nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒03‒17
118 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Understanding Firms' Inflation Expectations Using the Bank of Canada's Business Outlook Survey By Simon Richards; Matthieu Verstraete
  2. Insider-outsider labor markets, hysteresis and monetary policy By Jordi Galí
  3. Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate By Jung, Kuk Mo
  4. In search of the Euro Area Fiscal Stance By Alice, Albonico; Alessia, Paccagnini; Patrizio, Tirelli
  5. Reconciling the Divergence in Aggregate U.S. Wage Series By Champagne, Julien; Kurmann, Andre; Stewart, Jay
  7. Causes and Consequences of the Financial Crisis and the Implications for a More Resilient Financial and Economic System: Synthesis of FESSUD Work Package 3 By Eckhard Hein
  8. Monetary Commitment and the Level of Public Debt By Stefano Gnocchi; Luisa Lambertini
  9. The post-crisis slump in the Euro Area and the US: evidence from an estimated three-region DSGE model By Kollmann, Robert; Pataracchia, Beatrice; Raciborski, Rafal; Ratto, Marco; Roeger, Werner; Vogel, Lukas
  10. The Post-Crisis Slump in the Euro Area and the US: Evidence from an Estimated Three-Region DSGE Model By Kollmann, Robert; Pataracchia, Beatrice; Raciborski, Rafal; Ratto, Marco; Roeger, Werner; Vogel, Lukas
  11. Technology Shock and the Business Cycle in the G7 Countries: A Structural Vector Error Correction Model By Mukantabana, Athanasie; Habimana, Olivier
  12. Robust monetary policy in a linear model of the polish economy: is the uncertainty in the model responsible for the interest rate smoothing effect? By Mariusz Gorajski
  13. Global Constraints on Central Banking:The case of Turkey By Ahmet Benlialper; Hasan Comert
  14. A comparison of nominal and indexed debt under fiscal constraints By Beetsma, Roel; Westerhout, Ed
  15. Effekte des Geldmarktzinses auf die Preis- und Produktivitätsentwicklung. Eine Analyse der deutschen Volkswirtschaft 1970-2014 By Quaas, Friedrun; Quaas, Georg
  16. Macrofinancial Analysis in the World Economy; A Panel Dynamic Stochastic General Equilibrium Approach By Francis Vitek
  17. La désinflation manquante : un phénomène américain uniquement ? By Paul Hubert; Mathilde Le Moigne
  18. Financialisation in currency, energy and residential property markets By Evans, Trevor; Herr, Hansjörg
  19. Inflación de costos: las devaluaciones de los años cincuenta y el brote populista de 1963 / Cost-push inflation: the devaluations of the fifties and the 1963 populist outbreak By Javier G. Gómez-Pineda
  20. Inflation Expectations and a Model-Based Core Inflation Measure in Colombia By Hernando Vargas-Herrera
  21. Два способа стабилизировать курс валюты By BLINOV, Sergey
  22. Nepal: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nepal By International Monetary Fund
  23. Facilidad para hacer negocios y desempeño económico: vínculos y oportunidades de política By Raúl Hopkins
  24. Economic fundamentals and monetary policy autonomy By Davis, Scott
  25. A monetary policy rule for Russia, or is it rules? By Korhonen, Iikka; Nuutilainen, Riikka
  26. On the Mechanics of New Keynesian Models By Peter Rupert; Roman Sustek
  27. Reconciling the Differences in Aggregate U.S. Wage Series By Julien Champagne; André Kurmann; Jay Stewart
  28. Inflation Dynamics and Monetary Policy in Bolivia By Alejandro D. Guerson
  29. Inequality of opportunity in Sub-Saharan Africa By Paolo Brunori; Flaviana Palmisano; Vito Peragine
  30. What’s In a Name? That Which We Call Capital Controls By Atish R. Ghosh; Mahvash Qureshi
  31. Bangladesh: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh By International Monetary Fund
  32. Analyzing economic growth: what role for public investment? By Oukhallou, Youssef
  33. Banks’ balance sheets and the international transmission of shocks By Johanna Krenz
  34. Recursos naturales y crecimiento económico: el efecto moderador de la inversión en América Latina By Roger Alejandro Banegas-Rivero
  35. Ecuador: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Ecuador By International Monetary Fund
  36. Cambodia: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Cambodia By International Monetary Fund
  37. Institutional Quality, Cyclicality of Macroeconomic Policies and the Effects of Macroeconomic Shocks: Evidence from Transition Economies By Shaig Adigozalov; Vugar Rahimov
  38. The origins, development, and fate of Clower’s ‘stock-flow’ general-equilibrium program By Romain Plassard
  39. Dynamics of Linear Forward-looking Structural Macroeconomic Models at the Zero Lower Bound: Do Solution Techniques Matter? By Jan Bruha
  40. Human Capital, Public Debt, and Economic Growth: A Political Economy Analysis By Tetsuo Ono; Yuki Uchida
  41. The Economy and Monetary Policy at the Global Interdependence Center, Sarasota, FL By Mester, Loretta J.
  42. Republic of Serbia: Second Review Under the Stand-by Arrangement and request for Waivers of Applicability of Performance Criteria-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for the Republic of Serbia By International Monetary Fund
  43. Niger: Sixth and seventh Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria, Request for Augmentation of Access, and Extension of the Current Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Niger By International Monetary Fund
  44. Taylor Visits Africa By Carlos Goncalves
  45. Kyrgyz Republic: 2015 Staff Report for the 2015 Article IV Consultation and First Review under the Three-year Arrangement under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for the Kyrgyz Republic By International Monetary Fund
  46. Malawi: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malawi By International Monetary Fund
  47. Liberia: Fourth Review Under the Extended Credit Facility Arrangement and Requests for Waivers of NonObservance of Performance Criteria, Modification of Performance Criteria, and Rephasing and Extension of the Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Liberia By International Monetary Fund
  48. Breaking Through the Zero Lower Bound By Ruchir Agarwal; Miles Kimball
  49. The Japan Municipal Bond Yield Curve: 2002 to the Present By Hattori, Takahiro; Miyake, Hiroki
  50. The Game of Anchors; Studying the Causes of Currency Crises in Belarus By Alex Miksjuk; Sam Ouliaris; Mikhail Pranovich
  51. Sierra Leone: Third and Fourth Reviews Under the Extended Credit Facility Arrangement and Financing Assurances Review, Requests for Waivers for Nonobservance of Performance Criteria and Modification of Performance Criteria, and Requests for Rephasing and Augmentation of Access Under the Extended Credit Facility-Press Release; and Staff Report By International Monetary Fund
  52. Fiscal Policy, Sectoral Allocation, and the Skill Premium: Explaining the Decline in Latin America’s Income Inequality By Juan Guerra-Salas
  53. Pakistan: Staff Report for the 2015 Article IV Consultation, Ninth Review Under the Extended Arrangement, Request for Waivers of Nonobservance of Performance Criteria, and Request for Modification of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Pakistan By International Monetary Fund
  54. Solomon Islands: Request for an Extension of the Arrangement Under the Extended Credit Facility; Press Release; and Staff Report By International Monetary Fund
  55. The lost generation: Effects of youth labor market opportunities on long-term labor market outcomes By Venke Furre Haaland
  56. Can “happiness data” help evaluate economic policies? By Robert MacCulloch
  57. Reconstruction of annual money supply over the long run: The case of England, 1279-1870 By Nuno Palma
  58. The extension of short-time work schemes during the Great Recession: A story of success? By Björn Brey; Matthias Hertweck
  59. A Spatial SAR Model in Evaluating Influence of Entrepreneurship and Investments on Unemployment in Poland By Michal Bernad Pietrzak; Adam P. Balcerzak
  60. Budget-neutral fiscal rules targeting inflation differentials By Maren Brede; ; ;
  61. Chad: Second Review Under the Extended Credit Facility Arrangement, and Requests for Waivers of Nonobservance of Performance Criteria and for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Chad By International Monetary Fund
  62. Monetary Policy, Residential Investment, and Search Frictions: An Empirical and Theoretical Synthesis By Lunsford, Kurt Graden
  63. Wage Led Aggregate Demand in the United Kingdom By Jump, Robert; Mendieta-Muñoz, Ivan
  64. Islamic Republic of Iran: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Iran By International Monetary Fund
  65. Republic of Armenia: Second Review Under the Extended Arrangement and Request for Waivers of Nonobservance and Rephasing; Press Release; Staff Report; Supplement; and Statement by the Executive Director for the Republic of Armenia By International Monetary Fund
  66. A Possible Explanation of the Missing Deflation Puzzle By Engin Kara; Ahmed Jamal Pirzada
  67. Breaks and the Statistical Process of Inflation: The Case of the ‘Modern’ Phillips Curve By Bill Russell; Dooruj Rambaccussing
  68. Occupational Choice, Human Capital, and Financial Constraints By Rui Castro; Pavel Sevcik
  69. Republic of Madagascar: Staff-Monitored Program and Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Republic of Madagascar By International Monetary Fund
  70. Islamic Republic of Afghanistan: 2015 Article IV Consultation and First Review Under the Staff-Monitored Program-Press Release; Staff Report; and Statement by the Executive Direct for the Islamic Republic of Afghanistan By International Monetary Fund
  71. Sunspot Fluctuations in Two-Sector Models with Variable Income Effects By Frédéric Dufourt; Kazuo Nishimura; Carine Nourry; Alain Venditti
  72. United Kingdom: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for United Kingdom By International Monetary Fund
  73. Ghana: Second Review Under the Extended Credit Facility Arrangement and Request for Waiver for Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Ghana By International Monetary Fund
  74. Monetary Transmission; Are Emerging Market and Low Income Countries Different? By Ales Bulir; Jan Vlcek
  75. Kingdom of Swaziland: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Kingdom of Swaziland By International Monetary Fund
  76. Djibouti: 2014 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Djibouti By International Monetary Fund
  77. Identification of Monetary Policy Shocks within a Svar Using Restrictions Consistent with a DSGE Model By Nikolay Arefiev
  78. United Republic of Tanzania: Third Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director for United Republic of Tanzania By International Monetary Fund
  79. Crowding-Out or Crowding-In? Public and Private Investment in India By Mehdi Raissi; Volodymyr Tulin; Girish Bahal
  80. Elusive Recovery: The Brunswick MSA since the Great Recession By Mathews, Don
  81. Benin: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Benin By International Monetary Fund
  82. UMA INVESTIGAÇÃO DOS EFEITOS DA ABERTURA DA CONTA DE CAPITAL BRASILEIRA SOBRE VARIÁVEIS MACROECONÔMICAS: 1990 à 2012 By Antoniele D`Lean Pereira; Antonio Marcos de Queiroz; Sabrina Faria de Queiroz; Sérgio Fornazier Meyrelles Filho
  83. Kenya: Request for an Extension of the Arrangement Under the Extended Credit Facility-Press Release; and Staff Report By International Monetary Fund
  84. Are the twin or triple deficits hypotheses applicable to post-communist countries? By Sen, Hüseyin; Kaya, Ayse
  85. Private Sector Activity in Hong Kong SAR and the Fed; Transmission Effects through the Currency Board By Joong Shik Kang
  86. Why are big banks getting bigger? By Fernholz, Ricardo T.; Koch, Christoffer
  87. Steady as She Goes—Estimating Potential Output During Financial “Booms and Busts†By Helge Berger; Thomas Dowling; Sergi Lanau; Mico Mrkaic; Pau Rabanal; Marzie Taheri Sanjani
  88. Pass-Through of Imported Input Prices to Domestic Producer Prices; Evidence from Sector-Level Data By JaeBin Ahn; Chang-Gui Park; Chanho Park
  89. Emerging Market Portfolio Flows; The Role of Benchmark-Driven Investors By Serkan Arslanalp; Takahiro Tsuda
  90. Mali: 2015 Article IV Consultation, Fourth Review Under the Extended Credit Facility Arrangement, and Request for Modification of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Mali By International Monetary Fund
  91. Introduction to Macroeconomic Dynamics Special Issue on Dynamics of Oil and Commodities Prices By Matteo Manera; Apostolos Serletis
  92. Impact of Gender Inequality on the Republic of Korea’s Long-Term Economic Growth: An Application of the Theoretical Model of Gender Inequality and Economic Growth By Kim, Jinyoung; Lee, Jong-Wha; Shin, Kwanho
  93. Bolivia: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bolivia By International Monetary Fund
  94. Iraq: Staff-Monitored Program-Press Release; and Staff Report By International Monetary Fund
  95. Efectos del Quantitative Easing sobre los retornos accionarios en mercados emergentes By Bernardo Leyva-Uribe; Jose E. Gomez-Gonzalez; Oscar M. Valencia-Arana; Mauricio Villamizar-Villegas
  96. The Term Premium as a Leading Macroeconomic Indicator By Vasilios Plakandaras; Periklis Gogas; Theophilos Papadimitriou; Rangan Gupta
  97. Kuwait: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Kuwait By International Monetary Fund
  98. Morocco: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Morocco By International Monetary Fund
  99. Egypt : guiding reform of energy subsidies long-term By Griffin,Peter; Laursen,Thomas Blatt; Robertson,James W.
  100. Kingdom of the Netherlands—Netherlands: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Kingdom of the Netherlands-Netherlands By International Monetary Fund
  101. Implementing the Zero Lower Bound in an Estimated Regime-Switching DSGE Model By Andrew Binning
  102. End of the Supercycle and Growth of Commodity Producers; The Case of Chile By Luc Eyraud
  103. Risks of Stagnation in the Euro Area By Huidan Lin
  104. Sweden: Selected Issues By International Monetary Fund
  105. Racial Differences in Labor Market Transitions and the Great Recession By Fairlie, Robert
  106. Macroeconomic Impacts of Gender Inequality and Informality in India By Purva Khera
  107. Three “Seismic Shifts†in the Global Economy and Policy Challenges By Kiyohiko G. Nishimura
  108. Long run convergence in a neo-Kaleckian open-economy model with autonomous export growth By Won Jun Nah; Marc Lavoie
  109. Housing Price and Household Debt Interactions in Sweden By Rima Turk
  110. Measuring Financial Fragmentation in the Euro Area Corporate Bond Market. By G. Horny; M. Manganelli; B. Mojon
  111. Republic of Mozambique: Staff Report for the 2015 Article IV Consultation, Fifth Review Under the Policy Support Instrument, Request for Modification of Assessment Criteria, and Request for an 18-Month Arrangement Under the Standby Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Republic of Mozambique By International Monetary Fund
  112. Some Reflections on Methodology of Critical Realism By Lukas Maslo; Zdenek Chytil
  113. Testing for news and noise in non-stationary time series subject to multiple historical revisions By Hecq A.W.; Jacobs J.P.A.M.; Stamatogiannis M.
