing production and housing wealth since the capital stock affects utility. Consistent with empirical evidence on the relationship between residential investment and GDP across countries, there are significant non-linearities between housing market activity and aggregate income in our framework.
    Keywords: Development, housing, monetary policy, inflation.
    JEL: E31 E52 E58
    Date: 2015–11–01
  8. By: Han, Han
    Abstract: During the Great Recession, the Federal Reserve implemented two monetary policies: cutting interest rates and quantitative easing (QE). I develop a model to examine these two policies in a frictional financial environment. In this model, agents sell assets to acquire money when a consumption opportunity arises, which can only be done through over-the-counter (OTC) markets. In equilibrium, when the interest rate is low (not necessarily zero), households who trade in OTC markets achieve their optimal consumption. When the interest rate is high, QE will raise asset prices and lower households’ consumption. The asset price increase indicates a higher liquidity premium, which reflects inefficiency in money reallocation.
    Keywords: OTC markets, Middlemen, Monetary Policy, QE, Asset Pricing
    JEL: E44 E52 E58 G12
    Date: 2015–12–18
  9. By: Shantanu Bagchi (Department of Economics, Towson University)
    Abstract: I examine how strongly Social Security benefits should be linked to past work-life income, while accounting for the fact that the wealthy live longer than the poor. Using a general equilibrium macroeconomic model calibrated to the U.S. economy, I find that the optimal Social Security arrangement warrants benefits that are flat and completely unrelated to past work-life income. While this arrangement leads to higher implicit tax rates for high-income households, their welfare losses are relatively small, because Social Security's current tax structure is regressive: the marginal tax rate is zero above the taxable maximum. On the other hand, full insurance from unfavorable labor income shocks generates large welfare gains to the low- and medium-income households. Under this flat-benefit arrangement, Social Security benefits increase by as much as a factor of 17 for low-income households, and decline by as much as 40% for high-income households, but the overall size of Social Security remains unchanged.
    Keywords: Differential mortality, Social Security, taxable maximum, mortality risk, labor income risk, incomplete markets, general equilibrium.
    JEL: E21 E62 H55
    Date: 2016–02
  10. By: Ohik Kwon (Department of Economics, Korea University, Seoul, Republic of Korea); Manjong Lee (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: We explore how credit market frictions matter for the coessentiality of money and credit. There are high-productivity and low-productivity borrowers. Limited commitment can yield a one-for-one credit limit in accordance with a borrower's productivity. An adverse selection problem caused by asymmetric information, however, makes lenders impose the credit limit of a low-productivity borrower on a high-productivity borrower. If productivities dier suciently between borrowers, a high-productivity borrower is credit-constrained and is willing to hold money to compensate for the deficiency of her credit limit, but a low-productivity borrower is not. This eventually implies the coessentiality of money and credit in the sensethat the use of both improves the allocation from a social welfare perspective.
    Keywords: asymmetric information, adverse selection, cash, coessentiality, credit
    JEL: E41 E44 E50
    Date: 2016
  11. By: De Grauwe, Paul; Gerba, Eddie
    Abstract: The behavioural agent-based framework of De Grauwe and Gerba (2015) is extended to allow for a counterfactual exercise on the role of banks for monetary transmissions. A bank-based corporate financing friction is introduced and the relative contribution of that friction to the effectiveness of monetary policy is evaluated. We find convincing evidence that the monetary transmission channel is stronger in the bank-based system compared to the market-based. Impulse responses to a monetary expansion are around the double of those in the market-based framework. The (asymmetric) effectiveness of monetary policy in counteracting busts is, on the other hand, relatively higher in the market-based model. The statistical fit of the bank-based behavioural model is also improved compared to the benchmark model. Lastly, we find that a market-based (bankbased) financing friction in a general equilibrium produces highly asymmetric (symmetric) distributions and more (less) pronounced business cycles.
    Keywords: monetary policy in the EA,monetary transmissions,banks,financial frictions,market based finance
    JEL: E52 E44 G21 G32
    Date: 2016
  12. By: Asif Mahmood (State Bank of Pakistan)
    Abstract: This paper presents the empirical results of the volatility transmission of money market overnight repo rate along the yield curve in Pakistan. The results indicate that the transmission of volatility of overnight repo rate is higher at the shorter end of the yield curve compared to the longer end. These results are in line with empirical findings of volatility transmission of interest rates found in other countries. The results also suggest that the pass-through level of transmission of volatility from overnight repo rate to short and long term interest rates has decreased after State Bank of Pakistan (SBP) adopted the interest rate corridor framework in August 2009. The empirical findings show that the subsequent changes introduced in the current operational framework of SBP has further improved the signaling mechanism of SBP’s monetary policy stance to financial markets. These results indicate the smooth transmission of changes in SBP policy rate to short and long term market interest rates without spreading the unwarranted volatility across the yield curve.
    Keywords: Monetary policy, volatility, yield curve, GARCH
    JEL: E4 E5 G1
    Date: 2015–12
  13. By: Kiley, Michael T. (Board of Governors of the Federal Reserve System (U.S.)); Sim, Jae W. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We estimate a quantitative general equilibrium model with nominal rigidities and financial intermediation to examine the interaction of monetary and macroprudential stabilization policies. The estimation procedure uses credit spreads to help identify the role of financial shocks amenable to stabilization via monetary or macroprudential instruments. The estimated model implies that monetary policy should not respond strongly to the credit cycle and can only partially insulate the economy from the distortionary effects of financial frictions/shocks. A counter-cyclical macroprudential instrument can enhance welfare, but faces important implementation challenges. In particular, a Ramsey planner who adjusts a leverage tax in an optimal way can largely insulate the economy from shocks to intermediation, but a simple-rule approach must be cautious not to limit credit expansions associated with efficient investment opportunities. These results demonstrate the importance of considering both optimal Ramsey policies and simpler, but more practical, approaches in an empirically grounded model.
    Keywords: Bayesian estimation; DSGE models; Macroprudential policy; Monetary policy
    JEL: E58 E61 G18
    Date: 2015–09–04
  14. By: Francisco Comín Comín (Universidad de Alcalá, Madrid, Spain)
    Abstract: Este documento de trabajo proporciona un análisis de los objetivos buscados con las emisiones de deuda finalista durante el franquismo, la estructura de la deuda en circulación y la sostenibilidad de la deuda. Como era más barata, se abusó de la deuda flotante que luego se consolidó. La represión financiera permitió a Franco pagar bajos intereses nominales, que fueron negativos por la fuerte inflación al principio y el final del régimen. El artículo concluye que los gobiernos de Franco emitieron la mayor parte de su deuda para financiar inversiones al margen del presupuesto, cuyos déficits fueron muy inferiores a las deudas emitidas. La pobreza de la Hacienda obligó a Franco a pagar su política de nacionalizaciones y de industrialización con deuda pública, tanto en la autarquía como con los planes de desarrollo. La falta de recursos impidió a Franco devolver sus deudas; la deuda pública fue aniquilada por el impuesto inflacionista y la represión financiera. Esto, junto al crecimiento económico, hizo que la deuda soberana fuera sostenible en el franquismo.
    Keywords: Palabras clave: deuda pública, impago, restructuración, impuesto inflacionista, represión financiera; política fiscal.
    JEL: E31 E4 E6 F3 F4 H6 N10 N23 N43 H63 F34
    Date: 2014–11
  15. By: Roman Horvath (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Lorant Kaszab (Central Bank of Hungary)
    Abstract: This short paper shows that a New Keynesian model with limited asset market participation can generate a high risk-premium on unlevered equity relative to short-term risk-free bonds and high variability of equity returns driven by monetary policy shocks with zero persistence.
    Keywords: Limited Participation, Monetary Policy, DSGE, Equity Premium
    JEL: E32 E44 G12
    Date: 2016–02
  16. By: Pfajfar, Damjan (Board of Governors of the Federal Reserve System (U.S.)); Žakelj, Blaž (Universitat Pompeu Fabra)
    Abstract: Using laboratory experiments within a New Keynesian framework, we explore the interaction between the formation of inflation expectations and monetary policy design. The central question in this paper is how to design monetary policy when expectations formation is not perfectly rational. Instrumental rules that use actual rather than forecasted inflation produce lower inflation variability and reduce expectational cycles. A forward-looking Taylor rule where a reaction coefficient equals 4 produces lower inflation variability than rules with reaction coefficients of 1.5 and 1.35. Inflation variability produced with the latter two rules is not significantly different. Moreover, the forecasting rules chosen by subjects appear to vary systematically with the policy regime, with destabilizing mechanisms chosen more often when inflation control is weaker.
    Keywords: Inflation expectations; laboratory experiments; monetary policy design; New Keynesian model
    JEL: C91 C92 E37 E52
    Date: 2015–06–11
  17. By: Kilian Huber
    Abstract: This paper analyses the effects of bank lending on GDP and employment. Following losses on international financial markets in 2008/09, a large German bank cut its lending to the German economy. I exploit variation in dependence on this bank across counties. To address the correlation between county GDP growth and dependence on this bank, I use the distance to the closest of three temporary, historic bank head offices as instrumental variable. The results show that the effects of the lending cut were persistent, and resembled the growth patterns of developed economies during and after the Great Recession. For two years, the lending cut reduced GDP growth. Thereafter, affected counties remained on a lower, parallel trend. The firm results exhibit similar dynamics, and show that the lending cut primarily affected capital expenditures. Overall, the lending cut reduced aggregate German GDP in 2012 by 3.9 percent and employment by 2.3 percent. This shows that a single bank can persistently shape macroeconomic growth.