  114. Effectiveness and Channels of Macroprudential Instruments; Lessons from the Euro Area By Thierry Tressel; Yuanyan Sophia Zhang
  115. Sharing a Ride on the Commodities Roller Coaster; Common Factors in Business Cycles of Emerging Economies By Andres Fernandez; Andres Gonzalez; Diego Rodriguez
  116. Regional and Gender Differentials in the Persistence of Unemployment By Maurizio Baussola; Chiara Mussida
  117. Do spot and future palm oil prices influence the stock market prices of a major palm oil producer? the Malaysian experience By Mohammad Nor, Karina; Masih, Mansur
  118. Zakah Management for Poverty Alleviation in Indonesia and Brunei Darussalam By Jaelani, Aan

  1. By: Simon Richards; Matthieu Verstraete
    Abstract: Inflation expectations are a key determinant of actual and future inflation and thus matter for the conduct of monetary policy. We study how firms form their inflation expectations using quarterly firm-level data from the Bank of Canada’s Business Outlook Survey, spanning the 2001 to 2015 period. The data are aggregated to construct an inflation expectations index. Results based on the index suggest that expectations are not consistent with the rationality assumption but are, still, more complex than purely adaptive expectations. Firms’ own unique experiences, such as the dynamics of the prices they expect to pay (wages/inputs), significantly influence aggregate expectations. Expectations are also found to be significantly and positively correlated with movements in oil prices. Most of the preceding results hold at the firm level. The estimation of structural shift specifications suggests that inflation expectations in Canada have drifted downward since the Great Recession. However, the data do not suggest that Canadian businesses’ expectations have become unanchored.
    Keywords: Central bank research, Credibility, Econometric and statistical methods, Firm dynamics, Inflation and prices, Inflation targets, Monetary policy framework
    JEL: C1 C2 C25 D21 D84 E31 E52 E58
    Date: 2016
  2. By: Jordi Galí
    Abstract: I develop a version of the New Keynesian model with insider- outsider labor markets and hysteresis that can account for the high persistence of European unemployment. I study the implications of that environment for the design of monetary policy. The optimal policy calls for strong emphasis on unemployment stabilization which a standard interest rate rule fails to deliver, with the gap between the two increasing in the degree of hysteresis. A simple interest rule that includes the unemployment rate is shown to approximate well the optimal policy.
    Keywords: wage stickiness, New Keynesian model, unemployment fluctuations, Phillips curve, monetary policy tradeoffs.
    JEL: E24 E31 E32
    Date: 2016–01
  3. By: Jung, Kuk Mo
    Abstract: I construct an overlapping-generations model of money with Epstein and Zin (1989) preferences and study how aggregate output uncertainty affects the optimal rate of inflation. When money only serves as savings instruments, I find that the optimality of Friedman Rule breaks up only if agents prefer late resolution of uncertainty. However, if an additional role of money as a medium of exchange is introduced, then the Friedman Rule becomes generally suboptimal regardless of agents' preferences for the timing of uncertainty resolution. The aggregate output uncertainty, nevertheless, crucially determines the level of optimal inflation rate in this case.
    Keywords: money; overlapping generations; recursive preferences; optimal inflation
    JEL: E31 E52 E58
    Date: 2016–02
  4. By: Alice, Albonico; Alessia, Paccagnini; Patrizio, Tirelli
    Abstract: This paper investigates the role of fiscal and monetary policies over the aggregate EMU business cycle, with a specific focus on fiscal policies. We estimate large multipliers for public consumption and transfers. In spite of this, fiscal policies were substantantially muted. This result is confirmed even for the post 2007 period. In fact fiscal policies did not complement the monetary policy stimulus in response to the financial crisis. Further, we cannot detect any substantial aggregate e¤ect of austerity measures implemented in peripheral countries. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth.
    Keywords: DSGE, Limited Asset Market Participation, Bayesian Estimation, Euro Area, Business Cycle, Monetary Policy, Fiscal Policy
    JEL: C11 C13 C32 E21 E32 E37
    Date: 2016–01–28
  5. By: Champagne, Julien (Bank of Canada); Kurmann, Andre (Drexel University); Stewart, Jay (U.S. Bureau of Labor Statistics)
    Abstract: According to data from the Labor Productivity and Costs (LPC) program, average hourly real compensation in the United States has grown consistently over time and become markedly more volatile since the mid-1980s. By contrast, data from the Current Employment Statistics (CES) imply that average hourly real earnings has mostly stagnated and become substantially less volatile. We show that differences in earnings concept and differences in worker coverage account for the majority of this divergence in growth and volatility. The results have important implications for the appropriate choice of aggregate wage series for macroeconomic analysis.
    Keywords: comparison of hourly earnings data, earnings trends, earnings volatility
    JEL: E01 E24 E30 J30
    Date: 2016–02
  6. By: Dana Kloudová (University of Economics, Faculty of Economics and Public Administration)
    Abstract: One of the most used methods of estimation of potential output and output gap, used by many national and international organisations, is a production function. The aim of this paper is to study the impact of method of computation capital-to-output ratio on results of estimation of output gap and potential output, which are very important, but not measurable. We used two methods of computation. The first one was simple: we set it up constant. The second one was calculated according to a sophisticated model. The results of this paper have shown that using variable capital-to-output ratio will bring not very different results from using a constant one. These results were confirmed both for Czech economy and Slovak economy.
    Keywords: production function, capital-to-output ratio, potential output, HP filter
    JEL: E22 E24 E32
  7. By: Eckhard Hein (Berlin School of Economics and Law and Institute for International Political Economy (IPE) Berlin)
    Abstract: The increasing dominance of finance starting in the late 1970s/early 1980s in the US and the UK, and somewhat later in other countries, was associated with two fundamental and structural processes generating the contradictions of this phase of development and finally the financial and economic crises starting in 2007: the deregulation of the financial (and economic) system and the massive redistribution of income at the expense of labour and low income households. These fundamental processes provided the conditions for the generation of major imbalances within some of the national economies, on the one hand, and at the international level, on the other hand. These imbalances and contradictions led eventually to the deep financial and economic crisis, starting in 2007. Therefore, a more resilient financial and economic system requires the re-regulation and downsizing of the financial sector, the re-distribution of income (and wealth) from top to bottom and from capital to labour, the re-orientation of macroeconomic policies towards stabilizing domestic demand at non-inflationary full employment levels, and the re-creation of international monetary and economic policy coordination.
    Keywords: Financialisation, distribution, growth, financial and economic crisis, resilient financial and economic system
    JEL: D30 E02 E11 E12 E21 E22 E25 E44 E61 E65 G01
    Date: 2015–11–01
  8. By: Stefano Gnocchi; Luisa Lambertini
    Abstract: We analyze the interaction between committed monetary policy and discretionary fiscal policy in a model with public debt, endogenous government expenditures, distortive taxation and nominal rigidities. Fiscal decisions lack commitment but are Markov-perfect. Monetary commitment to an interest rate path leads to a unique level of debt. This level of debt is positive if the central bank adopts closed-loop strategies that raise the real interest rate when inflation is above target owing to fiscal deviations. More aggressive defence of the inflation target implies lower debt and higher welfare. Simple Taylor-type interest rate rules achieve welfare levels similar to those generated by sophisticated closed-loop strategies.
    Keywords: Credibility; Fiscal policy; Inflation targets; Monetary policy framework
    JEL: E24 E32 E52
    Date: 2016
  9. By: Kollmann, Robert (ECARES, Université Libre de Bruxelles and CEPR); Pataracchia, Beatrice (European Commission, Joint Research Centre); Raciborski, Rafal (European Commission, DG ECFIN); Ratto, Marco (European Commission, Joint Research Centre); Roeger, Werner (European Commission, DG ECFIN); Vogel, Lukas (European Commission, DG ECFIN)
    Abstract: The global financial crisis (2008-09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences—in particular, the EA slump has been markedly more protracted. We estimate a three-region (EA, US and Rest of World) New Keynesian DSGE model (using quarterly data for 1999-2014) to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that financial shocks were key drivers of the 2008-09 Great Recession, for both the EA and the US. The post-2009 slump in the EA mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment, linked to the continuing poor health of the EA financial system. Adverse financial shocks were less persistent for the US. The financial shocks identified by the model are consistent with observed performance indicators of the EA and US banking systems.
    JEL: C5 E2 E3 E5 E6 F3 F4
    Date: 2016–02–29
  10. By: Kollmann, Robert; Pataracchia, Beatrice; Raciborski, Rafal; Ratto, Marco; Roeger, Werner; Vogel, Lukas
    Abstract: The global financial crisis (2008-09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences -- in particular, the EA slump has been markedly more protracted. We estimate a three-region (EA, US and Rest of World) New Keynesian DSGE model (using quarterly data for 1999-2014) to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that financial shocks were key drivers of the 2008-09 Great Recession, for both the EA and the US. The post-2009 slump in the EA mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment, linked to the continuing poor health of the EA financial system. Adverse financial shocks were less persistent for the US. The financial shocks identified by the model are consistent with observed performance indicators of the EA and US banking systems.
    Keywords: demand and supply shocks; estimated DSGE model; Euro Area; financial shocks; Post-crisis slump; United States
    JEL: C5 E2 E3 E5 E6 F3 F4
    Date: 2016–02
  11. By: Mukantabana, Athanasie; Habimana, Olivier
    Abstract: This paper investigates the importance of technology shock in explaining fluctuations over business cycles and its contractionary effects. Applying the SVEC model on quarterly data of G7 countries and accounting for long cycles in hours worked, there is evidence of a decline in employment as measured by hours worked and investment following a positive technology shock. Hours worked show a persistent decline in France and UK, and this lasts for seven years in Italy, three years in Japan, two years in the USA and Canada; and one year in Germany. However, our findings suggest that technology shocks may play only a limited role in deriving the business cycles in the G7 countries; for they only account for under 30 percent of the business cycle variation in hours and investment, under 35 percent of the business cycle variation in consumption, and under 50 percent of the business cycle variation in output of most of the G7 countries. Our findings do not support the conventional real business cycle interpretation; instead, they are consistent with the predictions of the sticky-price model.
    Keywords: Business cycle, G7, sticky-price model, SVEC, technology shock
    JEL: E24 E32
    Date: 2015–10–04
  12. By: Mariusz Gorajski (Department of Econometrics, Faculty of Economics and Sociology, University of Lodz, Poland)
    Abstract: Estimates of the generalised Taylor rule suggest that monetary policy in Poland can be characterized as having reacted in a moderate fashion to output and inflation gaps and are strongly dependent on the lagged interest rate. Moreover, as for the majority of central banks the short-term rate paths are smooth and only gradual changes can be observed. Optimal monetary policy models in the linear-quadratic framework produce high variability of interest rates, and are hence inconsistent with the data. One can obtain gradual behaviour of optimal monetary policy by adding an interest rate smoothing term to the central bank objective. This heuristic procedure has not much substantiation in the central bank's targets and raises the question: What are the rational reasons for the gradual movements in the monetary policy instrument? In this paper we determine optimal monetary polices in a VAR model of the Polish economy with parameter uncertainty. By incorporating a proper structure of multiplicative uncertainty in the linear-quadratic model of the Polish economy we find a data consistent robust monetary policy rule. Thus proving that parameter uncertainty can be the rationale for "timid" movements in the short-interest rate dynamics. Finally, we show that there is trade-off between parameter uncertainty and the interest rate smoothing incentive.