    Keywords: banking crisis; financial frictions; lending; GDP; growth; employment
    JEL: D2 D53 E24 E44 G0 G21 J01 J23 J30 O16 O40 O47
    Date: 2015–11
  18. By: Carlos Medel
    Abstract: It is recognised that the understanding and accurate forecasts of key macroeconomic variables are fundamental for the success of any economic policy. In the case of monetary policy, many efforts have been made towards understanding the relationship between past and expected values of inflation, resulting in the so-called Hybrid Neo-Keynesian Phillips Curve (HNKPC). In this article I investigate to which extent the HNKPC help to explain inflation dynamics as well as its out-ofsample forecast for the case of the Chilean economy. The results show that the forward-looking component is significant and accounts from 1.58 to 0.40 times the lagged inflation coefficient. Also, I find predictive gains close to 45% (respect to a backward-looking specification) and up to 80% (respect to the random walk) when forecasting at 12-months ahead. The output gap building process plays a key role delivering better results than similar benchmark. None of the two openness measures used—neither real exchange rate nor oil price—are significant in the reduced form. A final estimation using the annual variation of a monthly indicator of GDP deliver reasonable forecast accuracy but not as good as the preferred forecast-implied output gap measure.
    Date: 2015–09
  19. By: Belke, Ansgar; Gros, Daniel; Osowski, Thomas
    Abstract: This paper explores the effects of non-standard monetary policies on international yield relationships. Based on a descriptive analysis of international long-term yields, we find evidence that long-term rates have followed a global downward trend prior to as well as during the financial crisis. Comparing interest rate developments in the United States and the Eurozone, it appears difficult to find a distinct impact of the Fed's QE1 on US interest rates for which the global environment - the global downward trend in interest rates - does not account. Motivated by these results, we analyze the impact of the Fed's QE1 program on the stability of the US-Euro long-term interest rate relationship by using a CVAR and, in particular, recursive estimation methods. Using data between 2002 and 2014, we find limited evidence that QE1 caused a breakup or a destabilization of the transatlantic interest rate relationship. Taking global interest rate developments into account, we thus find no significant evidence that QE had an independent, distinct impact on US interest rates.
    Abstract: Der vorliegende Artikel untersucht die Auswirkungen unkonventioneller geldpolitischer Maßnahmen auf internationale Zinsbeziehungen. Aufbauend auf einer deskriptiven Analyse ergeben sich Hinweise, dass die weltweite Entwicklung der Langfristzinsen vor und während der Finanzkrise von einem globalen Abwärtstrend geprägt war. Unter Berücksichtigung dieser trendmäßigen Zinsreduktionen lässt sich im Rahmen eines Vergleichs der europäischen und amerikanischen Zinsentwicklungen kein separater Effekt des 'Quantitative Easings' der Federal Reserve auf den amerikanischen Zins erkennen. Ausgehend von diesem Ergebnis werden empirisch im Rahmen eines kointegrierten vektorautoregressiven Models ('CVAR') die Auswirkungen des 'QE1'- Programms auf die Stabilität der Beziehung zwischen europäischem und amerikanischem Langfristzins untersucht. Die Ergebnisse der Analyse generieren nur geringe Hinweise, dass 'QE1' zu einer Destabilisierung bzw. einem Zerfall der transatlantischen Zinsbeziehung geführt hat. In dieser Hinsicht ergeben sich keine signifikanten Hinweise darauf, dass das 'Quantitative Easing' der Federal Reserve einen unabhängigen bzw. separaten Einfluss auf den amerikanischen Langfristzins hatte.
    Keywords: quantitative easing,unconventional monetary policies,time series econometrics,Cointegrated VAR (CVAR),recursive methods
    JEL: C32 E43 E44 E58 F31 G01 G15
    Date: 2016
  20. By: Ericsson, Neil R. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Stekler and Symington (2016) construct indexes that quantify the Federal Open Market Committee's views about the U.S. economy, as expressed in the minutes of the FOMC's meetings. These indexes provide insights on the FOMC's deliberations, especially at the onset of the Great Recession. The current paper complements Stekler and Symington's analysis by showing that their indexes reveal relatively minor bias in the FOMC's views when the indexes are reinterpreted as forecasts. Additionally, these indexes provide a proximate mechanism for inferring the Fed staff's Greenbook forecasts of the U.S. real GDP growth rate, years before the Greenbook's public release.
    Keywords: Autometrics; bias; Fed; financial crisis; FOMC; forecasts; GDP; Great Recession; Greenbook; impulse indicator saturation; projections; Tealbook; United States
    JEL: C53 E58
    Date: 2015–11–17
  21. By: Ahrens, Steffen; Nejati, Nooshin; Pfeiffer, Philipp L.
    Abstract: This paper studies the role of labor market institutions in business cycle fluctuations. We develop a DSGE model with search and matching frictions and incorporate a US unemployment insurance experience rating system. Layoff taxes based on experience rating finance the cost of unemployment benefits and create considerable employment adjustment costs. Our framework helps realign the search and matching model with the empirical properties of its most salient variables. The model reproduces the negative correlation between vacancies and unemployment, i.e., the Beveridge curve. Simulations show that the model generates more cyclical volatility in its key variable - the ratio of job vacancies to unemployment (labor market tightness). Moreover, layoff taxes reduce the excess sensitivity of job destruction found in Krause and Lubik (2007) and strengthen the negative correlation of job creation and job destruction. Thus, the model matches key labor market data while incorporating an important feature of the US labor market.
    Keywords: search and matching,experience rating,unemployment insurance,Beveridge curve
    JEL: E24 J64 J65
    Date: 2015
  22. 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 transmission mechanism of policy-induced changes in the discount rate and required reserves in Pakistan. Our results suggest that the pass through to the lending rate is complete for the discount rate but incomplete for required reserves. However, only shocks to required reserves have an effect on the deposit rate and the exchange rate in the long run. The observation that the discount rate is not a very effective monetary policy tool is attributed to excess liquidity present in the interbank market of Pakistan. Finally, our findings suggest a structural shift in the interbank money market in Pakistan.
    Keywords: Monetary transmission mechanism, Pakistan, excess liquidity, VAR, ARDL
    JEL: E51 E52 E58 E61
    Date: 2014–05
  23. By: Tapia, Jose
    Abstract: Oil shocks have been often considered as exogenous factors responsible of economic downturns. In this paper the hypothesized exogeneity of oil prices is investigated by using running cross-correlations, distributed lag-regressions, Granger causality tests and VAR models applied to annual data 1960-2014 of oil prices and global economic activity—as measured by world GDP. Strong evidence is found that (a) the relation between oil prices and the global economy has significantly changed since the 1960s to the present, and (b) oil prices are endogenously influenced by the level of activity in the global economy. Evidence of a negative effect of oil prices on the global economy is weak for the whole sample and null for recent decades. These findings are consistent with former results using the Kilian index, which is shown to be a leading indicator of activity in the world economy. As such it is significantly correlated with other indicators of the global business cycle, such as the rate of growth of world output and the annual growth of CO2 global emissions.
    Keywords: oil price; global economy; business cycle
    JEL: E32 F00 F2
    Date: 2016–01–19
  24. By: Ryan Niladri Banerjee; Michael B Devereux; Giovanni Lombardo
    Abstract: This paper explores the nature of macroeconomic spillovers from advanced economies to emerging market economies (EMEs) and the consequences for independent use of monetary policy in EMEs. We first empirically document the effects of US monetary policy shocks on a sample group of EMEs. A contractionary monetary shock leads a retrenchment in EME capital flows, a fall in EME GDP, and an exchange rate depreciation. We construct a theoretical model which can help to account for these findings. In the model, macroeconomic spillovers are exacerbated by financial frictions. We assess the extent to which domestic monetary policy can mitigate the negative spillovers from foreign shocks. Absent financial frictions, international spillovers are minor, and an inflation targeting rule represents an effective policy for the EME. With frictions in financial intermediation, however, spillovers are substantially magnified, and an inflation targeting rule has little advantage over an exchange rate peg. However, an optimal monetary policy markedly improves on the performance of naive inflation targeting or an exchange rate peg. Furthermore, optimal policies don't need to be coordinated across countries. Under the specific set of assumptions maintained in our model, a non-cooperative, self-oriented optimal policy gives results very similar to those of a global cooperative optimal policy.
    Keywords: International spillovers, Local Projections, Capital flows, Financial intermediaries, Monetary policy
    Date: 2016–01
  25. By: Barbara Annicchiarico (University of Rome "Tor Vergata"); Claudio Cesaroni (DEF, Università di Roma "Tor Vergata")
    Abstract: This paper studies the effects of several tax reforms in an economy in which taxes are partially evaded by means of undeclared work. To this purpose, we consider a two-sector dynamic general equilibrium model calibrated to Italy which explicitly accounts for underground production. We construct various tax reform scenarios, such as deductibility of labor costs from business tax, ex-ante budget-neutral tax shifts from direct to indirect taxes, and various tax cuts financed by decreases of government spending. We find the following results. First, neglecting the existence of the underground sector may lead to severely miscalculate the macroeconomic impact effects of tax reforms, especially in the short run, where policy interventions produce direct and indirect effects on the markup. Second, partial deductibility of labor costs from the business tax base proves to be highly expansionary and highly detrimental to the size of the underground sector. Third, the dimension of the underground sector is permanently and considerably reduced by changes in the tax mix that diminish the labor tax wedge. Finally, all the considered tax reforms take the public-debt-to-output ratio toward a prolonged downward path.
    Keywords: Dynamic General Equilibrium Model, Underground Economy, Tax Reforms, Italy
    JEL: E62 O41 O52
    Date: 2016–02–10
  26. By: Luca, Pieroni; Lorusso, Marco
    Abstract: In this paper, we show that civilian and military government spending have specific characteristics that can affect differently private consumption. Our VAR estimates for the US economy show that civilian expenditure induces a positive and significant response on private consumption whereas military spending has a negative impact. We adopt a new Keynesian approach and develop a DSGE model in order to simulate the empirical evidence. Both the larger persistence of shocks in military spending and the different financing mechanisms, which accounts for the propensity of policy-makers to use budget deficits to finance wars, mimic the differences in the empirical responses of private consumption. Simulated impulse response functions of alternative specification models prove the robustness of our analysis.
    Keywords: Military and Civilian Spending, SVAR, DSGE Model.