    Keywords: Optimal Monetary Policy, Parameter Uncertainty, the Brainard conservatism principle, Interest rate smoothing, SVAR model
    JEL: E47 E52
    Date: 2016–01
  13. By: Ahmet Benlialper (Ipek University); Hasan Comert (Middle East Technical University)
    Abstract: This study aims to evaluate the developments in Turkish monetary policy after 2002 and understand constraints on the effectiveness of The Turkish Central Bank (CBRT). The CBRT has significantly altered its monetary policy in response to the crisis. It became much more experimental and aware of challenges it faced. However, the Bank’s ability to exert influence on key variables seems to have been restrained by factors outside of its control. Financial flows exert great influence on key macroeconomic variables the Bank monitors closely. Furthermore, energy prices are among the key determinants of inflation in Turkey. As a result, the Bank’s influence on growth and inflation through intermediate variables became a daunting task. The magnitude and direction of flows seem to be mainly related to global risk perception determining the worldwide liquidity conditions rather than domestic factors. Under these conditions central banks may not set their official interest rates independent of interest rates in advanced countries. Indeed, our VAR analysis exercise supports this argument for the Turkish case. Existing policy framework would not produce desired outcomes unless the sources of the problems such as financial flows as the main global constraints on monetary policy are addressed in a much more serious manner
    Keywords: central banking, economic and financial crisis, capital inflows, the Turkish economy
    JEL: E52 E52 G01 F31 F32 O53
    Date: 2015–07–01
  14. By: Beetsma, Roel; Westerhout, Ed
    Abstract: This paper makes a welfare comparison between the issuance of price-indexed and nominal public debt in the presence of fiscal constraints, viz. a debt constraint, a deficit constraint and a combination of both. Distortionary taxes or public consumption are regulated to avoid the violation of the relevant fiscal constraint(s). Under a debt constraint indexed debt is generally preferred, while under a deficit constraint the results are more mixed. Introducing inflation persistence and raising the maturity of the debt tends to increase the magnitude of the welfare differences between the two types of debt. Welfare differences are further affected by the degree to which public consumption and tax revenues are indexed to actual versus structural nominal GDP.
    Keywords: debt maturity.; deficit; fiscal constraints; indexed debt; inflation (persistence); nominal debt; public consumption; tax revenues; wage growth; welfare
    JEL: E62 H62 H63
    Date: 2016–02
  15. By: Quaas, Friedrun; Quaas, Georg
    Abstract: The European Central Bank is doing all it can to prevent deflation and to push inflation at the mark of two percent annually; it is currently not successful. Instead of reaching that goal, unintended side effects can be observed and new risks are evolving. Some people surmise that low interest rates on capital markets damage the productivity of an economy. This raises the question of why consumer prices have not started to rise. Standard models of neo-classical synthesis give an unambiguous answer: there is no demand as a result of a growing economy in Europe. The neo-classical paradigm is open to further, potentially more precise answers. Some people hypothesize that inflation will not come before the amount of consumption by the rich rises considerably. Both hypotheses – (i) a negative effect of low interest rates on productivity and (ii) luxurious consumption as a driver of prices – would be a surprising enrichment of the macroeconomic theory. The development of the German economy from 1970 – 2014 confirms the standard models, but not those supplementary theories.
    Keywords: European Central Bank’s inflation goal; effects of low interest rates; testing the Austrian business cycle theory and parts of the neo-classical IS-LM-model
    JEL: B53 E13 E31
    Date: 2016–02–19
  16. By: Francis Vitek
    Abstract: This paper develops a structural macroeconometric model of the world economy, disaggregated into forty national economies. This panel dynamic stochastic general equilibrium model features a range of nominal and real rigidities, extensive macrofinancial linkages, and diverse spillover transmission channels. A variety of monetary policy analysis, fiscal policy analysis, macroprudential policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated. These include quantifying the monetary, fiscal and macroprudential transmission mechanisms, accounting for business cycle fluctuations, and generating relatively accurate forecasts of inflation and output growth.
    Date: 2015–10–28
  17. By: Paul Hubert (OFCE); Mathilde Le Moigne (École normale supérieure - Paris)
    Abstract: Le comportement de l’inflation aux États-Unis lors de la crise économique de 2008-2009, qui n’a pas suivi les prédictions d’une courbe de Phillips classique, a donné lieu au phénomène de « missing disinflation ». Nous évaluons si ce phénomène a également eu lieu en zone euro. Nous trouvons que l’inflation en zone euro a bien suivi les prédictions d’une courbe de Phillips, mais qu’il existe de fortes divergences intra-européennes, entre d’un côté l’Allemagne et la France, où l’inflation prédite par une courbe de Phillips est proche de l’inflation réalisée, et d’un autre l’Italie, l’Espagne et la Grèce, où dans la période qui précède la crise financière, l’inflation observée n’est pas en ligne avec l’inflation prédite. La crise de 2009 semble avoir réduit partiellement ces déviations.
    Keywords: Inflation; Courbe de Phillips
    JEL: D84 E24 E32 E52
    Date: 2016–02
  18. By: Evans, Trevor; Herr, Hansjörg
    Abstract: The markets for foreign exchange, energy and residential housing have all been strongly affected by the deregulation and expansion of the financial sector. As a result, they have begun to follow the logic of asset markets. This was especially marked in the case of the foreign exchange market from the 1970s, but has also been the case to some extent for residential housing markets since the mid-1990s, and more strongly for energy markets since the early 2000s. Deregulation has led to far greater price volatility and the rise of unsustainable price and credit bubbles which, when they burst, can pose a significant threat to financial and economic stability. For this reason, these markets should be subjected to new and appropriate forms of regulation.
    Keywords: asset bubbles,financial crises,foreign exchange rates,energy prices,house prices
    JEL: E32 E44 E65 G18 G21 G28
    Date: 2016
  19. By: Javier G. Gómez-Pineda
    Abstract: El artículo estudia la inflación en Colombia durante 1951-1963 de acuerdo al enfoque de presión de costos (cost push inflation). El artículo propone un modelo en el que la inflación responde a los aumentos salariales, la devaluación y la inflación de alimentos. El modelo incorpora una ecuación para la inflación de alimentos en función del fenómeno El Niño-Oscilación del Sur. Entre los resultados se argumenta que los ajustes masivos en los salarios y la tasa de cambio actuaron como importantes fuerzas expansivas de la inflación durante los programas de estabilización y como fuerzas contractivas de la misma durante los prolongados períodos comprendidos entre los ajustes. Los choques de oferta de alimentos desempeñaron un papel importante en la evolución de la inflación en el corto plazo. El análisis lleva a dos principales implicaciones de política. Primero, la evolución de la inflación en el corto plazo ha sido atribuida por la literatura a los cambios en el crecimiento del dinero, pero el enfoque de inflación de costos ofrece importantes puntos de vista sobre la evolución de la inflación en el corto plazo. Segundo, Colombia no llegó a la hiperinflación porque no persistió en el objetivo de aumentar los salarios reales. En vez de esto, permitió aumentos de precios y renunció a regla de indexación de los salarios. En consecuencia la inflación se mantuvo flexible y bajó rápidamente.****** The article studies Colombia’s inflation during 1951–1963 under the cost-push approach. In the model, inflation follows wage and exchange rate adjustments, as well as food inflation supply shocks. The model incorporates an equation for food inflation defined on El Niño Southern Oscillation phenomenon. The results show that massive adjustments in wages and in the exchange rate acted as major inflationary forces during the stabilization programs of the post war period and as disinflationary forces during the prolonged periods in between these programs. Food inflation supply shocks were important drivers of inflation in the short term. Two main policy implications arise. First, the evolution of inflation in the short term has been attributed in the literature to changes in the growth of money, but the cost-push approach provides important insights about the evolution of inflation in the short term. Second, Colombia did not experience hyperinflation because the authorities did not maintain the real wage objective. Instead, the authorities allowed prices to rise and gave up the wage indexation clause. As a consequence, inflation remained flexible and dropped rapidly.
    Keywords: Inflación de costos, espiral de precios y salarios, indexación, macroeconomía del populismo, mínimo vital y móvil / Cost push inflation, wage-price spiral, indexation, macroeconomics of populism, minimum wage
    JEL: N1 N16 E3 E52 E58
    Date: 2016–02–08
  20. By: Hernando Vargas-Herrera
    Abstract: Inflation expectations in Colombia are characterized. Empirical evidence following conventional tests suggests that they might not be rational, although the period of disinflation included in the sample makes it difficult to ascertain this conclusion. Inflation expectations display close ties with observed past and present headline inflation and are affected by exogenous shocks in a possibly non-linear way. A model-based core inflation measure is computed that addresses the shortcomings of traditional exclusion measures when temporary supply shocks have widespread effects and are persistent.
    Keywords: Inflation expectations, core inflation, supply shocks, monetary policy
    JEL: E31 E37 E52
    Date: 2016–02–26
  21. By: BLINOV, Sergey
    Abstract: The Ruble exchange rate has been fluctuating hugely. The problem now is not so much the Ruble's weakness as instability of its exchange rate, volatility. The management of the Central Bank claims that stabilization of the Ruble exchange rate is not possible though it is the responsibility of the Bank of Russia under the Constitution. As a matter of fact, any country's Central Bank has two methods of stabilizing the exchange rate available to it. Firstly, «adaptive» approach to stabilization may be adopted. In this case, the Central Bank, as it were, «adjusts itself» to the tendencies unfolding in the market, without being active in trying to influence them. Secondly, the Central Bank may use an «active» way of stabilizing the exchange rate. In such a case, it needs to influence the exchange rate without resorting to foreign exchange interventions. Both methods, the adaptive one and the active one, do not require gold or foreign exchange reserves to be spent. It is even the other way round, - the reserves become replenished, while economy gets an impetus for growth.
    Keywords: Monetary Policy, Central Banking, Business Cycles, International Finance, Foreign Exchange
    JEL: E30 E52 E58 E65 F30 F31
    Date: 2016–02–23
  22. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that the earthquakes in April and May and protests and trade disruptions following the promulgation of a new constitution in September have exacerbated the macroeconomic policy challenges facing the Nepalese economy. Real GDP growth is estimated to have decelerated to 3.4 percent in 2014/15 (mid-July 2014 to mid-July 2015) from 5.5 percent in 2013/14. Growth is expected to gradually rebound to about 5.5 percent by 2016/17, as economic activity recovers from the earthquake and reconstruction gains momentum. Inflation is projected to rise to about 8.5 percent over the next 12 months. The medium-term outlook depends importantly on the authorities’ reform efforts.
    Keywords: Article IV consultation reports;Fiscal policy;Monetary policy;Currency pegs;Indian rupee;Financial sector;Bank supervision;Fiscal reforms;Economic growth;Financial management;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Nepal;inflation, investment, monetary fund, budget, exchange rate
    Date: 2015–11–18
  23. By: Raúl Hopkins (CENTRUM, Graduate Business School, Pontificia Universidad Católica del Perú)
    Abstract: Desde el año 2003 el Banco Mundial ha venido produciendo los informes anuales Doing Business que miden las regulaciones que tienen incidencia en áreas críticas del ciclo de vida de una empresa. El vínculo entre estos indicadores y el desempeño económico ha sido explorado en la literatura del crecimiento económico (por ejemplo, Djankov, McLiesh y Ramalho (2006), Eifert (2009), Parker y Kirpatrick (2012) con una perspectiva de mediano y largo plazo. El objetivo de este trabajo es: (i) presentar la situación de América Latina y del Perú en el contexto del Infome sobre Doing Business; (ii) examinar la relación existente, de corto plazo, entre este índice y el desempeño económico agregado; y (iii) complementar el análisis precedente, examinando la diversidad de los puntajes en los componentes del Doing Business dentro de cada país y las oportunidades de colaboración que ello sugiere. El trabajo es un primer paso en el estudio de este tema, que ha sido escasamente tratado en la literatura económica peruana.
    JEL: E2 E6 F5 M2 O5
    Date: 2016–02
  24. By: Davis, Scott (Federal Reserve Bank of Dallas)
    Abstract: During a time of rising world interest rates, the central bank of a small open economy may be motivated to increase its own interest rate to keep from suffering a destabilizing outflow of capital and depreciation in the exchange rate. This is especially true for a small open economy with a current account deficit, which relies on foreign capital inflows to finance this deficit. This paper will investigate the underlying structural characteristics that would lead an economy with a floating exchange rate to adjust their interest rate in line with the foreign interest rate, and thus adopt a de facto exchange rate ”peg”. Using a panel data regression similar to that in Shambaugh (QJE 2004) and most recently in Klein and Shambaugh (AEJ Macro 2015), this paper shows that the method of current account financing has a large effect on whether or not the central bank will opt for exchange rate and capital flow stabilization during a time of rising world interest rates. A current account deficit financed mainly through reserve depletion or the accumulation of private sector debt will cause the central bank to pursue de facto exchange rate stabilization, whereas a current account deficit financed through equity or FDI will not. Quantitatively, reserve depletion of about 7% of GDP will motivate the central bank with a floating currency to adjust its interest rate in line with the foreign interest rate to where it appears that the central bank has an exchange rate peg.
    JEL: E30 E50 F30 F40
    Date: 2016–02–24
  25. By: Korhonen, Iikka (BOFIT); Nuutilainen, Riikka (BOFIT)
    Abstract: We estimate several monetary policy rules for Russia for the period 2003–2015. We find that the traditional Taylor rule describes the conduct of monetary policy in Russia reasonably well, whether coefficients are restricted to being the same or allowed to change over the sample period. We find that the Bank of Russia often overshot its inflation target and that extensive overshooting is associated with large depreciations of the ruble, testifying to the importance of the exchange rate in the conduct of monetary policy in Russia.
    Keywords: monetary policy rule; Taylor rule; McCallum rule; Russia; inflation
    JEL: E31 E43 E52 P33
    Date: 2016–02–25
  26. By: Peter Rupert (Department of Economics University of California-Santa Barbara (UCSB)); Roman Sustek (School of Economics and Finance Queen Mary; Centre for Macroeconomics (CFM))
    Abstract: We scrutinize the monetary transmission mechanism in New-Keynesian models, focusing on the role of capital, the key ingredient in the transition from the basic framework to DSGE models. The widely held view that monetary policy affects output and inflation in these models through a real interest rate channel is shown to be misguided. A decline in output and inflation is consistent with a decline, increase, or no change in the real interest rate. The expected path of Taylor rule shocks and the New-Keynesian Phillips Curve are key for inflation and output; the real rate largely reflects consumption smoothing.