    JEL: E32 E62
    Date: 2015–12
  27. By: Luca, Pieroni; Lorusso, Marco
    Abstract: In this paper, we show that civilian and military government spending have specific characteristics that can affect differently private consumption. Our VAR estimates for the US economy show that civilian expenditure induces a positive and significant response on private consumption whereas military spending has a negative impact. We adopt a new Keynesian approach and develop a DSGE model in order to simulate the empirical evidence. Both the larger persistence of shocks in military spending and the different financing mechanisms, which accounts for the propensity of policy-makers to use budget deficits to finance wars, mimic the differences in the empirical responses of private consumption. Simulated impulse response functions of alternative specification models prove the robustness of our analysis.
    Keywords: Military and Civilian Spending, SVAR, DSGE Model.
    JEL: E32 E62
    Date: 2015–12
  28. By: Soyoung Kim; Aaron Mehrotra
    Abstract: The international financial crisis led many central banks to adopt explicit financial stability objectives. This raises the question of how central banks deal with policy trade-offs resulting from potential conflicts between price and financial stability objectives. We analyse this issue in the Asia-Pacific region, where many economies with inflation targeting central banks have adopted macroprudential policies in order to safeguard financial stability. Using structural vector autoregressions that identify both monetary and macroprudential policy actions, our results highlight similarities in the effects of monetary and macroprudential policies on the real economy. Tighter macroprudential policies used to contain credit growth have also had a negative impact on output and inflation. The similar effects of monetary and macroprudential policies could create challenges for policy, given the frequency of episodes where low inflation coincides with buoyant credit growth.
    Keywords: multiple objectives, financial stability, price stability, macroprudential instruments, monetary policy
    Date: 2015–12
  29. By: Pirschel, Inske
    Abstract: I present evidence that the linear mixed-frequency Bayesian VAR provides very sharp and well calibrated monthly real-time recession probabilities for the euro area for the period from 2004 until 2013. The model outperforms not only the univariate regime-switching models for a number of hard and soft economic indicators and their optimal linear combinations, but also a real-time recession index obtained with Google Trends data. This result holds irrespective of whether the joint predictive distribution of several economic indicators or the marginal distribution of real GDP growth is evaluated to extract the real-time recession probabilities of the mixed-frequency Bayesian VAR. The inclusion of the confidence index in industry turns out to be crucial for the performance of the model.
    Keywords: Density nowcasting,Real-time recession forecasting,Mixed-frequency data,Bayesian VAR,Regime-switching models,Linear opinion pool,Google Trends
    JEL: C53 E32 E37
    Date: 2016
  30. By: Banegas, Ayelen (Board of Governors of the Federal Reserve System (U.S.)); Judson, Ruth (Board of Governors of the Federal Reserve System (U.S.)); Sims, Charles (Federal Reserve Bank of New York); Stebunovs, Viktors (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Using confidential Federal Reserve data, we study the factors driving U.S. banknote flows between the United States and other countries. These flows are a significant component of capital flows in emerging market economies, where physical U.S. currency functions as a safe asset and precautionary demand for U.S. banknotes is a form of flight to quality. Prior to the global financial crisis, country-specific factors, including local economic uncertainty, largely explain the volume and heterogeneity of the flows. Since the crisis, global factors, particularly, global economic uncertainty, explain the flows markedly well. Further, precautionary demand for U.S. banknotes is not episodic.
    Keywords: capital flows; currency flows; U.S. banknotes; safe asset; emerging market economies; economic uncertainty; flight to quality; capital flight; money demand.
    JEL: E40 E50 F30
    Date: 2015–09–09
  31. By: Abbate, Angela; Thaler, Dominik
    Abstract: Motivated by VAR evidence, we develop a monetary DSGE model where an agency problem between bank financiers, stemming from limited liability and unobservable risk taking, distorts banks' incentives leading them to choose excessively risky investments. A monetary policy expansion magnifies these distortions, increasing excessive risk taking and lowering the expected return on investment. We estimate the model on US data using Bayesian techniques and assess how this novel channel affects optimal monetary policy. Our results suggest that the monetary authority should stabilize the real interest rate, trading off more inflation volatility in exchange for less volatility in risk taking and output.
    Keywords: Bank Risk,Monetary policy,DSGE Models
    JEL: E12 E44 E58
    Date: 2015
  32. By: Michał Brzoza-Brzezina
    Abstract: This paper compares the consequences of hitting the zero lower bound in small open and large closed economies. I costruct a two-economy New Kenynesian model and calibrate it so that one economy is small and open and the second large and closed. Then I conduct a number of experiments assuming that the zero lower bound binds for one or the other economy. At the ZLB bad shocks are amplified and good shocks dampened. I show that this modifications are much stronger in the large than in the small economy. As a result the large economy may suffer more at the ZLB.
    Keywords: zero lower bound, small open economy, amplification of shocks
    JEL: E43 E52
    Date: 2016
  33. By: Pierre Guérin; Danilo Leiva-Leon
    Abstract: This paper introduces new weighting schemes for model averaging when one is interested in combining discrete forecasts from competing Markov-switching models. In particular, we extend two existing classes of combination schemes – Bayesian (static) model averaging and dynamic model averaging – so as to explicitly reflect the objective of forecasting a discrete outcome. Both simulation and empirical exercises show that our new combination schemes outperform competing combination schemes in terms of forecasting accuracy. In the empirical application, we estimate and forecast U.S. business cycle turning points with state-level employment data. We find that forecasts obtained with our best combination scheme provide timely updates of the U.S. business cycles.
    Keywords: Business fluctuations and cycles, Econometric and statistical methods
    JEL: C53 E32 E37
    Date: 2015
  34. By: Andreas Dibiasi (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Garret Binding (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: A sudden change in monetary policy happened in Switzerland on January 15th, 2015. The Swiss National Bank removed a lower exchange rate bound vis-à-vis the Euro. This unexpected change of regime induced a temporary uncertainty about future prices in foreign markets. We believe that this hampers firm investment in the short term. Using this change in monetary policy as a natural experiment and exploiting the continuous nature of a micro-level business tendency survey, we identify the source of uncertainty and disentangle first and second moment effects. We find that price uncertainty affects investment in equipment and machinery through real option effects and believe that growth option effects positively influences expenditures in research and development. We show that focusing on aggregate gross fixed capital formation masks important insights and suggest the use of disaggregated investment data to deepen our knowledge on the relationship between uncertainty and investment.
    Keywords: investment, uncertainty, irreversibility, Switzerland
    JEL: D81 D84 E22
    Date: 2016–01
  35. By: Lehmann, Robert; Wohlrabe, Klaus
    Abstract: In this paper, we forecast employment growth for Germany with data for the period from November 2008 to November 2015. Hutter and Weber (2015) introduced an innovative unemployment indicator and evaluate the performance of several leading indicators, including the Ifo Employment Barometer, to predict unemployment changes. Since the Ifo Employment Barometer focuses on employment growth instead of unemployment developments, we mirror the study by Hutter and Weber (2015). It turns out that in our case, and in contrast to their article, the Ifo Employment Barometer outperforms their newly developed indicator. Additionally, consumers’ unemployment expectations and hard data such as new orders exhibit a high forecasting accuracy.
    Keywords: survey data; employment forecasts; model confidence set
    JEL: C52 C53 E24 E27 J00
    Date: 2016–02–19
  36. By: Nikolaos Antonakakis (Department of Economics and Finance, University of Portsmouth; Department of Business and Management, Webster Vienna Private University and Department of Economics, Johannes Kepler University); Rangan Gupta (Department of Economics, University of Pretoria); Aviral K. Tiwari (Faculty of Management, IBS Hyderabad, IFHE University, India)
    Abstract: The relationship between stock prices and the inflation can be either negative or positive, depending on the strengths of various theoretical channels at work. While previous studies have primarily examined this relationship in a time-invariant framework, and if at all a time-varying framework is used, it has been restricted to the post World War II period. Given this, we employ a time-varying approach to examine the dynamic correlations of inflation and stock prices in the United States over the period of 1791 to 2015. The results of our empirical analysis reveal that correlations between the inflation and stock prices in the United States evolve heterogeneously overtime. In particular, the correlations are significantly positive in the 1840s, 1860s, 1930s and 2011, and significantly negative otherwise. The policy implications of these findings are then discussed.
    Keywords: Conditional correlation, GARCH, Inflation and Stock Price Comovement, US Economy
    JEL: C32 C50 E31 E44 G1 N1
    Date: 2016–01
  37. By: Gharyeni, Abdellatif
    Abstract: The past three decades, developing countries have not spared of all international financial changes. They almost followed the same historical trends. Today, the destabilizing effects of financial liberalization affect even developed economies. The finding is iconic and risk economic policy. This article provides an overview on the theoretical foundations and the different assessments of relations between external debt and economic growth. A statistical analysis, since the 1960s, comes in support of this thesis. For the last two decades, the data show that the stock of debt of developing countries has risen sharply. They are almost 5 times more indebted. Nonetheless, funders have launched various initiatives to revive growth in these countries. The results are relative. However, these countries are continue vulnerable to climate crisis.
    Keywords: Macroéconomie; Surendettement (courbe de Laffer); effet de levier; Croissance Économique; Pays en Développement; Développement Économique; Économie Informelle; Fluctuations du PIB; Instabilité Financière; Données Statistiques.
    JEL: C0 C02 E26 E4 E42 E5 E58 H63 N1 O5 O57
    Date: 2015–03–16
  38. By: Tomoyuki Nakajima (Institute of Economic Research, Kyoto University); Shuhei Takahashi (Institute of Economic Research, Kyoto University)
    Abstract: We analyze lump-sum transfers nanced through consumption taxes in a heterogeneous-agent model with uninsured idiosyncratic wage risk and endogenous labor supply. The model is calibrated to the U.S. econ- omy. We nd that consumption inequality and uncertainty decrease with transfers much more substantially under divisible than indivisible labor. Increasing transfers by raising the consumption tax rate from 5% to 35% decreases the consumption Gini by 0.04 under divisible labor, whereas it has almost no e¤ect on the consumption Gini under indivis- ible labor. The divisibility of labor also a¤ects the relationship among consumption-tax nanced transfers, aggregate saving, and the wealth distribution.
    Keywords: Transfers, consumption taxes, consumption inequality and uncertainty, the divisibility of labor, incomplete markets
    JEL: E62 H63
    Date: 2016–02
  39. By: Jermy, Amanda
    Abstract: Will the New Development Bank (NDB) – all the more generally known as the BRICS bank – free South Africa and other rising and creating nations from the grasp of the forceful dollar? The paper is a review of futuristic and contemporary views of the first president of the NDB. It has been reviewed as to the quantum of the influential credential of the newly established entity on the international monetary environment.
    Keywords: BRICS New Development Bank; BRICS nations; regional development; developmental economics
    JEL: E5 E51 G2 G28
    Date: 2016–02–10
  40. By: Arora, Vipin; Lieskovsky, Jozef
    Abstract: We argue for the resurrection of an old idea: electricity use as an indicator of U.S. economic activity. Our analysis relies on associations–the 40-year correlation between growth rates in real GDP and electricity use can be as high as 89% –and intuition. Electricity use and economic conditions should move together. The vast majority of goods and services are still produced using electricity; services may require less electricity, but they still require some. Electricity use also has other strengths –it is broad-based and the data are available weekly, possibly hourly by 2015.
    Keywords: electricity,economic indicator,business cycles
    JEL: E32 E37 Q43
  41. By: Cociuba, Simona (University of Western Ontario); Shukayev, Malik (University of Alberta, Department of Economics); Ueberfeldt, Alexander (Bank of Canada)
    Abstract: Empirical evidence suggests financial intermediaries increase risky investments when interest rates are low. We develop a model consistent with this observation and ask whether the risks undertaken exceed the social optimum. Interest rate policy affects risk taking in the model through two opposing channels. First, low policy rates make riskier assets more attractive than safe bonds. Second, low policy rates reduce the amount of safe bonds available for collateralized borrowing in interbank markets. The calibrated model features excessive risk taking at the optimal policy. However, at low policy rates, collateral constraints tighten and risk taking doesn't exceed the social optimum.
    Keywords: Financial intermediation; risk taking; optimal interest rate policy
    JEL: E44 E52 G11 G18
    Date: 2016–02–09
  42. By: Afrouzi, Hassan (The University of Texas at Austin)
    Abstract: The cyclicality of markups is crucial to understanding the propagation of shocks and the size of multipliers. I show that the degree of inertia in the response of output to shocks can reverse the cyclicality of markups within implicit collusion and customer-base models. In both classes of models, markups follow a forward looking law of motion in which they depend on firms' conditional expectations over stochastic discount rates and changes in output, implying that auxiliary assumptions that affect the inertia of output can potentially reverse cyclicality of markups in each of these models. I test this common law of motion with data for firms' expectations from New Zealand and find that firms' markup setting behavior is more consistent with implicit collusion models than customer base models. Calibrating an implicit collusion model to the U.S. data, I find that markups are procyclical if there is inertia in the response of output to shocks, as commonly found in the data.
    JEL: D21 D92 E3
    Date: 2016–02–01
  43. By: Dilip M. Nachane (Indira Gandhi Institute of Development Research)
    Abstract: In recent years DSGE (dynamic stochastic general equilibrium) models have come to play an increasing role in central banks, as an aid in the formulation of monetary policy (and increasingly after the global crisis, for maintaining financial stability). DSGE models, compared to other widely prevalent econometric models (such as VAR, or large-scale econometric models) are less a theoretic and with secure micro-foundations based on the optimizing behavior of rational economic agents. Apart from being "structural", the models bring out the key role of expectations and (being of a general equilibrium nature) can help the policy maker by explicitly projecting the macro - economic scenarios in response to various contemplated policy outcomes. Additionally the models in spite of being strongly tied to theory, can be "taken to the data" in a meaningful way. A major feature of these models is that their theoretical underpinnings lie in what has now come to be called as the New Consensus Macro -economics (NCM). Using the prototype real business cycle model as an illustration, this paper brings out the econometric structure underpinning such models. Estimation and inferential issues are discussed at length with a special emphasis on the role of Bayesian maximum likelihood methods. A detailed analytical critique is also presented together with some promising leads for future research.
    Keywords: real business cycle, log-linearization, stochastic singularity, Bayesian maximum likelihood, complexity theory, agent-based modeling, robustness
    JEL: C52 E32
    Date: 2016–01
  44. By: Michele Piffer; Maximilian Podstawski
    Abstract: We propose a new instrument to identify the impact of uncertainty shocks in a SVAR model with external instruments. We construct the instrument for uncertainty shocks by exploiting variations in the price of gold around selected events. The events capture periods of changes in uncertainty unrelated to other macroeconomic shocks. The variations in the price of gold around such events provide a measure correlated with the underlying uncertainty shocks, due to the perception of gold as a safe haven asset. The proposed approach improves upon the recursive identification of uncertainty shocks by not restricting only one structural shock to potentially affect all variables in the system. Replicating Bloom (2009), we find that the recursive approach underestimates the effects of uncertainty shocks and their role in driving monetary policy.
    Keywords: Economic uncertainty, external proxy SVAR, safe haven assets
    JEL: E32 C32 D81
    Date: 2016
  45. By: Horioka, Charles Yuji
    Abstract: Martin Stuart ("Marty") Feldstein, currently George F. Baker Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, Inc. (NBER), is an American economist who has made important contributions to public finance, macroeconomics, international economics, social insurance, health economics, the economics of national security, and many other fields of economics, trained a large number of prominent economists, served as President of the National Bureau of Economic Research for some thirty years, and served as President Ronald Reagan's chief economic advisor.
    Keywords: Capital accumulation, capital gains tax, charitable giving, Council of Economic Advisors, deadweight loss, economics of national security, euro, European Monetary Union, Feldstein, M., Feldstein-Horioka paradox, Feldstein-Horioka puzzle, health economics, health insurance, home bias, inflation, international capital flows, international capital mobility, investment, National Bureau of Economic Research, pensions, public finance, public pensions, saving, social insurance, social security, tax expenditures, taxation, unemployment compensation, unemployment insurance, Capital accumulation, capital gains tax, charitable giving, Council of Economic Advisors, deadweight loss, economics of national security, euro, European Monetary Union, Feldstein, M., Feldstein-Horioka paradox, Feldstein-Horioka puzzle, health economics, health insurance, home bias, inflation, international capital flows, international capital mobility, investment, National Bureau of Economic Research, pensions, public finance, public pensions, saving, social insurance, social security, tax expenditures, taxation, unemployment compensation, unemployment insurance
    JEL: B31 D14 D22 E21 F21 F32 F33 F52 H20 H55 I13 J65
    Date: 2015–03
  46. By: Georgescu, George
    Abstract: The paper aims to investigate the changes in Romania’s net international investment position (NIIP) and to evaluate the prospects of this position, having in view the country's road towards joining the Eurozone. Among the 11 key indicators of nominal and real convergence monitored by the European Commission (MIP Scoreboard) under the macroeconomic imbalances procedure, NIIP is the only one to which Romania stands above the indicative threshold (-57% of GDP in 2014 compared to the threshold of -35%). The study highlights the main driving factors that have led to the deterioration of NIIP during the last decade in Romania and the related risks to the financial stability. The comparative analysis of Romania’s NIIP with other EU Member Countries is shaping a picture of external assets and liabilities at the European level that may represent valuable benchmark points for their possible developments. The study found that, considering the strengthening of recent trends, which witnessed a decrease in external indebtedness and in the current account deficits, the net international investment position of Romania may return within the MIP prudential standard. Under the circumstances of a favorable internal and international environment and significant progresses in structural reforms, Romania could make significant steps in order to meet all the required convergence indicators and criteria for Eurozone accession during the next decade.
    Keywords: net international investment position; nominal and real convergence; financial stability; MIP Scoreboard; Eurozone accession
    JEL: E44 F21 F36 G15
    Date: 2016–01–15
  47. By: Juncal Cunado; Soojin Jo; Fernando Perez de Gracia
    Abstract: This paper analyzes the macroeconomic impact of oil shocks in four of the largest oil-consuming Asian economies, using a structural vector autoregressive model. We identify three different types of oil shocks via sign restrictions: an oil supply shock, an oil demand shock driven by global economic activity and an oil-specific demand shock. The main results suggest that economic activity and prices respond very differently to oil price shocks depending on their type. In addition, a country’s oil-importing and -exporting status in the world oil market affects the transmission of shocks. Finally, subsample analysis shows a possible structural break in Japan and South Korea for all three types of oil shocks.
    Keywords: Econometric and statistical methods, International topics
    JEL: E32 Q43 O53
    Date: 2015
  48. By: Choi, Dong Boem (Federal Reserve Bank of New York); Choi, Hyun-Soo (Singapore Management University)
    Abstract: We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the retail deposit supply owing to, for example, a decrease in bank reserves or in money demand, banks try to substitute the deposit outflows with more wholesale funding in order to mitigate the policy impact on their lending. Banks have varying degrees of accessibility to wholesale funding sources because of financial frictions, and those banks that are large or that have a greater reliance on wholesale funding increase their wholesale funding more. As a result, monetary tightening increases both the reliance on and the concentration of wholesale funding within the banking sector, indicating that monetary tightening could increase systemic risk. Our findings also suggest that introducing liquidity requirements can bolster monetary policy transmission through the bank lending channel by limiting the funding substitution of large banks.
    Keywords: bank funding; monetary policy transmission; systemic stability; liquidity regulation; bank lending channel
    JEL: E52 E58 G21 G28
    Date: 2016–01–01
  49. By: Michael Flor
    Abstract: We consider the cyclical properties of the German economy prior and after reunication in 1990 from the perspective of a real business cycle model. The model provides the framework for the selection and consistent measurement of the variables whose time series properties characterize the cycle. Simulations of the calibrated model reveal the model's potential to interpret the data. Major findings are that: i) the volatility of most aggregate time series has not changed significantly between the two time periods, ii) despite many conceptual differences between the European and the U.S. System of Accounts, the calibrated parameter values for the German economy are within the range of values usually employed in the real business cycle literature, iii) the model is closer to the data for the time period prior to reunication.