    Keywords: New-Keynesian models, monetary transmission mechanism, real interest rate channel, capital
    JEL: E30 E40 E50
    Date: 2016–02
  27. By: Julien Champagne; André Kurmann; Jay Stewart
    Abstract: Average hourly real wage series from the Labor Productivity and Costs (LPC) program and the Current Employment Statistics (CES) program have evolved very differently over the past decades. While the LPC wage has grown consistently over time and become markedly more volatile since the mid-1980s, the CES wage stagnated from the early 1970s to the mid-1990s and experienced a substantial drop in volatility since the mid-1980s. These differences are due to the divergent evolution of average weekly earnings in the two data sets. Average weekly hours, by contrast, have evolved very similarly. Using information from the Current Population Survey and other publicly available data, we identify two principal sources for the divergent evolution of weekly earnings: differences in earnings concept (employer-paid supplements and irregular earnings of high-income individuals included in the LPC data but not in the CES data); and differences in worker coverage (all non-farm business workers for the LPC data versus production and nonsupervisory workers in private non-agricultural establishments for the CES data). The results have important implications for the appropriate choice of aggregate wage series in macroeconomic applications.
    Keywords: Business fluctuations and cycles, Labour markets
    JEL: E01 E24 E30 J30
    Date: 2016
  28. By: Alejandro D. Guerson
    Abstract: This paper explores inflation dynamics and monetary policy in Bolivia. Bolivia’s monetary policy framework has been effective in stabilizing inflation in recent times. This has been a challenging task given high price volatility of key consumer goods subject to recurrent supply shocks, especially food items. Empirical testing indicates that the monetary policy framework has contributed to the stabilization of inflation, with effective transmission through the bank lending channel, while the defacto dollar peg has also played a role. Looking ahead, the current framework will be tested by the new commodity price normal and a potentially permanent adjustment in relative prices. Against this background, consideration could be given to a more flexible exchange rate policy arrangement, with short term interest rates as the main policy instrument.
    Keywords: Western Hemisphere;Exchange rate flexibility;Bolivia;Inflation;Monetary policy;Exchange rate peg, central bank, exchange rate, interest rates, foreign exchange, General, Bolivia.,
    Date: 2015–12–18
  29. By: Paolo Brunori (University of Bari, Italy); Flaviana Palmisano (University of Luxembourg); Vito Peragine (University of Bari, Italy)
    Abstract: In the last decades inequality of opportunity has been extensively studied by economists, on the assumption that, in addition to being normatively undesirable, it can be related to low potential for growth. In this paper we evaluate inequality of opportunity in 11 Sub-Saharan Africa countries. According to our results, the portion of total inequality which can be attributed to exogenous circumstances is between 30% and 40% for the generality of countries considered. We also find a positive association between total consumption inequality and inequality of opportunity and we study the different sources of unequal opportunities. Finally, we address a number of methodological issues that typically arise when measuring inequality of opportunity with imperfect data, which is the typical case in developing countries.
    Keywords: Consumption inequality, equality of opportunity, Sub-Saharan Africa.
    JEL: D63 E24 O15 O40
    Date: 2016–01
  30. By: Atish R. Ghosh; Mahvash Qureshi
    Abstract: This paper investigates why controls on capital inflows have a bad name, and evoke such visceral opposition, by tracing how capital controls have been used and perceived, since the late nineteenth century. While advanced countries often employed capital controls to tame speculative inflows during the last century, we conjecture that several factors undermined their subsequent use as prudential tools. First, it appears that inflow controls became inextricably linked with outflow controls. The latter have typically been more pervasive, more stringent, and more linked to autocratic regimes, failed macroeconomic policies, and financial crisis—inflow controls are thus damned by this “guilt by association.†Second, capital account restrictions often tend to be associated with current account restrictions. As countries aspired to achieve greater trade integration, capital controls came to be viewed as incompatible with free trade. Third, as policy activism of the 1970s gave way to the free market ideology of the 1980s and 1990s, the use of capital controls, even on inflows and for prudential purposes, fell into disrepute.
    Keywords: Capital controls;Capital inflows;International financial system;Globalization;Financial crises;Capital flows;capital controls, capital flows, gold standard, interwar period, Bretton Woods
    Date: 2016–02–12
  31. By: International Monetary Fund
    Abstract: Context. Since the last Article IV Consultation in November 2013, macroeconomic stability has been maintained, supported by prudent policies under the recently-concluded Extended Credit Facility arrangement. However, private domestic demand and credit growth have been tepid, and export growth has slowed, as it has in other Asian countries. The real effective exchange rate has appreciated strongly, but the external position is broadly in line with fundamentals and desirable policies. Outlook and risks. Provided that political calm prevails, public investment is ramped up, and constraints on private investment are eased, growth is projected to accelerate gradually to 7 percent over the medium term. Lingering political uncertainty, low fiscal revenues, and weaknesses in state banks’ balance sheets are the main challenges to the medium-term outlook.
    Keywords: Article IV consultation reports;Economic growth;Public investment;Fiscal policy;Value added tax;Climatic changes;Monetary policy;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Bangladesh;
    Date: 2016–02–01
  32. By: Oukhallou, Youssef
    Abstract: This paper discusses the role of public investment in the determination of output growth from different theoretical and empirical points of view. The light is shed on the factors that allegedly explain the success and/or the failure of public investment policies in enhancing productivity and supporting GDP, based on a review of empirical evidence in advanced and developing economies. The downstream objective is to provide decision makers with a set of general rules-of-thumb that are likely to help them improve the macroeconomic returns of public investment. The latter are found to be significantly influenced by efficiency and profitability-based selectivity of investment projects. Countries with a relatively low capital-labor ratio usually have higher public and private capital profitability, while the public-private investment substitutability increases the likelihood of crowding out effects. The paper also gives hints on the possible existence of an optimal growth-maximizing level of public investment.
    Keywords: GDP growth, Public Investment, Productivity, Private Investment, Development
    JEL: E62 H54 O40
    Date: 2016–02–13
  33. By: Johanna Krenz (Humboldt-Universitaet zu Berlin)
    Abstract: I propose a framework to think about the global comovement in macroeconomic variables during the recent financial crisis. The framework is used to address one question in particular: what is the role of banks’ balance sheet exposure to foreign assets for the international transmission of country-specific shocks? It is shown that this role depends on the nature of the shock: balance sheet exposure is essential for global comovement in the case of capital quality shocks. Conditional on technology shocks and shocks to the net worth of bankers, however, the share of foreign assets in banks’ portfolios does not play a decisive role for cross-country correlations. This implies that an evaluation of the risks arising from financial integration needs to take into account the nature of the shocks which are likely to hit the economy. An additional result of the model is that if financial institutions undertake the international portfolio choice decision instead of households, they do not necessarily choose the portfolio which yields the highest degree of consumption risk sharing. Given that a large part of international portfolio holdings are managed by financial intermediaries, this provides a possible explanation for the well-known empirical finding of modest international risk sharing despite open financial markets.
    Keywords: international transmission, financial frictions, capital quality shocks, risk sharing, portfolio choice
    JEL: E44 F30 F44
    Date: 2016–02–01
  34. By: Roger Alejandro Banegas-Rivero (Instituto de Investigaciones Económicas y Sociales 'José Ortiz Mercado' (IIES-JOM), Universidad Autónoma Gabriel René Moreno.)
    Abstract: En este documento se explican dos causas aditivas a la maldición o entorpecimiento de los recursos naturales sobre el crecimiento económico como contribución a la literatura existente. El entorpecimiento se presenta dada la interacción individual entre: a) inversión - ahorro interno (ineficiencia de la movilidad interna de capitales) e b) inversión - gasto público, mismas que inhiben el crecimiento. De forma unidireccional, la inversión es el principal determinante sobre el crecimiento económico con evidencia para cinco países de América Latina (incluyendo Bolivia) durante 1982 a 2012 mediante paneles dinámicos. Los resultados señalan que la renta de los recursos naturales presenta efectos diferenciados en la inversión, ahorro interno y externo.
    Keywords: Renta de recursos naturales, ahorro-inversión, crecimiento económico.
    JEL: Q33 E21 E22 O47 M21
    Date: 2015–07
  35. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that since the fourth quarter of 2014, the economy of Ecuador has been hit by external shocks and is slowing down. The sharp decline in the international oil price, by about half for the Ecuadorian mix, significantly undercut oil revenues. In addition, competitiveness is being eroded by the real appreciation of the exchange rate. In the face of the economic slowdown, bank liquidity conditions have tightened, credit growth has slowed, and nonperforming loans have risen. Despite the slowdown, inflation is picking up. Owing to the shocks and expected adjustment, the economy is projected to contract somewhat in 2015, while the external position deteriorates.
    Keywords: Western Hemisphere;Ecuador;oil prices, monetary fund, exchange rate, financial stability, investment
    Date: 2015–10–21
  36. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that economic activity in Cambodia remained strong with a growth rate at 7 percent in 2014, notwithstanding appreciation of the real effective exchange rate following U.S. dollar strengthening and growing competition from other low-cost garment producers. Inflation fell in 2014 and through 2015, owing to strong external disinflationary pressures from lower food and oil prices. The short-term outlook remains broadly favorable. Growth is projected to remain robust at 7 percent in 2015, while inflation is projected to rise gradually to about 2 percent by end-2015. The fiscal deficit is projected to rise modestly to 2 percent in 2015 as a result of strong measures to improve revenue administration.
    Keywords: Cambodia;Asia and Pacific;credit growth, inflation, financial stability, reserves, exchange
    Date: 2015–11–16
  37. By: Shaig Adigozalov (Central Bank of the Republic of Azerbaijan); Vugar Rahimov (Central Bank of the Republic of Azerbaijan)
    Abstract: In this paper, we study the role of institutional quality in the cyclicality of macroeconomic policies of transition economies. Using annual data over 1996-2013, we find that the quality of institutions play a significant role in their ability to carry out counter-cyclical macroeconomic policy. This paper also analyzes the effects of monetary and fiscal shocks on output. Dividing the countries into two groups, namely CIS and non-CIS, we find that median impulse response of CIS countries’ GDP to monetary shock is negative, while in non-CIS countries this effect is close to zero. However, we find negative effect of fiscal shock on CIS countries’ GDP while the median effect of fiscal shock on GDP is very close to zero in non-CIS countries.
    Keywords: Institutional quality, transition economies, macroeconomic policies, monetary shocks, fiscal shocks.
    Date: 2015–10–01
  38. By: Romain Plassard
    Abstract: Before becoming the hallmark of macroeconomics à la Wynne Godley, the ‘stock-flow’ analysis was already developed in microeconomics and general equilibrium theory. Basically, the goal was to study the formation of economic plans and the determination of market prices when individuals were supposed to consume, produce, and hold commodities. It is acknowledged that Robert W. Clower was a central figure in this theoretical context. Yet, for both his contemporaries and for historians, his contributions remained essentially technical. No attention was paid to the theoretical project underlying the statics and dynamics analyses of his ‘stock-flow’ price theory. My paper aims to fill this gap. In light of his doctoral dissertation, I show that the elaboration of ‘stock-flow’ market models was part of a project aiming at offering sound microfoundations to a Keynesian business cycle model. I analyze the origins of this microfoundation program, trace its development, and discuss its fate.
    JEL: B2 E12 E32 D4
  39. By: Jan Bruha
    Abstract: Yes, they do matter, sometimes a lot. In this paper, I compare various solution techniques that can be used to solve structural forward-looking macroeconomic models subject to the zero lower bound as the only non-linearity. I use stylized forward-looking models to compare the solution techniques based on impulse responses, on the implications of forward guidance, on the values of fiscal multipliers, and on solution accuracy. I disprove recent claims in the literature that various solution methods yield identical dynamics. The solutions are equivalent only if the zero lower bound constraint binds for no more than one period, otherwise the implied dynamics can be different. Moreover, I find that large effects of forward guidance and large fiscal multipliers at the zero lower bound are found especially when models are solved using 'shadow' shocks. On the other hand, the occasional-binding toolbox and solutions based on a non-linear deterministic solver imply small effects of forward guidance and fiscal multipliers that are not significantly larger at the zero lower bound than during normal times. Moreover, these two types of solutions seem to be the most accurate.
    Keywords: Fiscal multiplier, forward guidance, solution methods, zero lower bound
    JEL: C53 E37 E47 E52 E63
    Date: 2015–12
  40. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study considers public education policy and its impact on growth and wel- fare across generations. In particular, the study compares two fiscal perspectives| tax finance and debt finance|and shows that in a competitive equilibrium context, the growth and utility in the debt-finance case could be higher than those in the tax-finance case in the long run. However, the result is reversed when the policy is shaped by politics. Voters choose debt finance, despite its worse performance, in each period because a current generation can pass the cost of debt repayment to future generations.
    Keywords: Economic growth, Human capital, Public debt, Political equilib- rium
    JEL: D70 E24 H63
    Date: 2016–01
  41. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: I thank David Kotok and his colleagues at the Global Interdependence Center for giving me the opportunity to speak with you this morning about economic developments and monetary policy. I am very happy to be here — and not just because I left single–digit temperatures in Cleveland. No, it’s because at each GIC program I’ve attended over the years — and there have been many — I’ve always walked away with some new insight or perspective with which to view the economy and policy. The GIC’s Central Banking Series is an important forum for discussing economic matters of global interest, and I am privileged to say that today’s talk is my second in the series. Last March, at the GIC’s program with the Banque de France, I spoke about the journey from extraordinary monetary policy back to ordinary monetary policy. Today, I will update you on the progress that’s been made on that journey and my outlook for the economy and monetary policy. As always, the views I’ll present today are my own and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee
    Keywords: monetary policy; global economy; ordinary; extraordinary;
    Date: 2016–02–19
  42. By: International Monetary Fund
    Abstract: This paper discusses Serbia’s Second Review Under the Stand-by Arrangement (SBA) and Request for Waivers of Applicability of Performance Criteria (PCs). The economy of Serbia is gradually recovering from the 2014 recession, supported by strong export performance coupled with a smaller-than-expected fall in consumption. Inflation has remained below the National Bank of Serbia tolerance band due mainly to low imported inflation. All end-June PCs and indicative targets were met with significant margins. The IMF staff supports the authorities’ request for the completion of the Second Review under the SBA, given the program performance so far and the policy commitments going forward.