    Keywords: Macroeconomic Data, Measurement and Data on National Income and Product Accounts, Economic Fluctuations, Real Business Cycles
    JEL: C82 E01 E32
    Date: 2014–04
  50. By: Alexander Fritsche; Katherine Ragan
    Abstract: Calculating the labour market indicator (LMI) at the provincial level provides useful insights into Canada’s regional economies and reveals differing trends in the state of underlying labour market conditions across provinces. Conclusions based on the Canadian LMI do not necessarily translate to the provinces. In most cases, the correlations between the provincial LMIs and the underlying labour market variables have the expected sign. Differences among provinces reflect idiosyncratic differences among provincial labour markets. The values of the provincial LMIs are not invariant to the sample period used when constructing them. We find that using a longer sample estimation period improves the properties of some of the provincial LMIs. Recent values for the LMI show that labour markets have deteriorated notably in Alberta, Saskatchewan, and Newfoundland and Labrador. At the same time, the LMIs for British Columbia, Ontario, Quebec and New Brunswick have improved over the course of the past year and the gap between the unemployment rate and the LMI has tended to narrow.
    Keywords: Labour markets, Recent economic and financial developments
    JEL: E2 E24 E27 J2 J21 J23
    Date: 2016
  51. By: Fernando Fernández-Rodríguez (Department of Quantitative Methods in Economics - Universidad de Las Palmas de Gran Canaria); Marta Gómez-Puig (Department of Economic Theory - Universitat de Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: We analyse volatility spillovers in EMU sovereign bond markets. First, we examine the unconditional patterns during the full sample (April 1999-January 2014) using a measure recently proposed by Diebold and Yılmaz (2012). Second, we make use of a dynamic analysis to evaluate net directional volatility spillovers for each of the eleven countries under study, and to determine whether core and peripheral markets present differences. Finally, we apply a panel analysis to empirically investigate the determinants of net directional spillovers of this kind.
    Keywords: Sovereign debt crisis, Euro area, Market Linkages, Vector Autoregression, Variance Decomposition.
    JEL: C53 E44 F36 G15
    Date: 2015–03
  52. By: Ioannis Bournakis; Dimitris Christopoulos; Sushanta Mallick
    Abstract: Given the decline in growth momentum in the manufacturing sector in many OECD countries, the role of knowledge-based capital has emerged as a key driver for sustained growth. While empirical studies on estimating knowledge spillovers have usually been undertaken at the country level, the spillover effects can be more definitive only if the analysis is conducted at the industry-level. The effectiveness of international spillovers is conditional on recipient country’s absorptive capacity and this is an important component of the spillover mechanism that has not attracted significant attention so far. This paper therefore assesses the effect of spillovers in driving per capita output growth taking into account the role of absorptive capacity. Our main findings are first, that there is evidence for a robust positive relationship between human capital and output growth across these countries at industry level. Second, the potential of international spillover gains is greater in countries with higher human capital and a more protective environment as far as intellectual property rights are concerned. Countries that improve their absorptive capacity can potentially increase gains from spillovers either via trade or FDI (including vertical FDI). Finally, significant heterogeneity is found between high and low-tech industries with high-tech group displaying greater knowledge spillovers, suggesting that low-tech industries need to be more innovative in order to absorb the technological advancements of domestic and international rivals.
    Keywords: Growth; R&D; Knowledge Spillovers; Absorptive Capacity; Human Capital; Intellectual Property Rights.
    JEL: E24 F1 O3 O4
    Date: 2015–04
  53. By: Calista Cheung; Dmitry Granovsky
    Abstract: Housing starts and building permits data are commonly used as leading indicators of economic activity. In British Columbia, all new homes must be registered with the Homeowner Protection Office, a branch of BC Housing, before the issuance of building permits and the start of construction. Data on new housing registrations (NHR) could thus potentially be used as an even earlier leading indicator of economic activity. This study assesses whether NHR data have significant predictive power for economic activity in British Columbia. The authors find that quarterly increases in new registrations for single detached homes have statistically significant predictive content for growth in real GDP over the next one to three quarters, and provide stronger signals compared to housing starts and building permits over this forecast horizon. These signals remain significant for growth in real GDP over the next two quarters even in the presence of other leading indicators in the equations. However, forecasts using quarterly NHR data with other leading indicators are not able to outperform simple benchmark forecasts in an out-of-sample forecasting exercise. Nonetheless, adding the NHR variable to an AR(1) equation does produce forecasts that are superior to a simple AR(1) and that at one quarter ahead also outperform an AR(1) augmented with building permits.
    Keywords: Business fluctuations and cycles, Housing, Regional economic developments
    JEL: C13 C53 E32 E37
    Date: 2016
  54. By: Maxime Leboeuf; Robert Fay
    Abstract: The recovery in private business investment globally remains extremely weak more than seven years after the financial crisis. This paper contributes to the ongoing policy debate on the factors behind this weakness by analyzing the role of growth prospects and uncertainty in explaining developments in non-residential private business investment in large advanced economies since the crisis. Augmenting the traditional models of investment with measures of growth expectations for output and uncertainty about global demand improves considerably the ability to explain investment growth. Our results suggest that the main driver behind the weakness in global investment in recent years is primarily a pessimistic outlook on the part of firms regarding the strength of future demand. Lower levels of uncertainty have supported investment growth modestly over 2013–14. Similarly, diminishing credit constraints, lower borrowing costs and relatively stronger corporate profits have also supported the recovery in business investment from 2010 onward. Our findings have two important implications for the global outlook for investment. First, the expected improvements in global growth should support a recovery in investment; however, a slowdown in growth in emerging-market economies or further growth disappointment in advanced economies could restrain this recovery. Second, the ongoing recovery in investment remains vulnerable to uncertainty shocks.
    Keywords: Business fluctuations and cycles, Central bank research, Domestic demand and components, Economic models, International topics, Recent economic and financial developments, Uncertainty and monetary policy
    JEL: C23 C33 D24 E22 D80 D84 F01 G31
    Date: 2016
  55. By: Aleksei Netsunajev; Katharina Glass; ;
    Abstract: In this paper we investigate transmission and spillovers of local and foreign economic policy uncertainty shocks to unemployment in two largest economic regions in the world - the United States (US) and the Euro area (EA). For this purpose we deploy Bayesian Markov-switching structural vector autoregressive (MS-SVAR) model identified via heteroskedasticity. In addition to local effects we find foreign uncertainty shocks influence the Euro area but not the US unemployment. Moreover we document weaker spillovers of both local and foreign uncertainty shocks in the more volatile times.
    Keywords: Downside risk, Value-at-Risk, long memory, fractional integration, Risk-return
    JEL: D80 C32 C11 E24
    Date: 2016–01
  56. By: Hills, Timothy S. (New York University); Nakata, Taisuke (Board of Governors of the Federal Reserve System (U.S.)); Schmidt, Sebastian (European Central Bank)
    Abstract: Even when the policy rate is currently not constrained by its effective lower bound (ELB), the possibility that the policy rate will become constrained in the future lowers today's inflation by creating tail risk in future inflation and thus reducing expected inflation. In an empirically rich model calibrated to match key features of the U.S. economy, we find that the tail risk induced by the ELB causes inflation to undershoot the target rate of 2 percent by as much as 45 basis points at the economy's risky steady state. Our model suggests that achieving the inflation target may be more difficult now than before the Great Recession, if the recent ELB experience has led households and firms to revise up their estimate of the ELB frequency.
    Keywords: Deflationary Bias; Disinflation; Inflation Targeting; Risky Steady State; Tail Risk; Zero Lower Bound
    JEL: E32 E52
    Date: 2016–02–12
  57. By: Manjhi, Ganesh; Keswani Mehra, Meeta
    Abstract: Using the method of optimal control, when an incumbent politician derives utility from voting support and dis-utility from budgetary deficit, the equilibrium time paths of both voting support and budgetary deficit are characterized in a finite time horizon under complete information. The incumbent politician may be an opportunist, in that she/ he is interested in garnering votes for herself/ himself, and manipulates budgetary deficit to achieve this, or else she/ he may be partisan, that is, characterized by heterogenous preferences, reflecting preferences for specific economic policies. The citizen-voters vote for the opportunist as well as the partisan incumbent. However, they reject the same when there is a sufficiently strong anti-incumbency in the opportunist case. The level of voting support obtained in case of both opportunist and partisan is found to be positive and rising over time, but running the budgetary deficit will be costlier for the economy in the former case than the latter. That is, per unit votes garnered by raising the budgetary deficit as compared to the benchmark deficit are lower when the incumbent is an opportunistic than when she/ he is partisan.
    Keywords: Opportunist Incumbent; Partisan Incumbent, Citizen Voters, Budgetary Deficit, Political Economy, Political Budget Cycles; Fiscal Policy; Anti-incumebency
    JEL: E3 E6 H3 H7
    Date: 2015–10–10
  58. By: Gross, Marco; Población García, Francisco Javier
    Abstract: We develop an integrated micro-macro model framework that is based on household survey data for a subset of the EU countries that the Household Finance and Consumption Survey (HFCS) contains. The model can be used for conducting scenario and sensitivity analyses with regard to the factors that drive households' income and expenses as well as their asset values and hence the structure of their balance sheet. Moreover, we use it for the purpose of assessing the efficacy of borrower-based macroprudential instruments, namely loan-to-value (LTV) ratio and debt service to income (DSTI) ratio caps. The simulation results from the model can be attached to bank balance sheets and their risk parameters to derive the impact of the policy measures on their capital position. The model framework also allows quantifying the macroeconomic feedback effects that would result from the policy-induced reduction of demand for mortgage loans. The model allows answering the question as to which of the two measures – LTV or DSTI caps – are more effective, both with respect to their ability to reduce household loss rates as well as their impact on the economy. JEL Classification: C33, E58, G18
    Keywords: household balance sheets, macro-financial linkages, macroprudential policy, stress-testing
    Date: 2016–02
  59. By: Yoldas, Emre (Board of Governors of the Federal Reserve System (U.S.)); Senyuz, Zeynep (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Interest rate spreads are widely-used indicators of funding pressures and market functioning in money markets. Using weekly data from 2002 to 2015, we analyze money market dynamics in a long-run equilibrium framework where commonly-monitored spreads serve as error correction terms. We find strong evidence for nonlinearities with respect to levels of the spreads. We provide point and interval estimates for spread thresholds that quantify funding pressure points from a long-run perspective. Our results indicate significant asymmetry in the adjustment toward long-run equilibrium. We show that economically and statistically significant adjustments occur only following large shocks to risk premia. Additionally, we quantify shifts in interest rate volatilities in high spread regimes characterized by elevated funding stress as well as declining correlations between risky funding rates and relatively safe base rates in such environments.