    Keywords: Serbia;Europe;debt, balance of payments, inflation, monetary fund, goods
    Date: 2015–10–27
  43. By: International Monetary Fund
    Abstract: This paper discusses Niger’s Sixth and Seventh Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria (PC), Request for Augmentation of Access, and Extension of the Current Arrangement. Niger’s growth slowed in 2015 owing to lower agricultural and natural resource sectors activity. Over the medium term, real economic growth is expected to pick up as major projects in oil and mineral extraction come to fruition. The IMF staff supports the authorities’ request for waivers for the unmet PC on domestic financing and domestic arrears repayments at end-December 2014, and that of domestic financing at end-June 2015.
    Keywords: Extended Credit Facility;Economic growth;Fiscal policy;Budgets;Natural resources;Debt management;Fiscal reforms;Economic indicators;Debt sustainability analysis;Letters of Intent;Staff Reports;Press releases;Performance criteria waivers;Niger;
    Date: 2015–12–17
  44. By: Carlos Goncalves
    Abstract: Many low-income countries do not use interest rates as their main monetary policy instrument. In East Africa, for instance, targeting money aggregates has been pretty much the rule rather than the exception. Nevertheless, these targets are seldom met and often readjusted according to the economic environment. This opens up the possibility that central banks are de facto pursuing a strategy more akin to a Taylor Rule. Estimations of small-scale models for Kenya, Uganda and Tanzania suggest that these self-styled "monetary targeters" are respecting the Taylor Principle, that is are on average increasing nominal interest rates more than proportionally to inflation. Nevertheless, steep deviations from the Taylor Rule have taken place in Kenya and Tanzania. In Uganda, these errors are much smaller, in fact similar in size to Taylor Rule deviations found for Brazil. More surprisingly, they are smaller than South Africa’s, the continent’s sole long-term inflation targeter.
    Keywords: Tanzania;Uganda;South Africa;Sub-Saharan Africa;Kenya;Neutral interest rates, central bank, inflation target, monetary policy, interest rates, interest, inflation, central banks, General,
    Date: 2015–12–09
  45. By: International Monetary Fund
    Abstract: The economy has shown some resilience in the face of adverse regional shocks but potential growth is constrained by persistent structural challenges, particularly lagging productivity and dependence on gold, remittances, and foreign aid. Satisfactory performance under the program during the first half of the year was followed by fiscal slippages in the run-up to the October elections and a delay in adopting the Banking Code, a key measure to strengthen central bank independence and the bank resolution framework. The combined impact of a large public investment program and currency depreciation has raised the public debt ratio markedly. Significant further depreciation could pose risks for the otherwise well capitalized, but highly dollarized, financial sector. The business environment remains weak, overshadowed by lingering disagreements between the authorities and the largest foreign investor.
    Date: 2016–02–22
  46. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that bold economic reforms undertaken in mid-2012 in Malawi transformed the policy environment and greatly improved the outlook of the economy. Over 2012–14, real GDP growth and inflation averaged 4.3 percent and 24.5 percent, respectively. The economic outlook remains difficult reflecting the negative impact of weather-related shocks, the ongoing suspension of budget support, persistently high inflation and weaker global demand which could hurt Malawi’s exports. Real GDP growth is projected to fall by 2.7 percentage points to 3 percent in 2015.
    Keywords: Article IV consultation reports;Fiscal policy;Government expenditures;Revenue mobilization;Current account deficits;Monetary policy;Reserves;Banking sector;Liquidity management;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Malawi;
    Date: 2015–12–18
  47. By: International Monetary Fund
    Abstract: This paper discusses Liberia’s Fourth Review Under the Extended Credit Facility (ECF) Arrangement and Requests for Waivers of Nonobservance of Performance Criteria (PC), Modification of PC, and Rephasing and Extension of the Arrangement. The end-June 2014 quantitative PC on government revenues and central bank net foreign exchange position, and one indicative target on net domestic assets were not met. Only three out of seven structural benchmarks for the fourth review were met. Based on the authorities’ corrective actions, the IMF staff supports completion of the delayed fourth ECF review, and the authorities’ request for an extension and re-phasing of the program to end-December 2016.
    Keywords: Liberia;Sub-Saharan Africa;exchange, revenue, debt, monetary fund, investment
    Date: 2016–01–08
  48. By: Ruchir Agarwal; Miles Kimball
    Abstract: There has been much discussion about eliminating the “zero lower bound†by eliminating paper currency. But such a radical and difficult approach as eliminating paper currency is not necessary. Much as during the Great Depression—when countries were able to revive their economies by going off the gold standard—all that is needed to empower monetary policy to cut interest rates as much as needed for economic stimulus now is to change from a paper standard to an electronic money standard, and to be willing to have paper currency go away from par. This paper develops the idea further and shows how such a mechanism can be implemented in a minimalist way by using a time-varying paper currency deposit fee between private banks and the central bank. This allows the central bank to create a crawling-peg exchange rate between paper currency and electronic money; the paper currency interest rate can be either lowered below zero or raised above zero. Such an ability to vary the paper currency interest rate along with other key interest rates, makes it possible to stimulate investment and net exports as much as needed to revive the economy, even when inflation, interest rates, and economic activity are quite low, as they are currently in many countries. The paper also examines different options available to the central bank to return to par when negative interest rates are no longer needed, and the associated implications for the financial sector and debt contracts. Finally, the paper discusses various legal, political, and economic challenges of putting in place such a framework and how policymakers could address them.
    Keywords: Monetary policy;Negative interest rates;electronic money, currency, paper currency, interest rate, money, interest rates, General, All Countries,
    Date: 2015–10–23
  49. By: Hattori, Takahiro; Miyake, Hiroki
    Abstract: The aim of this paper is to present the par yield curve for Japan’s Municipal Bonds, by examining daily data from 2002 to the present. Moreover, this paper contributes to current literature by making available for the first time additional long-run market data on Japan’s Municipal Bonds, and thereby enabling economists and practitioners to analyze the large municipal bond market of Japan in detail. We also investigate the fit of the well-known parametric and spline methods and are able to show that the spline method does, in fact, fit well as in previous studies. In keeping with our aim to make these data more widely available, we posted the data on the following website and expect to update this regularly:
    Keywords: Term structure of interest rates; Par yield curve; Municipal bond market; Japan
    JEL: E43 G12 H74
    Date: 2016–02–26
  50. By: Alex Miksjuk; Sam Ouliaris; Mikhail Pranovich
    Abstract: Belarus experienced a sequence of currency crises during 2009-2014. Our empirical results, based on a structural econometric model, suggest that the activist wage policy and extensive state program lending (SPL) conflicted with the tightly managed exchange rate regime and suppressed monetary policy transmission. This created conditions for the unusually frequent crises. At the current juncture, refocusing monetary policy from exchange rate to inflation would help to avoid disorderly external adjustments. The government should abandon wage targets and phase out SPL to remove the underlying source of the imbalances and ensure lasting stabilization.
    Keywords: Europe;Belarus;Foreign exchange;Fiscal policy;currency crisis, exchange rate policies, currency, exchange rate, monetary policy, currency crises, economy, Time-Series Models, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics,
    Date: 2015–12–29
  51. By: International Monetary Fund
    Abstract: This paper discusses Sierra Leone’s Third and Fourth Reviews Under the Extended Credit Facility Arrangement and Financing Assurances Review, Requests for Waivers for Nonobservance of Performance Criteria (PC) and Modification of PC. Program implementation has been good, notwithstanding the shocks that the economy has experienced. Despite missing several end-2014 PCs, owing to the Ebola outbreak, authorities have placed policies back on track. All end-June 2015 PCs, as well as most structural benchmarks, have been observed. The IMF staff supports the authorities’ requests for waivers, as well as for additional financing from the IMF.
    Keywords: Extended Credit Facility;Fiscal policy;External borrowing;Fiscal reforms;Monetary policy;Bank resolution;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Performance criteria modifications;Performance criteria waivers;Sierra Leone;
    Date: 2015–11–24
  52. By: Juan Guerra-Salas
    Abstract: This paper offers an explanation for the substantial decline in income inequality in Latin America during the 2000s, which is known to have been mainly driven by a decline in the skill premium. The 2000s were characterized by an economic expansion concentrated on low-skill-intensive service sectors. The expansion induced an increase in the demand for low-skilled labor relative to highskilled labor, which compressed the skill premium. Procyclical fiscal policy exacerbated the distributional effects of the boom by contributing to the growth of the service sector. I first document the expansion was concentrated on services while manufacturing lagged behind, and show declining inequality is associated with procyclical fiscal policy. I then rationalize the evidence using a small open economy DSGE model that features a low-skill-intensive nontradable sector relative to the tradable sector, and procyclical government purchases. This framework implies that at least part of the decline in inequality is transitory, a prediction supported by recent data
    Date: 2016–02
  53. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that starting from a difficult position in 2013, Pakistan has made substantial progress in reducing near-term economic vulnerabilities. Economic growth gradually increased from 3.7 percent in FY2012/13 to 4.2 percent in FY2014/15. During the same period, efforts to reduce power subsidies and raise tax revenue have lowered the budget deficit from 8.4 to 5.4 percent of GDP, although part of this adjustment reflected clearance of quasi-fiscal liabilities in the energy sector in 2013. In the medium term, growth is expected to reach about 5.5 percent, and inflation is expected to gradually rebound to the State Bank of Pakistan’s target of mid-single digits.
    Keywords: Middle East;Pakistan;tax, budget, monetary fund, deficit, exchange
    Date: 2016–01–12
  54. By: International Monetary Fund
    Abstract: This paper discusses Solomon Islands’ Request for an Extension of the Arrangement Under the Extended Credit Facility (ECF). All end-December 2014 performance criteria (PCs), indicative targets (ITs) for March 2015, and end-June 2015 PCs have been met by a considerable margin, with the exception of the ITs on government-funded recurrent spending on health and education, which have been consistently missed since 2014 albeit by a small margin. September 2015 available data indicate that ITs on international reserves, net domestic assets at the Central Bank, and net credit to the government have been comfortably met. The authorities remain committed to macroeconomic stability and completion of the reviews.
    Keywords: Asia and Pacific;Solomon Islands;arrangement, monetary fund, documents, data, central bank
    Date: 2015–12–23
  55. By: Venke Furre Haaland (Statistics Norway)
    Abstract: Utilizing registry data for all Norwegian males born in 1959–1973, I demonstrate that local unemployment rates at the typical age of graduation from compulsory school (age 16) and highschool (age 19) have persistent, negative effects on males’ earnings, employment, and disability pension utilization when measured as late as age 35. With data on every male IQ, I study how labor market conditions at age of graduation have differential effects for low- and high-ability males. As one would expect, low-ability males are particularly vulnerable to business cycles at the time of labor market entry.
    Keywords: Business cycle; graduation; careers
    JEL: E32 J31 J24
    Date: 2016–02
  56. By: Robert MacCulloch (University of Auckland)
    Abstract: Imagine a government confronted with a controversial policy question, like whether it should cut the level of unemployment benefits. Will social welfare rise as a result? Will some groups be winners and other groups be losers? Will the welfare gap between the employed and unemployed increase? “Happiness data” offer a new way to make these kinds of evaluations. These data allow us to track the well-being of the whole population, and also sub-groups like the employed and unemployed people, and correlate the results with relevant policy changes.
    Keywords: wellbeing, happiness data, unemployment benefit policy
    JEL: P16 E62
    Date: 2016–02
  57. By: Nuno Palma (European University Institue,University of Groningen)
    Abstract: I provide the first annual time series of coin and money supply estimates for about six hundred years of English history. I propose two main estimation methods. The first, which I call the Òdirect methodÓ, is used to measure the value of government-provided, legal-tender coin supply only. Additionally, I propose an Òindirect methodÓ which relies on a combination of information about nominal GDP with the value of coin supply or M2 known at certain benchmark periods. The latter permits estimating the growth of financial intermediation over time. The new methodologies which I set out here may serve as a blueprint for a similar reconstruction of coin and money supply series for other economies for which analogous data is available.
    Keywords: historical money supply, financial intermediation
    JEL: E10 E40 E51 N13
    Date: 2016–03
  58. By: Björn Brey (Department of Economics, University of KOnstanz, Germany); Matthias Hertweck (Department of Economics, University of KOnstanz, Germany)
    Abstract: This paper evaluates the effectiveness of short-time work [STW] extensions — e.g. relaxing eligibility criteria or implementing new STW schemes — in the OECD during and after the Great Recession. First, we find that the dampening effect of STW on the unemployment rate diminishes at higher take-up rates. Second, only countries with preexisting STW schemes were able to fully exploit the benefits of STW. Third, the effects of STW are strongest when GDP growth is deeply negative at the beginning of recessions. Our results indicate that STW is most effective when used as a fast-responding automatic stabilizer.
    Keywords: job destruction, labor policy, short-time work, unemployment
    JEL: E24 J23 J63 J65 J68
    Date: 2016–02–16
  59. By: Michal Bernad Pietrzak (Nicolaus Copernicus University, Poland); Adam P. Balcerzak (Nicolaus Copernicus University, Poland)
    Abstract: The research objective of the article is to analyse the impact of changes in the level of entrepreneurship and business investments on unemployment in Poland with the application of spatial econometrics methodology. A spatial SAR model was used to model unemployment, since this phenomenon exhibits the presence of positive spatial dependence. The research was done for 66 regions at NUTS 3 level for the year 2015. In order to provide interpretations of the results measures of average impact such as average direct impact, average indirect impact and average induced impact were applied. The obtained results indicate a positive impact of entrepreneurship and investment on decline in unemployment rate and improvement of Poland’s socio-economic situation.
    Keywords: spatial econometrics, SAR model, spatial dependence, unemployment, entrepreneurship, investments
    JEL: C21 E24
    Date: 2016–02
  60. By: Maren Brede; ; ;
    Abstract: This paper first develops a new approach, which is based on the Nelson-Siegel term structure factor-augmented model, to compute the VaR of bond portfolios. We then applied the model to examine whether information contained on macroeconomic variables and financial shocks can help to explain the variations of VaR. A principal component analysis is used to incorporate the information contained in different variables. The empirical result shows that, including macroeconomic variables and financial shocks in the Nelson-Siegel term structure factor model, we can observe an obvious tendency towards better VaR forecasting performance. Moreover, the impact of incorporating financial shocks seems to be stronger than that of incorporating macroeconomic variables.
    Keywords: In ation di erentials, monetary union, scal policy, balanced-budget policy
    JEL: E62 E63 F41
    Date: 2016–02
  61. By: International Monetary Fund
    Abstract: This paper discusses Chad’s Second Review Under the Extended Credit Facility (ECF) Arrangement, and Requests for Waivers of Nonobservance of Performance Criteria (PCs) and for Modification of PCs. Despite the weaker economy, performance under the ECF-supported program was broadly satisfactory in the first half of 2015, with four of the six PC met, and progress on the structural reform agenda in line with the program objectives. The IMF staff supports the completion of the second review under the ECF arrangement, the waivers of nonobservance for the PCs on contracting of nonconcessional external debt, and nonaccumulation of domestic payment arrears and the modification of PCs.
    Keywords: Extended Credit Facility;Economic growth;Fiscal policy;External borrowing;Domestic payments arrears;Debt management;Fiscal reforms;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Performance criteria waivers;Chad;
    Date: 2015–12–21
  62. By: Lunsford, Kurt Graden (Federal Reserve Bank of Cleveland)
    Abstract: Using a factor-augmented vector autoregression (FAVAR), this paper shows that residential investment contributes substantially to GDP following monetary policy shocks. Further, it shows that the number of new housing units built, not changes in the sizes of existing or new housing units, drives residential investment fluctuations. Motivated by these results, this paper develops a dynamic stochastic general equilibrium (DSGE) model where houses are built in discrete units and traded through searching and matching. The search frictions transmit shocks to housing construction, making them central to producing fluctuations in residential investment. The interest rate spread between mortgages and risk-free bonds also transmits monetary policy to the housing market. Following monetary shocks, the DSGE model matches the FAVAR’s positive co-movement between nondurable consumption and residential construction spending. In addition, the FAVAR shows that the mortgage spread falls following an expansionary monetary shock, providing empirical support for the DSGE model’s monetary transmission mechanism.
    Keywords: Factor-augmented vector autoregression; interest rate spread; monetary policy; residential investment; search theory;
    JEL: C32 E30 E40 E50 R31
    Date: 2016–02–12
  63. By: Jump, Robert; Mendieta-Muñoz, Ivan
    Abstract: The wage led aggregate demand hypothesis is examined for the United Kingdom over the period 1971 - 2007. Existing studies disagree on the aggregate demand regime for the UK, and this appears to be due to differing empirical approaches. Studies relying on equation-by-equation estimation procedures tend to find support for wage led aggregate demand in the UK, while the single study using systems estimation finds no support for the hypothesis. In order to resolve this incongruity, we test the wage led aggregate demand hypothesis in the UK using VAR models estimated on quarterly data. We use a liberal partial identification strategy based on movements in real earnings rather than in the labour share. The results provide support for the wage led aggregate demand hypothesis during the period of study.
    Keywords: Real Earnings, Income Distribution, Business Cycles.
    JEL: B5 E12 E25 E32
    Date: 2016–02–18
  64. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that economic activity in Iran has slowed down significantly since the fourth quarter of 2014/15 owing to sharp decline in global oil prices, tight corporate and bank balance sheets, and postponed consumption and investment decisions ahead of the expected lifting of economic sanctions. Twelve-month (point-to-point) inflation has declined to about 10 percent in recent months, largely reflecting lower food and beverage inflation, and the inflation rate is expected to remain close to 14 percent by year-end. Prospects for 2016/17 are brighter, owing to the prospective lifting of economic sanctions.
    Keywords: Article IV consultation reports;Oil prices;Economic growth;Fiscal policy;Fiscal consolidation;Labor market reforms;Banking sector;Bank supervision;Monetary policy;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Iran, Islamic Republic of;
    Date: 2015–12–21
  65. By: International Monetary Fund
    Abstract: This paper discusses Armenia’s Second Review Under the Extended Arrangement and Request for Waivers of Nonobservance and Rephasing. Since late 2014, Armenia’s economic performance has been affected by significantly weaker external conditions, as the slowdown of the Russian economy, the weakening of the ruble, lower metals prices, and the strengthening of the dollar have led to pressures on external receipts, particularly remittances. Performance under the program has come under strain. Three performance criteria (PCs) were missed both at end-December 2014 and end-June 2015. The authorities are requesting waivers of nonobservance for the missed June and continuous PCs. The IMF staff supports completion of the review.
    Keywords: Middle East;Armenia;deficit, exchange, remittances, monetary fund, interest
    Date: 2015–11–19
  66. By: Engin Kara; Ahmed Jamal Pirzada
    Abstract: During the Great Recession, despite the large fall in output, the fall in inflation was modest. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian model to provide an explanation for the puzzle. The new model allows for time-varying volatility in cross-sectional idiosyncratic uncertainty and accounts for changes in intermediate goods prices. Our model can forecast the large fall in output and stable inflation during the Great Recession. We show that ination did not fall much because intermediate goods prices were increasing during the Great Recession.
    Keywords: Price Mark-up Shocks; Great Recession; Ination; DSGE; Intermediate Inputs.
    Date: 2016–03–01
  67. By: Bill Russell; Dooruj Rambaccussing
    Abstract: ‘Modern’ theories of the Phillips curve inadvertently imply that inflation is an integrated or near integrated process but this implication is strongly rejected using United States data. However, if we assume that inflation is a stationary process around a shifting mean (due to changes in monetary policy) then any estimate of long-run relationships will suffer from a ‘small-sample’ problem as there are too few inflation ‘regimes’ where the data are stationary. We offer a ‘4-stage’ solution to this problem and applying this solution to United States data we estimate a significant negative sloping non-linear long-run Phillips curve.
    Keywords: Phillips curve, inflation, structural breaks, non-stationary data
    JEL: C23 E31
    Date: 2016–02
  68. By: Rui Castro (University of Western Ontario); Pavel Sevcik (ESG UQAM)
    Abstract: We study the aggregate productivity effects of firm-level financial frictions. Credit constraints affect not only production decisions but also household-level schooling decisions. In turn, entrepreneurial schooling decisions impact firm-level productivities, whose cross-sectional distribution becomes endogenous. In anticipation of future constraints, entrepreneurs under-invest in schooling. Frictions lower aggregate productivity because talent is misallocated across occupations, and capital misallocated across firms. In addition, firm-level productivities are also lower due to distortions induced by the schooling responses. We find that these effects combined account for about 1/5 of the U.S.-India aggregate productivity difference. Requiring the model to match schooling differences significantly amplifies the impact of frictions, and the model accounts for 58% of the aggregate productivity difference.
    Keywords: Aggregate Productivity; Financial Frictions; Entrepreneurship; Human Capital
    JEL: E24 I25 J24 O11 O15 O16
    Date: 2016
  69. By: International Monetary Fund
    Abstract: This paper discusses Madagascar’s Staff-Monitored Program (SMP) and Request for Disbursement under the Rapid Credit Facility (RCF). Madagascar’s economic recovery has failed to gain momentum in 2015, largely due to external shocks, persistent political instability, and weak governance. Nonetheless, the authorities have implemented an adequate policy mix that has broadly maintained macroeconomic stability. In light of urgent balance of payments needs, the Malagasy authorities are requesting a second disbursement under the RCF, accompanied by a SMP. The IMF staff supports the authorities’ request for a disbursement under the RCF based on the policy track record over the past six months.
    Keywords: Staff-monitored programs;External shocks;Economic conditions;Economic growth;Fiscal policy;Monetary policy;Economic indicators;Balance of payments statistics;Millennium Development Goals;Letters of Intent;Rapid Credit Facility;Debt sustainability analysis;Staff Reports;Press releases;Madagascar;
    Date: 2015–12–01
  70. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that Afghanistan remains a poor fragile state that is far from self-reliance. Significant fiscal and banking vulnerabilities emerged in 2014. Domestic revenue collection fell below its 2013 level because of lower growth, declining imports, and lower compliance, while operating expenditure increased. The treasury cash balance fell to dangerously low levels in the second half of 2014, and domestic payment arrears and unfunded allotments emerged. The future path of the economy is highly dependent on the authorities’ delivering on their economic reform commitments, continued donor support, and improvements in security.
    Keywords: Article IV consultation reports;Economic conditions;Revenue mobilization;Mining sector;Public enterprises;Fiscal reforms;Corruption;Banking sector;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Afghanistan;
    Date: 2015–12–01
  71. By: Frédéric Dufourt (Aix-Marseille University (Aix-Marseille School of Economics)-CNRS-EHESS); Kazuo Nishimura (RIEB, Kobe University & KIER, Kyoto University); Carine Nourry (Aix-Marseille University (Aix-Marseille School of Economics)-CNRS-EHESS); Alain Venditti
    Abstract: We analyze a version of the Benhabib and Farmer [3] two-sector model with sector-specific externalities in which we consider a class of utility functions inspired from the one considered in Jaimovich and Rebelo [14] which is flexible enough to encompass varying degrees of income effect. First, we show that local indeterminacy and sunspot fluctuations occur in 2-sector models under plausible configurations regarding all structural parameters – in particular regarding the intensity of income effects. Second, we prove that there even exist some configurations for which local indeterminacy arises under any degree of income effect. More precisely, for any given size of income effect, we show that there is a non-empty range of values for the Frisch elasticity of labor and the elasticity of intertemporal substitution in consumption such that indeterminacy occurs. This contrasts with the results obtained in one-sector models in both Nishimura et al. [19], in which it is shown that indeterminacy cannot occur under either GHH and KPR preferences, and in Jaimovich [13] in which local indeterminacy only arises for intermediary income effects.
    Keywords: Indeterminacy, sunspots, income and substitution effects, sector-specific externalities, infinite horizon two-sector model
    JEL: C62 E32 O41
    Date: 2016–01
  72. By: International Monetary Fund
    Abstract: Considerable progress has been achieved in the post-crisis repair of the UK economy. Private-sector indebtedness has been reduced, the financial sector regulatory framework has been overhauled, the fiscal deficit has been cut in half, and the employment rate has reached a record high. With the output gap now nearly closed, growth is expected to average near its potential rate of around 2¼ percent over the medium term, with inflation rising slowly from its current low levels to the 2 percent target by end-2017. However, this benign baseline is subject to risks, including those related to potential shocks to global growth and asset prices, still-high levels of household debt, the elevated current account deficit, and the degree to which productivity growth will recover. Uncertainty associated with the outcome of the forthcoming referendum on EU membership could also weigh on the outlook. Continued efforts are needed to complete the post-crisis repair, promote growth, and further bolster resilience.
    Date: 2016–02–24
  73. By: International Monetary Fund
    Abstract: This paper discusses Ghana’s Second Review Under the Extended Credit Facility Arrangement and Request for Waiver for Nonobservance of Performance Criterion (PC). Program implementation has been broadly satisfactory to date, but the economic outlook remains difficult, and risks are tilted to the downside. All PCs were met at end-August 2015, with the exception of the continuous PC on nonaccumulation of external arrears, which was not observed owing to some small payments delays. The IMF staff supports the authorities’ request for a waiver for this, given the corrective actions that will be implemented to avoid new external arrears. The IMF staff recommends completion of the second review.
    Keywords: Extended Credit Facility;Fiscal policy;Debt management;Fiscal reforms;Monetary policy;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Letters of Intent;Staff Reports;Press releases;Performance criteria waivers;Ghana;
    Date: 2016–01–20
  74. By: Ales Bulir; Jan Vlcek
    Abstract: We use two alternative representations of the yield curve to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in a sample of emerging market and low-income countries. We find a robust link from shortterm policy and interbank rates to longer-term bond yields. Two policy implications emerge. First, the presence of well-developed secondary financial markets does not seem to affect transmission of short term rates along the yield curve. Second, the strength of the transmission mechanism seems to be affected by the choice of the monetary regime: countries with a credible inflation targeting regime seem to have “better behaved†yield curves than those with other monetary regimes.