    Keywords: Money markets; Cointegration; Threshold models; GARCH; Constant conditional correlation model.
    JEL: C32 E44 E52
    Date: 2015–08–27
  60. By: Nalewaik, Jeremy J. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper constructs regime-switching models for estimating the probability of inflation returning to its relatively high levels of variability and persistence in the 1970s and 1980s. Forecasts and probabilities of extreme events from the models are evaluated against comparable estimates from other statistical models, from surveys, and from financial markets. The paper then uses the models to construct prediction intervals around Federal Reserve Board staff forecasts of PCE price inflation, combining the recent non-parametric forecast error distribution with parametric information from the model. The outer tails of the prediction intervals depend importantly on the probability inflation is in its high-variance, high-persistence regime.
    Keywords: Inflation; Markov-Switching; Uncertainty
    JEL: E30
    Date: 2015–09–01
  61. By: Kevin J. Lansing (Federal Reserve Bank of San Francisco, and Norges Bank); Agnieszka Markiewicz (Erasmus University Rotterdam)
    Abstract: This paper develops a general-equilibrium model of skill-biased technological change that approximates the observed shifts in the shares of wage and non-wage income going to the top decile of U.S. households since 1980. Under realistic assumptions, we find that all agents can benefit from the technology change, provided that the observed rise in redistributive transfers over this period is taken into account. We show that the increase in capital’s share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses.
    Keywords: Income Inequality, Skill-biased Technological Change, Capital-skill
    JEL: E32 E44 H23 O33
    Date: 2012–10–26
  62. By: Feige, Edgar L.
    Abstract: This paper reviews the meaning and measurement of unobserved economies germane to tax evasion and macroeconomic information systems. These include the unreported, non-observed, underground, illegal, informal and unrecorded economies. It reviews the progress and shortcomings of national and international agency efforts to measure these unobserved economies, noting what they have in common, what distinguishes one from another and their interconnections. It then examines the meaning of Professor Schneider’s Shadow Economy (SSE), and the veracity of his claim to have accurately estimated its size and trend worldwide by employing a MIMIC model methodology. It concludes that SSE estimates suffer from conceptual flaws, apparent manipulation of results and insufficient documentation for replication, questioning their place in the academic, policy and popular literature.
    Keywords: Tax evasion, shadow economy, non-observed, underground, illegal, informal, unrecorded, MIMIC, cash, National Income and Product Accounts, Friedrich Schneider
    JEL: C51 C82 E26 E41 H26 K42 O17
    Date: 2016–02–01
  63. By: Tara M. Sinclair (Department of Economics/Institute for International Economic Policy, George Washington University); Hans Christian Müller-Dröge (Handelsblatt Newspaper); Herman Stekler (Department of Economics, George Washington University)
    Abstract: In this paper we present an evaluation of forecasts of a vector of variables of the German economy made by different institutions. Our method permits one to evaluate the forecasts for each year and then if one is interested to combine the years. We use our method to determine an overall winner for a forecasting competition across twenty-five different institutions for a single time period using a vector of eight key economic variables. Typically forecasting competitions are judged on a variable-by-variable basis, but our methodology allows us to determine how each competitor performed overall. We find that the Bundesbank was the overall winner for 2013.
    Keywords: Mahalanobis Distance, forecasting competition, GDP components, German macroeconomic data
    JEL: C5 E2 E3
    Date: 2014–07
  64. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Economic Leadership Forum, Somerset, New Jersey.
    Keywords: personal consumption expenditure (PCE) deflator; PCE inflation rate; domestic demand; The New York Fed’s Survey of Consumer Expectations; lift-off; accommodative monetary policy; normalization; recession risk; overnight fixed-rate reverse repurchase facility (RRP); Summary of Economic Projections (SEP)
    Date: 2016–01–15
  65. By: Malin, Benjamin A. (Federal Reserve Bank of Minneapolis); Anderson, Eric (Northwestern University); Nakamura, Emi (Columbia University); Simester, Duncan (Massachusetts Institute of Technology); Steinsson, Jon (Columbia University)
    Abstract: We use unique price data to study how retailers react to underlying cost changes. Temporary sales account for 95% of price changes in our data. Simple models would, therefore, suggest that temporary sales play a central role in price responses to cost shocks. We find, however, that, in response to a wholesale cost increase, the entire increase in retail prices comes through regular price increases. Sales actually respond temporarily in the opposite direction from regular prices, as though to conceal the price hike. Additional evidence from responses to commodity cost and local unemployment shocks, as well as broader evidence from BLS data reinforces these findings. We present institutional evidence that sales are complex contingent contracts, determined substantially in advance. We show theoretically that these institutional practices leave little money “on the table”: in a price-discrimination model of sales, dynamically adjusting the size of sales yields only a tiny increase in profits.
    Keywords: Regular retail prices; Retail sales; Trade deals
    JEL: E30 L11 M30
    Date: 2015–06–25
  66. By: Anusha (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines statistical reliability of univariate filters for estimation of trend in leading indicators of cyclical changes. For this purpose, three measures are used: mean square error for quantitative accuracy, minimum revisions with additional data for statistical accuracy and directional accuracy to capture property of signaling cyclical movements. Our focus is on the widely used Hodrick-Prescott and Henderson filters and their generalizations to splines and RKHS(Reproducing Kernel Hilbert Spaces) embedding respectively. Comparison of trend fitted by the filters is illustrated with Indian and US Industrial production data and a simulated data series. We find that although Henderson smoothers based on RKHS preform better than classical filter, they are not better than spline based methods on the selected criterion for Indian macroeconomic time series. Overall findings suggest that in cases when penalized splines converge in quasi real time, they are better than HP filter on the three criterion.
    Keywords: Hodrick-Presscott filter, Penalized splines, Henderson smoothers in RKHS, end-of-sample reliability, leading indicators
    JEL: C32 E37
  67. By: Ssozi, John; Asongu, Simplice A
    Abstract: After investigating the effect of external financial flows on total factor productivity and technological gain, we use the beta catch-up and sigma convergence to compare dispersions in output per worker, total factor productivity and technological gain in Sub-Saharan Africa (SSA) for the years 1980-2010. The comparative evidence is articulated with income levels, years of schooling, and health factors. We find; first, a positive association between foreign direct investment, trade openness, foreign aid, remittances and total factor productivity. However, when foreign direct investment is interacted with schooling, it is direct effect becomes negative on total factor productivity. Second, beta catch-up is between19.22% and 19.70% per annum with corresponding time to full catch-up of 25.38 years and 26.01 years respectively. Third, we find sigma-convergence among low-income nations and upper-middle income nations separately, but not for the entire sample together. Fourth, schooling in SSA is not yet a significant source of technology, but it can make external financial inflows more effective. Policies to induce external financial flows are not enough for development if absorptive capacity is low. More policy implications are discussed.
    Keywords: External capital flows, Human capital, Total Factor Productivity, Convergence, and Sub-Saharan Africa
    JEL: E23 F21 O11 O33 O55
    Date: 2015–09
  68. By: Basten, Christhoph; Koch, Cathérine
    Abstract: We examine how the CCB affects mortgage pricing after Switzerland was first to activate this macroprudential tool of Basel III. Observing multiple offers per request, we obtain three core findings. First, the CCB changes the composition of mortgage supply, as capital-constrained and mortgage-specialized banks raise prices relatively more. Second, risk-weighting schemes do not amplify the CCB effect. Third, CCB-subjected banks and CCB-exempt insurers both raise mortgage rates. To conclude, changes in the supply composition hint at the CCB’s success in shifting mortgages from less to more resilient banks, but stricter capital requirements do not discourage banks from risky mortgage lending.
    Keywords: macroprudential policy, capital requirement, mortgage pricing
    JEL: G21 E51
    Date: 2015–06
  69. By: Gharyeni, Abdellatif; Jouili, Mustapha
    Abstract: This work lists some vulnerabilities in developing economies and proposes assessments that can improve macroeconomic resilience in relation to external financing. To examine the theory of indebtedness and seek a threshold beyond which external debt can slow economic growth, this paper proposes an empirical evaluation for a sample of 17 middle-income countries between 1980 and 2011. The results obtained after regressions on panel data show a non-linear correlation between external debt and growth, with the presence of certain variables selected a priori likely to influence economic activity.
    Keywords: Macroeconomics; Debt overhang; Economic growth; Development Country; Panel Data Models
    JEL: C82 E6 E65 H5 H6 H68 O11
    Date: 2015–03–16
  70. By: Metzger, Christoph
    Abstract: Due to demographic change, the fiscal sustainability of pension schemes financed on a pay-as-you-go (PAYGO) basis is of more interest for policy makers than ever. Unsustainable financing brings along a future burden to pensioners through pension cuts and/or to the working population through increasing contribution rates. With comparable data about the unfunded accrued-to-date pension liabilities of social security pension schemes soon being available due to a recent update of the international System of National Accounts (2008 SNA), we present a simple framework for accounting of paygo pension schemes using these estimates of accrued-to-date liabilities. Additionally we incorporate another definition of liabilities, the current workers' and pensioners' net liabilities (CWL). Applying this accounting framework using both definitions of liabilities to the Swiss pension scheme (AHV), we show that financing of the AHV is unsustainable. In order to restore fiscal sustainability either an increase in the contribution rate to 12 percent or a cut in average pension levels of about 38 percent would be necessary.