    Date: 2015–11–20
  75. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that Swaziland’s growth has been recovering since the 2010–11 fiscal crisis, albeit at a slower pace recently. Growth recovery following the fiscal crisis was broadly supported by the manufacturing and service sectors. In 2015, however, growth is expected to slow, owing to adverse weather conditions and a slowdown in tourism and transport sectors. Swaziland’s growth outlook is projected to remain subdued over the medium term, while it is clouded with downside risks. Growth is expected to slow in 2016/17, followed by a modest recovery in the following years.
    Keywords: Article IV consultation reports;Economic conditions;Fiscal policy;Fiscal consolidation;Financial sector;Reserves;Reserves adequacy;Exchange rate assessments;Economic indicators;Balance of payments statistics;Millennium Development Goals;Debt sustainability analysis;Staff Reports;Press releases;Swaziland;
    Date: 2015–12–23
  76. By: International Monetary Fund
    Abstract: This 2014 Article IV Consultation highlights that Djibouti is undergoing an investment boom that would accelerate economic growth. Aggregate investment is projected to rise from 26 percent of GDP in 2010–13 to 52 percent in 2014–16. GDP growth is expected to rise from 6 percent in 2014 to about 7 percent in 2015–19. Inflation is projected to pick up from 3 percent in 2014 to 3.3 percent in 2015–19 as the large investment spending fuels demand for housing and basic services. Central bank gross foreign assets are projected to remain strong, permitting full currency board coverage over the period 2015–19.
    Keywords: Article IV consultation reports;Economic growth;Public investment;Unemployment;Fiscal policy;Fiscal sustainability;Fiscal reforms;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Djibouti;
    Date: 2015–12–15
  77. By: Nikolay Arefiev (National Research University Higher School of Economics)
    Abstract: I identify and estimate the monetary policy rule and the monetary policy shocks within a structural vector autoregression model for the US economy. I make two contributions to the literature. First, for identi cation I propose to use restrictions consistent with the literature on dynamic stochastic general equilibrium (DSGE) models. Typical DSGE model produces more restrictions than is required for the identi cation, so overidentifying restrictions can be tested against the data. The second contribution is a new method of testing the overidentifying restrictions. This method divides the set of identifying restrictions into subsets, and tests each subset independently of the others. This method does not reject most restrictions produced by the DSGE model. The only rejections provide evidence that the Federal Reserve uses delayed information about the in ation in policy making. The proposed approach to identi cation helps explain and solve the price puzzle problem reported in the previous literature.
    Keywords: graphical identi cation; sparse SVAR; price puzzle.
    JEL: C30 E52
    Date: 2016
  78. By: International Monetary Fund
    Abstract: Elections took place in October 2015 and the new authorities confirmed their commitment to the objectives of the program. CCM, the ruling party since independence, retained a large majority in parliament, and its candidate, John Magufuli, was elected president. The new authorities have sent strong signals on their determination to reform the government, strengthen the work ethics of the public service, streamline expenditure, and fight tax evasion. Tanzania’s macroeconomic performance remains strong. Real GDP growth is on track to remain at about 7 percent. Inflation, which rose to 6.3 percent in October 2015, is expected to converge to the authorities’ 5-percent target in 2016. The external current account deficit is projected to decrease further due to lower oil imports. Program implementation slowed significantly ahead of the elections. While most assessment criteria (ACs) for June 2015 were met, the September indicative targets for tax revenue, average reserve money, and net international reserves (NIR) were missed. Revenue and financing shortfalls, together with weak commitment controls, led to the accumulation of further domestic arrears in 2014/15. Some progress was achieved in structural reforms but a number of benchmarks were missed.
    Keywords: Sub-Saharan Africa;Tanzania;revenue, debt, exchange, monetary fund, tax
    Date: 2016–02–01
  79. By: Mehdi Raissi; Volodymyr Tulin; Girish Bahal
    Abstract: This paper contributes to the debate on the relationship between public-capital accumulation and private investment in India along the following dimensions. First, acknowledging major structural changes that the Indian economy has undergone in the past three decades, we study whether public investment in recent years has become more or less complementary to private investment in comparison to the period before 1980. Second, we construct a novel data-set of quarterly aggregate public and private investment in India over the period 1996Q2-2015Q1 using investment-project data from the CapEx-CMIE database. Third, embedding a theory-driven long-run relationship on the model, we estimate a range of Structural Vector Error Correction Models (SVECMs) to re-examine the public and private investment relationship in India. Identification is achieved by decomposing shocks into those with transitory and permanent effects. Our results suggest that while public-capital accumulation crowds out private investment in India over 1950-2012, the opposite is true when we restrict the sample post 1980 or conduct a quarterly analysis since 1996Q2. This change can most likely be attributed to the policy reforms which started during early 1980s and gained momentum after the 1991 crises.
    Keywords: Asia and Pacific;India;Public investment, Private investment, Crowding in, Crowding out, Permanent shocks, Structural identification, Vector error correction models, investment, capital, investment activity, General, Time-Series Models, Infrastructures,
    Date: 2015–12–17
  80. By: Mathews, Don (Reg Murphy Center for Economic and Policy Studies)
    Abstract: While most MSAs in the U.S. have recovered from the Great Recession, some – including the MSA of Brunswick, Georgia – have continued to struggle. This paper empirically examines Brunswick’s struggle, comparing its economic performance with that of other MSAs since 2009.
    Keywords: Brunswick Georgia; economic performance by MSA; great recession
    JEL: E32 R11
    Date: 2016–02–23
  81. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that for the third consecutive year, Benin is expected to reach solid economic growth in 2015 at about 5 percent, despite recent headwinds from the economic slowdown in Nigeria—Benin’s major trading partner. In 2016, increased public investment is expected to keep real GDP growth at about 5.2 percent, with inflation to remain subdued. The medium-term outlook is also positive overall, but subject to significant risks, including a further slowdown in Nigeria and delays of structural reforms that could weaken growth dynamics. Low debt levels help accommodate the government’s ambitious plans to further scale-up investment over the medium term.
    Keywords: Benin;Sub-Saharan Africa;investment, debt, monetary fund, revenue, fiscal policy
    Date: 2016–01–07
  82. By: Antoniele D`Lean Pereira (FACE-UFG, Ciências Econômicas); Antonio Marcos de Queiroz (FACE-UFG, Ciências Econômicas); Sabrina Faria de Queiroz (FACE-UFG, Ciências Econômicas); Sérgio Fornazier Meyrelles Filho (FACE-UFG, Ciências Econômicas)
    Abstract: This paper aims to analyze empirically the relationship between the degree of capital mobility and Brazilian economic performance from 1999 to 2012. This is summarized through analysis of economic growth, interest and inflation rates behavior. Primarily, a brief overview is presented regarding the problems involved in capital mobility measurement, as well as a review of empirical literature about its potential impacts over long term economic growth considering different periods and country samples. Subsequently, methodological aspects and the central results of this proposed investigation are detailed. Upon econometric estimation of vector autoregressions (VAR) through a Financial Integration indicator based on the sum of total capital in and out flows, the results of this study provide limited evidence that more capital mobility is, in Brazilian case, associated to an effective improvement in macroeconomic performance. When it comes to this conclusion, no variables analyzed seem to have a positive and robust relationship as compared with variation in financial integration degree of the economy.
    Keywords: International Financial Integration. Capital Controls. Macroeconomic Performance
    JEL: E2 F36 F41
    Date: 2014–06
  83. By: International Monetary Fund
    Abstract: The economy continued to expand robustly, although at a slower-than-projected pace. Real GDP is estimated to have grown by 5.6 percent in 2015, driven by public infrastructure spending, buoyant credit growth, and strong consumer demand. But the growth acceleration in 2015 is slower than projected under the program, reflecting delays in planned road infrastructure spending, weaker tourism receipts, and volatile external capital flows. Gross international reserves at about 4 months of imports remain adequate. At the same time, inflation rose to 8 percent in December, exceeding the upper bound of the authorities’ target range for inflation (5+/-2.5 percent).
    Keywords: Sub-Saharan Africa;Kenya;international monetary fund, fiscal measures, monetary policy, monetary fund, fiscal deficit
    Date: 2016–02–02
  84. By: Sen, Hüseyin (BOFIT); Kaya, Ayse (BOFIT)
    Abstract: This study empirically examines the validity of the twin and triple deficits hypotheses using bootstrap panel Granger causality analysis and an annual panel data set of six post-communist countries (Russia, Poland, Ukraine, Romania, the Czech Republic, and Hungary) from 1994 to 2012. Our findings, based on panel data analysis under cross-sectional dependence and country-specific heterogeneity, support neither the twin deficits hypothesis nor its extended version, the triple deficits hypothesis, for any of the countries considered. In other words, we find no Granger-causal relationship between budget deficits and trade (or current account) deficits or among budget deficits, private savings-investment deficits, and trade deficits.
    Keywords: macroeconomic policy; fiscal policy; twin deficits; triple deficits; post-communist countries; transition economies; bootstrap panel granger causality test
    JEL: E60 F30 F32 H62
    Date: 2016–02–18
  85. By: Joong Shik Kang
    Abstract: As the U.S. Fed begins to increase the Federal Funds rate, interest rates in Hong Kong SAR will rise in tandem under the Currency Board system. While domestic economic activity in Hong Kong SAR remained resilient in previous rate hike cycles, there is a concern that the impact of higher interest rates would be larger this time due to historic high levels of leverage in both household and corporate sectors. However, macroprudential measures have contained the debt service burden among new borrowers and leverage quality of corporate sector is healthier than its peers in the region. Empirical estimations of aggregate consumption and corporate investment show that private domestic demand is likely to remain robust with the anticipated gradual increase in interest rates over the next few years and taking into account the buffers in the system.
    Date: 2016–02–23
  86. By: Fernholz, Ricardo T. (Claremont McKenna College); Koch, Christoffer (Federal Reserve Bank of Dallas)
    Abstract: The U.S. banking sector has become substantially more concentrated since the 1990s, raising questions about both the causes and implications of this consolidation. We address these questions using nonparametric empirical methods that characterize dynamic power law distributions in terms of two shaping factors — the reversion rates (a measure of crosssectional mean reversion) and idiosyncratic volatilities of assets for different size-ranked banks. Using quarterly data for subsidiary commercial banks and thrifts and their parent bank-holding companies, we show that the greater concentration of U.S. bank-holding company assets is a result of lower mean reversion, a result consistent with policy changes such as interstate branching deregulation and the repeal of Glass-Steagall. In contrast, the greater concentration of both U.S. commercial bank and thrift assets is a result of higher idiosyncratic volatility, yet, idiosyncratic volatility of parent bank-holding company assets fell. This contrast suggests that diversification through non-banking activities has reduced the idiosyncratic asset volatilities of the largest bank-holding companies and affected systemic risk.
    Keywords: Bank size distributions; bank structure; dynamic power laws; financial stability; non-bank activities; nonparametric methods; systemic risk
    JEL: C14 C81 E58 G21
    Date: 2016–02–18
  87. By: Helge Berger; Thomas Dowling; Sergi Lanau; Mico Mrkaic; Pau Rabanal; Marzie Taheri Sanjani
    Abstract: Potential output—in the sense of the GDP level or path an economy can sustain over the medium term—is a crucial benchmark for policymakers. However, it is difficult to estimate when financial “booms and busts†are driving the real economy. This paper uses a simple multivariate filtering approach to illustrate the role financial variables play in driving potential or sustainable output. The results suggest that it moves more steadily during financial “boom and bust†periods than implied by conventional HP filter estimates, which tend to more closely follow actual GDP. A two-region, multisector New Keynesian DSGE model with financial frictions sheds light on the economic forces that could be behind the results obtained from the filter. This has important implications for policymakers.
    Keywords: Potential output;Credit;Output gap, variables, gdp, demand, Financial Markets and the Macroeconomy, Model Construction and Estimation, Estimation, All Countries,
    Date: 2015–11–09
  88. By: JaeBin Ahn; Chang-Gui Park; Chanho Park
    Abstract: Motivated by stylized facts pointing to a dominant role of imported inputs in transmitting external price shocks to domestic prices, this paper zooms in to study the pass-through of imported input costs to domestic producer prices. Our approach constructs effective input price indices from sector-level price data combined with sector-level information on input-output linkages. Applying an error correction model specification to sector-level output and input prices, the long-run pass-through rate of effective imported input costs to domestic producer prices is estimated to be around 70 percent in Korea and almost 100 percent in selected European countries.
    Keywords: Import prices;Korea, Republic of;Producer prices;Consumer goods;Inflation;Exchange rate pass-through;Econometric models;exchange rate pass-through; imported input cost pass-through; inflation
    Date: 2016–02–12
  89. By: Serkan Arslanalp; Takahiro Tsuda
    Abstract: Portfolio flows to emerging markets (EMs) tend to be correlated. A possible explanation is the role global benchmarks play in allocating capital internationally, the so-called “benchmark effect.†This paper finds that benchmark-driven investors indeed play a large role in a key segment of the market—the EM local currency government bond market—, accounting for more than one third of total foreign holdings as of end-2014. We find that the prominence of these investors declined somewhat after the May 2013 taper tantrum, but remain high. This distinction is important in understanding the drivers of EM capital flows and their sensitivity to different types of shocks. In particular, a high share of benchmark-driven investors may result in capital flows that are more sensitive to global shocks and less sensitive to country factors.
    Keywords: International finance;Financial crises;Financial crises;Portfolio Choice, Investment Decisions, markets, currency, investors, government debt, debt, General, All Countries, and Investment Decisions,
    Date: 2015–12–17
  90. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that Mali’s program performance through June was strong, with all performance criteria and most structural benchmarks met. The 2016 program features a somewhat higher fiscal deficit compared with 2015 to allow for increased public investment and reconstruction spending. The program’s structural component incorporates measures to support continued revenue growth, strengthen public financial management, and promote good governance. The external current account is projected to strengthen in the near term but would weaken thereafter, mainly as a result of less favorable terms of trade.