    Keywords: accounting of pension schemes,accrued-to-date liabilities,supplementary table,fiscal sustainability
    JEL: E01 H55 H83 H87
    Date: 2016
  71. By: Shaikh, salman Ahmed
    Abstract: Islamic economics literature is rich in highlighting the welfare potential of Zakat, but very few empirical studies have undertaken the quantitative estimation of potential Zakat collection. In this study, we attempt to estimate potential Zakat collection at economy wide level to explore the welfare potential of the institution of Zakat. We attempt to estimate economy wide Zakat collection by including heads like Zakat on agriculture produce, value of livestock, tradable inventory, currency in circulation, foreign exchange reserves, estimated gold and silver deposits and financial assets like investments in National Savings Scheme (NSS), mutual funds, stock market capitalization, pension schemes and remunerative bank deposits. Our estimates suggest that approximately Zakat collection in Pakistan could reach 7% of total GDP and is sufficient for covering poverty gap in Pakistan. We also discuss that the institution of Zakat system can also have positive effects on flow of investment, promoting entrepreneurship culture and making capital markets and real estate markets more competitive. At the macroeconomic level, we also discuss the role of the institution of Zakat as a stabilizer.
    Keywords: Zakat, Welfare, Fiscal Policy, Public Finance
    JEL: E6 H2 H3
    Date: 2014–12–02
  72. By: Mostafa Shahee (Department of Policy Studies, Queen’s University, Kingston, Ontario, Canada); Glenn P. Jenkins (Queen’s University, Canada and Eastern Mediterranean University, North Cyprus)
    Abstract: This article examines empirically the relationship between the severities of the recessions experienced by countries and their income distributions. The analysis is carried out for 36 countries over a period of 40 years. The empirical evidence from this paper suggests that a greater degree of income inequality increases the cumulative loss of GDP inflicted by recessions. The increase cost emerges from both a longer duration and a deeper amplitude for the contractionary phase of the business cycle.
    Keywords: Recession, income inequality, business cycle, income loss
    JEL: E25 E32
    Date: 2016–03
  73. By: Gust, Christopher J.; Johannsen, Benjamin K. (Board of Governors of the Federal Reserve System (U.S.)); Lopez-Salido, J. David (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: In the context of a stylized New Keynesian model, we explore the interaction between imperfect knowledge about the state of the economy and the zero lower bound. We show that optimal policy under discretion near the zero lower bound responds to signals about an increase in the equilibrium real interest rate by less than it would when far from the zero lower bound. In addition, we show that Taylor-type rules that either include a time-varying intercept that moves with perceived changes in the equilibrium real rate or that respond aggressively to deviations of inflation and output from their target levels perform similarly to optimal discretionary policy. Our analysis of first-difference rules highlights that rules with interest rate smoothing terms carry forward current and past misperceptions about the state of the economy and can lead to suboptimal performance.
    Date: 2015–11–05
  74. By: KPEMOUA, Palakiyem
    Abstract: The general purpose of this study is to analyze the effect of the consumption of electric energy on Togo’s economic growth and check the direction of the causality between this consumption and economic growth. From a simple methodological approach, the study uses cointegration and causality techniques to meet its objectives and tests the research hypothesis that consumption of electric energy causes, as Granger puts, the economic growth. The results show that there is a positive correlation between economic growth, capital stock and consumption of electric energy with a negative effect energy crisis in 1983. These results also show that there is no causality between economic growth and consumption of electric energy, in other words, the consumption of electric energy dwells a small component of economic growth.
    Keywords: Electric energy consumption, economic growth, Granger causality
    JEL: E21
    Date: 2016–01–30
  75. By: Amaral, Pedro S. (Federal Reserve Bank of Cleveland); MacGee, James (Federal Reserve Bank of Cleveland)
    Abstract: Canadian GNP per capita fell by roughly a third between 1928 and 1933. Although the decline and the slow recovery of GNP resemble the American Great Depression, trade was more important in Canada, as exports and imports each accounted for roughly a quarter of Canadian GNP in 1928. The fall in the trade share of GNP of roughly 30 percent between 1928 and 1933 was accompanied by a decline of over 20 percent in the relative prices of exports and imports relative to nontraded goods. We develop a three-sector small open economy model, where wages in the nontraded and import competing sectors adjust slowly due to Taylor contracts. We feed the relative prices of imports and exports from the data into the model, and find that the fall in traded goods prices can account for roughly half of the fall in GNP during the Canadian Great Contraction.
    Keywords: Great Depression; Sectoral Models; Trade; Relative Prices; Sticky Wages;
    JEL: E20 E30 E50
    Date: 2016–02–12
  76. By: Tuomas Kosonen; Jarkko Harju; Skans Nordström; Oskar
    Abstract: Studying very detailed micro data collected around two different VAT reforms in Europe, we show that tax incidence is heavily dependent on the characteristics of the price-setting firms. The reforms generated bimodal price-change distributions; nearly all independent restaurants left prices unchanged whereas a substantial fraction of restaurants belonging to chains chose a complete pass-through. These differences cannot be explained by location, initial prices or other market-segment indicators. Instead, differences appear to arise because independent restaurants aim for (very) crude price ranges rather than fine-tuned optimized prices, whereas chains use more elaborate, coordinated pricing strategies.
    Keywords: firm types, VAT incidence, price setting, restaurants
    JEL: H22 H32 E31
    Date: 2015–12–29
  77. By: Joanna Mackiewicz-Lyziak (Warsaw University, Poland)
    Abstract: The aim of the study is to assess fiscal sustainability in the Czech Republic, Hungary and Poland and to test for existence of fiscal dominance in these countries in the context of the fiscal theory of the price level. The empirical study is conducted using unit root tests and cointegration analysis with possible structural breaks. The approach is consistent with so called backward-looking approach for fiscal dominance testing proposed by Bohn (1998). The results suggest that in the Czech Republic and Poland fiscal dominance prevailed in the analyzed period, while in Hungary – monetary dominance. The result for Hungary may be caused, however, by a one-time reduction in debt resulting from changes in pension system.
    Keywords: fiscal sustainability; monetary and fiscal dominance; primary balance; debt; cointegration
    JEL: E62 H62 H63
    Date: 2014–12
  78. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: January 14, 2016. Presentation. "Oil Prices, Inflation and U.S. Monetary Policy." 2016 Regional Economic Briefing and Breakfast, Economic Club of Memphis, Memphis, Tenn.
    Date: 2016–01–14
  79. By: Mariko Hatase (Bank of Japan); Yoichi Matsubayashi (Graduate School of Economics, Kobe University)
    Abstract: Governments occasionally intervene in private sector economic activities to promote specific industries and enhance economic growth. During Japanfs high-growth era, the government used various policy tools to intervene in private sector capital investments. We examine the effects of these policy tools on capital accumulation. We employ firm-level data sets, identify policy actions using historical records and find that they were applied intensively to specific sectors and firms and that government intervention partially affected those firmsf capital investment decisions. For some industries, such as steel, chemicals and textiles, investment-promoting policy tools resulted in accelerating capital investments or relatively higher resource allocations of capital to labour. There were also cases in which policy actions aimed at curbing investments resulted in slower investments or lower allocations of capital to labour, but the effects were weak and small. Discouraging policy tools had contradictory effects on some industries and enhanced capital investments. The latter phenomenon was observed when the government attempted to control private sector capital investments based on the current share of production or production capacities.
    Keywords: capital accumulation, industrial policy, capital distortion, high-growth era
    JEL: E22 N15 O25
    Date: 2016–02
  80. By: Ljungqvist, Alexander (Stern School of Business New York University); Smolyansky, Michael (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Do corporate tax increases destroy jobs? And do corporate tax cuts boost employment? Answering these questions has proved empirically challenging. We propose an identification strategy that exploits variation in corporate income tax rates across U.S. states. Comparing contiguous counties straddling state borders over the period 1970 to 2010, we find that increases in corporate tax rates lead to significant reductions in employment and income. We find little evidence that corporate tax cuts boost economic activity, unless implemented during recessions when they lead to significant increases in employment and income. Our spatial-discontinuity approach permits a causal interpretation of these findings by both establishing a plausible counterfactual and overcoming biases resulting from the fact that tax changes are often prompted by changes in economic conditions.
    Keywords: Fiscal policy; Corporate taxation; Economic stimulus; Economic growth; Employment; Regional economies;
    JEL: E62 H25
    Date: 2016–02–05
  81. By: Chang, Andrew C. (Board of Governors of the Federal Reserve System (U.S.)); Li, Phillip (Officer of the Comptroller of the Currency)
    JEL: B41 C80 C82 C87 C88 E01
    Date: 2015–09–04
  82. By: Mirdala, Rajmund
    Abstract: Time-varying exchange rate pass-through effects to domestic prices under fixed euro exchange rate perspective represent one of the most challenging implications of the common currency. The problem is even more crucial when examining crisis related redistributive effects associated with relative price changes. The degree of the exchange rate pass-through to domestic prices reveals its role as the external price shocks absorber especially in the situation when the leading path of exchange rates is less vulnerable to the changes in the foreign prices. Adjustments in domestic prices followed by exchange rate shifts induced by sudden external price shocks are associated with changes in the relative competitiveness among member countries of the currency area. In the paper we examine exchange rate pass-through to domestic prices in the Euro Area member countries to examine crucial implications of the nominal exchange rate rigidity. Our results indicate that absorption capabilities of nominal effective exchange rates clearly differ in individual countries. As a result, an increased exposure of domestic prices to the external price shocks in some countries represents a substantial trade-off of the nominal exchange rate stability.
    Keywords: exchange rate pass-through, inflation, Euro Area, VAR, impulse-response function
    JEL: C32 E31 F41
    Date: 2015–06
  83. By: Koloch, Grzegorz
    Abstract: In this paper we provide formulae for likelihood function, filtration densities and prediction densities of a linear state space model in which shocks are allowed to be skewed. In particular we work with the closed skew normal distribution, see González-Farías et al. (2004), which nests a normal distribution as a special case. Closure of the csn distribution with respect to all necessary transformations in the state space setting is guaranteed by a simple state dimension reduction procedure which does not influence the value of the likelihood function. Presented formulae allow for estimation, filtration and prediction of vector autoregressions and first order perturbations of DSGE models with skewed shocks. This allows to assess asymmetries in shocks, observed data, impulse responses and forecasts confidence intervals. Some of the advantages of using the outlined approach may involve capturing asymmetric inflation risks in central banks forecasts or producing more plausible probabilities of deep but rare recessionary episodes with DSGE/VAR filtration. Exemplary estimation results are provided which show that within a linear setting with skewness frequency of big shocks can be rather plausibly identifed.
    Keywords: Maximum likelihood estimation, state space models, closed skew-normal distribution, DSGE, VAR
    JEL: C13 C51 E32
    Date: 2016–01–25
  84. By: Frank van der Horst; Martina Eschelbach; Susann Sieber; Jelle Miedema
    Abstract: Counterfeit prevention is a major task for central banks, as it helps to maintain public confidence in the currency. It is often maintained that a high quality of the banknotes in circulation helps the public detect counterfeits. However, there has not been any scientific evidence in support of this assertion so far. The present study is a first attempt to fill this research gap.
    Keywords: banknotes; counterfeits; banknote quality; signal detection theory
    JEL: E40 E41 E50 E58
    Date: 2016–02
  85. By: Brunetti, Celso (Board of Governors of the Federal Reserve System (U.S.)); Harris, Jeffrey H. (American University); Mankad, Shawn (University of Maryland); Michailidis, George (University of Michigan)
    Abstract: We study the behavior of the interbank market before, during and after the 2008 financial crisis. Leveraging recent advances in network analysis, we study two network structures, a correlation network based on publicly traded bank returns, and a physical network based on interbank lending transactions. While the two networks behave similarly pre-crisis, during the crisis the correlation network shows an increase in interconnectedness while the physical network highlights a marked decrease in interconnectedness. Moreover, these networks respond differently to monetary and macroeconomic shocks. Physical networks forecast liquidity problems while correlation networks forecast financial crises.
    Keywords: Interconnectedness; correlation network; financial crisis; interbank market; physical network
    Date: 2015–09–30
  86. By: Mei Li (Univeristy of Guelph); Frank Milne (Queen's University); Junfeng Qiu (Central University of Finance and Economics)
    Abstract: When a central bank implements the LOLR policy in a financial crisis, bank creditors often infer a bank’s quality from whether or not it borrows from the central bank. We establish a formal model to study the optimal LOLR policy in the presence of this signaling effect, assuming that the central bank aims to encourage central bank borrowing to avoid inefficiencies caused by contagion. In our model, there are two types of banks: a high quality type with high expected asset returns and a low quality type with lower returns. Both types of banks need to roll over their short-term debts. A central bank offers to lend to both types of banks. After private creditors observe whether banks borrow from the central bank, banks try to borrow from the private market. We find that there may exist a separating equilibrium where only low quality banks borrow from the central bank; and two pooling equilibria where both types of banks do and do not borrow from the central bank. Our major results are as follows: (1) Considering the signaling effect, the central bank should set its lending rate lower than the prevailing market rate to induce both types of banks to borrow from the central bank. (2) Hiding the identity of banks borrowing from the central bank will encourage banks to borrow from the central bank. (3) The central bank may serve as a coordinator for the realization of its favored equilibrium.
    Keywords: Signaling, Lender of Last Resort
    JEL: E58 G28
    Date: 2016–01
  87. By: D'Agostino, Antonello (European Stability Mechanism); Giannone, Domenico (Federal Reserve Bank of New York); Lenza, Michele (European Central Bank); Modugno, Michele (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We develop a framework for measuring and monitoring business cycles in real time. Following a long tradition in macroeconometrics, inference is based on a variety of indicators of economic activity, treated as imperfect measures of an underlying index of business cycle conditions. We extend existing approaches by permitting for heterogenous lead-lag patterns of the various indicators along the business cycles. The framework is well suited for high-frequency monitoring of current economic conditions in real time - nowcasting - since inference can be conducted in presence of mixed frequency data and irregular patterns of data availability. Our assessment of the underlying index of business cycle conditions is accurate and more timely than popular alternatives, including the Chicago Fed National Activity Index (CFNAI). A formal real-time forecasting evaluation shows that the framework produces well-calibrated probability nowcasts that resemble the consensus assessment of t he Survey of Professional Forecasters.
    Keywords: Current Economic Conditions; Dynamic Factor Models; Dynamic Heterogeneity; Business Cycles; Real Time; Nowcasting.
    JEL: C11 C32 C38 E32
    Date: 2015–08–06
  88. By: de Bruijn, L.P.; Segers, R.; Franses, Ph.H.B.F.
    Abstract: __Abstract__ This paper puts forward a new data collection method to measure daily consumer confidence at the individual level. The data thus obtained allow to statistically analyze the dynamic correlation of such a consumer confidence indicator and to draw inference on transition rates. The latter is not possible for currently available monthly data collected by statistical agencies on the basis of repeated cross-sections. In an application to measuring Dutch consumer confidence, we show that the incremental information content in the novel indicator helps to better forecast consumption.
    Keywords: Consumer confidence, Randomized sampling, Markov transition model, consumption
    JEL: C33 C42 C81 E20
    Date: 2014–11–01
  89. By: Carlos Madeira
    Abstract: Previous studies of consumer debt risk estimate low sensitivities to negative economic shocks, contradicting the historical data. This work proposes a heterogeneous agents' model of household finances and credit risk. Families suffer labor income shocks and choose from a menu of new loans contracts, defaulting on debt commitments when unable to finance minimum consumption standards. Using survey data I simulate household credit default for Chile over the last 20 years, replicating successfully the highs and lows of consumer delinquency. Households, especially those of low income, are shown to be highly vulnerable to changes in interest rates, credit maturities and liquidity.
    Date: 2016–01
  90. By: Anna Wisniewska (Nicolaus Copernicus University, Poland)
    Abstract: The aim of this article is to show the position of Bitcoin among virtual currencies. 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 and the history of virtual currencies, the way in which Bitcoin functions and the methods of acquiring it. The article is based on the assumption that an in-depth knowledge of virtual currencies, their classification and their functioning will make it possible to regulate their legal status. It is necessary not only for tax purposes, but also in order to avoid the risk of using this payment method for terrorist or criminal purposes. The knowledge of the history of virtual currencies also makes it possible to foresee the problems that may hinder the functioning of Bitcoin and other virtual currencies. 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 a next step in the evolution of digital money.
    Keywords: bitcoin, virtual currencies, cryptocurrencies
    JEL: E40 G29 E49
    Date: 2015–06
  91. By: Sonja Fransen (Maastricht University); Isabel Ruiz (Harris Manchester College, University of Oxford); Carlos Vargas-Silva (University of Oxford)
    Abstract: We explore differences in economic outcomes between return migrant households and non-migrant households using panel data from Burundi, a country which experienced large scale conflict-led emigration to Tanzania and massive post-war refugee return. We exploit proximity to the border of Tanzania at birth for identification purposes. Results indicate that returnee households have significantly lower levels of livestock. Differences in current economic activities and legal restrictions on economic activities while in displacement are likely to explain a portion of the current economic gap between returnee and non-migrant households. There is no evidence for other channels (e.g. vulnerability to crime, health status).
    Keywords: Return Migration, Refugees, Labor Markets
    JEL: F22 E24 D74
    Date: 2015–12
  92. By: Elinder, Mikael (Uppsala Center for Fiscal Studies); Erixson, Oscar (Uppsala Center for Fiscal Studies); Waldenström, Daniel (Uppsala Center for Fiscal Studies)
    Abstract: This study estimates the effect of inheriting wealth on inequality and mobility in the wealth distribution. Using new population-wide register data on inheritances in Sweden, we find that inheritances reduce inequality and increase mobility among heirs. Richer heirs indeed inherit larger amounts, but less affluent heirs receive substantially larger inheritances relative to their pre-inheritance wealth than do richer heirs. The Swedish inheritance tax had a small overall impact but appears to have mitigated the equalizing effect of inheritances. We also investigate the potentially confounding role of pre-inheritance gifts and behavioral responses to expectations about future inheritances, but neither of them change the main finding that inheritances reduce wealth inequality.
    Keywords: bequest; estate; net worth; inheritance taxation; wealth distribution
    JEL: D63 E21 H24
    Date: 2015–06–26
  93. By: Rios-Rull, Jose-Victor (Federal Reserve Bank of Minneapolis); Huo, Zhen (New York University)
    Abstract: A case can be made for the Great Recession being the result of a large financial shock that makes household borrowing difficult. The channel involves large reductions in house prices, which trigger sharp reductions in consumption. {{p}} We discuss the ingredients necessary for a quantitative macroeconomic model to successfully implement such a theory. They include: wealth heterogeneity, where the majority of the population needs to acquire financing to purchase houses despite the large amount of wealth in the economy; sizable real frictions that hinder the transformation of consumption into exports and investment and that constrain the increase of household working hours; and a role for expenditures in contributing to productivity.
    Date: 2016–02–09
  94. By: Shin, Minchul (University of Illinois); Zhong, Molin (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We suggest using "realized volatility" as a volatility proxy to aid in model-based multivariate bond yield density forecasting. To do so, we develop a general estimation approach to incorporate volatility proxy information into dynamic factor models with stochastic volatility. The resulting model parameter estimates are highly efficient, which one hopes would translate into superior predictive performance. We explore this conjecture in the context of density prediction of U.S. bond yields by incorporating realized volatility into a dynamic Nelson-Siegel (DNS) model with stochastic volatility. The results clearly indicate that using realized volatility improves density forecasts relative to popular specifications in the DNS literature that neglect realized volatility.
    Keywords: Dynamic factor model; forecasting; stochastic volatility; term structure of interest rates; dynamic Nelson-Siegel model
    JEL: C5 E4 G1
    Date: 2015–12–18

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