    Keywords: Article IV consultation reports;Economic recovery;Economic growth;Fiscal policy;Government expenditures;Banking sector;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Letters of Intent;Staff Reports;Press releases;Extended Credit Facility;Performance criteria modifications;Mali;
    Date: 2015–12–17
  91. By: Matteo Manera; Apostolos Serletis (University of Calgary)
    Abstract: This special issue of Macroeconomic Dynamics presents a timely and fresh body of high- quality research on the complexity and evolution of the international oil markets, the dynamics of the price of oil, and the financialization and the interconnections of oil, energy, and non-energy commodity markets.
    Date: 2016–02–23
  92. By: Kim, Jinyoung (Korea University); Lee, Jong-Wha (Asiatic Research Institute, Korea University); Shin, Kwanho (Department of Economics, Korea University)
    Abstract: This paper presents a theoretical model that can analyze the impact of gender inequality on long-term economic growth. The model is calibrated to fit to Korean data. We find that gender equality policies that lower discrimination in the labor market or that increase the time spent by a father on child-rearing can contribute positively to female labor market participation and per capita income growth. The simulation results show that when the disparities between men and women at home and in the labor market are completely removed, the female labor force participation rate increases from 54.4% to 67.5%, and the growth rate in per capita income rises from 3.6% to 4.1% on average over a generation.
    Keywords: economic growth; female labor market participation; gender inequality; human capital accumulation; Republic of Korea
    JEL: E24 J13 J71 O53
    Date: 2016–01–27
  93. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that Bolivia has achieved strong economic performance and poverty reduction over the past decade. Real GDP growth has averaged about 5 percent since 2006, and the poverty ratio has declined by 16 percentage points. Real GDP growth is projected to stay relatively strong at 4.1 percent in 2015, despite the sharp decline in oil prices that is starting to have an impact. A sizable public investment budget, strong credit growth to the private sector, and robust private consumption are expected to support activity. Growth is expected to decelerate to 3.5 percent over the medium term, as the full impact of the new commodity price normal is felt.
    Keywords: Article IV consultation reports;Economic growth;Commodity price fluctuations;Nonoil sector;Fiscal policy;Private investment;Bank legislation;Monetary policy;Flexible exchange rate policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Bolivia;
    Date: 2015–12–18
  94. By: International Monetary Fund
    Abstract: This paper discusses the Iraqi authorities’ request for a Staff-Monitored Program (SMP). The authorities have requested an SMP to establish a track record of policy credibility to pave the way to a possible IMF financing arrangement. Under the SMP, the authorities will implement fiscal consolidation that will contain public expenditure in line with available revenue and financing, and aim to reduce the non-oil primary deficit by US$20 billion or 12 percent of non-oil GDP between 2013 and 2016. Under the SMP, agreement has also been reached on measures to strengthen public financial management, anti-money laundering and countering the financing of terrorism, and financial sector stability.
    Keywords: Middle East;Iraq;exchange, oil prices, economic developments, balance of payments, monetary fund
    Date: 2016–01–12
  95. By: Bernardo Leyva-Uribe (Universidad de los Andes); Jose E. Gomez-Gonzalez (Banco de la República de Colombia); Oscar M. Valencia-Arana (Banco de la República de Colombia); Mauricio Villamizar-Villegas (Banco de la República de Colombia)
    Abstract: Este trabajo estudia los efectos de la política monetaria de la Reserva Federal de Estados Unidos durante la reciente crisis financiera (2008-2009) sobre los retornos accionarios de mercados emergentes. Mediante el análisis de un estudio de eventos se encuentra evidencia significativa de que los índices accionarios de un conjunto de países emergentes reaccionaron ante los comunicados del comité de la Reserva Federal (FOMC) sobre el futuro del programa de compras de activos financieros a gran escala (LSAP). Sin embrago, dichas respuestas muestran un importante grado de heterogeneidad. En particular, los retornos accionarios de los países emergentes aumentaron en un 7.3% y 2.3% durante la primera y tercera etapa del programa de Quantitative Easing, respectivamente. Por otra parte, los retornos accionarios disminuyeron en un 2.9% durante la segunda etapa. Estas diferencias se pueden atribuir al diseño de cada una de las etapas del programa de estímulo monetario llevado a cabo por la Reserva Federal. Classification JEL:E52, E58, G15
    Keywords: Quantitative Easing, Large Scale Asset Purcheses, estudio de eventos, retorno accionario, mercados emergentes
    Date: 2016–02
  96. By: Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Greece); Periklis Gogas (Department of Economics, Democritus University of Thrace, Greece); Theophilos Papadimitriou (Department of Economics, Democritus University of Thrace, Greece); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: Forecasting the evolution path of macroeconomic variables has always been of keen interest to policy authorities. A common tool in the relevant forecasting literature is the term spread of Treasury bond interest rates. In this paper we decompose the term spread of treasury bonds into an expectations and a term premium component and we evaluate the informational content of each component in forecasting the real GDP growth rate and inflation (as measured by the GDP deflator) in various forecasting horizons. In doing so, we evaluate alternative decomposition procedures, introduce the nonlinear machine learning Support Vector Regression (SVR) methodology in rolling regressions and examine both point and conditional probability distribution forecasts. We also consider a number of control variables that are typically used in this context. According to our empirical findings neither the term spread nor its decomposition possess the ability to forecast output growth or inflation.
    Keywords: Inflation, GDP, Forecasting, Support Vector Machines, Term Premium
    JEL: C22 C53 E47
    Date: 2016–02
  97. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that decline in oil prices has adversely affected Kuwait’s fiscal and current account balances and slowed growth in 2014–15. Real non-oil GDP growth is projected to slow in 2015 and 2016, and pick up to 4 percent in the medium term, supported by government investment in infrastructure and private investment. The fiscal and external positions are projected to deteriorate further in 2015 and 2016, and improve somewhat over the medium term as oil prices and production recover partially.
    Keywords: Article IV consultation reports;Economic growth;Fiscal consolidation;Government expenditures;Fiscal policy;Fiscal reforms;Labor market reforms;Banking sector;Bank supervision;Economic indicators;Financial soundness indicators;Staff Reports;Press releases;Kuwait;
    Date: 2015–12–02
  98. By: International Monetary Fund
    Abstract: The macro-economic situation continues to improve. Growth is recovering and should reach 4.7 percent in 2015, but non-agricultural activity remains sluggish. Inflation remains low. The authorities appear to be on track to meet the 2015 public deficit target of 4.3 percent of GDP. The external position continues to improve, benefiting from lower oil prices, the current account deficit will narrow to about 1.5 percent of GDP in 2015 and international reserves will exceed 110 percent of the Fund’s Assessing Reserve Adequacy (ARA) metric. Poverty rates, unemployment and inequalities have declined, but much remains to be done to reduce structural unemployment, increase labor force participation rates, and secure higher and more inclusive growth. Reforms have slowed down somewhat, especially pension reform and the new central bank law. The 2015 FSAP assessed that banks are well capitalized and profitable, and benefit from stable funding.
    Keywords: Article IV consultation reports;Economic growth;Unemployment;Fiscal policy;Fiscal consolidation;Government expenditures;Education;Monetary policy;Bank supervision;Flexible exchange rate policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Morocco;
    Date: 2016–02–08
  99. By: Griffin,Peter; Laursen,Thomas Blatt; Robertson,James W.
    Abstract: This paper examines the short- and long-run economic impact of Egypt's energy subsidy reform in July 2014 (without and without compensating transfers for the bottom 40 percent of the income distribution) and the decline in global energy prices, as well as the long-run impact of phasing out the energy subsidies over a 5 year period. The analysis uses a Computable General Equilibrium model with 56 productive sectors, including 11 energy subsectors. The short-run analysis employs a two-stage factor market adjustment, with wages first fixed and then flexible. The long-run analysis is run in a recursive dynamic mode, capturing the impact of improved productivity and increased investment resulting from more efficient allocation of resources and reduction in government deficits. In the short run, the 2014 reforms lead to slightly lower consumption while investment increases strongly and production shifts from highly subsidized energy-intensive sectors such as energy, water and sanitation, and transport to other sectors (notably construction). The impact on overall consumer prices is limited. In the longer run, real GDP growth increases by about one percentage point relative to the baseline before the 2014 reform.
    Keywords: Economic Theory&Research,Energy Production and Transportation,Environment and Energy Efficiency,Energy and Environment,Transport Economics Policy&Planning
    Date: 2016–02–19
  100. By: International Monetary Fund
    Abstract: Context: A strengthening but moderate recovery is taking hold after a double-dip recession that stretched into the first quarter of 2014. Growth has been led by exports and investment, although net exports faltered in mid-2015 as the government cut natural gas output in response to earthquakes in the gas producing areas. Fiscal stance: The Netherlands should use any available fiscal space with respect to the Medium-Term Objective (MTO) to increase spending on the government’s priority areas or reduce taxes to bolster the recovery so long as the economy remains below potential.
    Keywords: Article IV consultation reports;Fiscal policy;Public debt;Fiscal reforms;Pensions;Housing;Tax reforms;Labor market reforms;Banking sector;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Netherlands;
    Date: 2016–02–11
  101. By: Andrew Binning
    Abstract: The Zero Lower Bound (ZLB) on policy rates is one of the key monetary policy issues du jour. In this paper we investigate the problem of modelling and estimating the ZLB in a simple New Keynesian model with regime switches. The key features of the model include switches in the time preference shock, productivity growth rate and the steady state rate of inflation leading to two steady states: a normal steady state and a ZLB steady state. The model is fitted to US data using Bayesian methods and is found to match the US experience over the great moderation and the ZLB periods very well. The key features of the model allow us to test competing theories about the determinants of the ZLB steady state. Our results suggest that the ZLB steady state is driven by precautionary savings behavior. It is also found that expectations over different regimes crucially matter for the dynamics of the system.Length: 43 pages
    Keywords: Zero Lower Bound, Regime-switching, DSGE, Bayesian Estimation
    Date: 2016–02
  102. By: Luc Eyraud
    Abstract: This paper estimates the effect of copper prices on Chile’s growth at various time horizons. We find that a price decline is likely to have a durable (although not permanent) effect on GDP growth: while the impact is the strongest in the first 3 years after the shock, the transition towards the new lower steady-state GDP level generally takes 5–10 years. From a production function perspective, the GDP growth slowdown is mainly driven by lower capital accumulation.
    Keywords: Western Hemisphere;Chile;Commodities;Copper;Growth, prices, price, copper prices, copper price, market, Economic Growth of Open Economies, Global Commodity Crises, General,
    Date: 2015–11–23
  103. By: Huidan Lin
    Abstract: This paper discusses the risks of stagnation over the medium term in the euro area. It examines the consequences of longer-term growth trends that predate the crisis and the progress made in addressing the crisis legacies of high unemployment and debt. The paper illustrates in a downside scenario, how low potential growth and crisis legacies leave the euro area vulnerable to a negative shock that tips the economy into a prolonged slowdown.
    Keywords: Europe;Euro Area;Productivity;Potential growth, Deleveraging, Downside scenario, debt, investment, unemployment, inflation, Forecasting and Other Model Applications,
    Date: 2016–01–22
  104. By: International Monetary Fund
    Abstract: This Selected Issues paper examines the labor market and migration in Sweden. Sweden enjoys a broadly well-functioning labor market. The labor force has been expanding at a healthy pace, in part reflecting rising participation including by females. This paper discusses the compositional changes in the labor force, employment, and unemployment over the past decade. A brief overview of migration flows, their composition, and their demographic benefits is provided. An assessment of the potential implications of the projected increase in migration for unemployment is done. The features of Sweden’s labor market that contribute to the higher unemployment rates of the lower skilled and foreign-born are also outlined.
    Keywords: Labor markets;Employment;Migration;Labor supply;Skilled labor;Housing;Housing prices;Selected Issues Papers;Sweden;
    Date: 2015–12–02
  105. By: Fairlie, Robert
    Abstract: Labor force transitions are empirically examined using CPS data matched across months from 1996-2012 for Hispanics, African-Americans and whites. Transition probabilities are contrasted prior to the Great Recession and afterwards. Estimates indicate that minorities are more likely to be fired as business cycle conditions worsen. Estimates also show that minorities are usually more likely to be hired when business cycle conditions are weak. During the Great Recession, the odds of losing a job increased for minorities although cyclical sensitivity of the transition declined. Odds of becoming re-employed declined dramatically for blacks, by 2-4 percent, while the probability was unchanged for Hispanics.
    Keywords: Social and Behavioral Sciences, unemployment, race, minorities, labor market, labor force, dynamics, Great Recession
    Date: 2016–02–22
  106. By: Purva Khera
    Abstract: This paper examines the macroeconomic interaction between informality and gender inequality in the labor market. A dynamic stochastic general equilibrium model is built to study the impact of gender-targeted policies on female labor force participation, female formal employment, gender wage gap, as well as on aggregate economic outcomes. The model is estimated using Bayesian techniques and Indian data. Although these policies are found to increase female labor force participation and output, lack of sufficient formal job creation due to labor market rigidities leads to an increase in unemployment and informality, and further widens gender gaps in formal employment and wages. Simultaneously implementing such policies with formal job creating policies helps remove these adverse impacts while also leading to significantly larger gains in output.
    Keywords: Poverty and inequality;India;Gender;Labor markets;Labor force participation;Informal sector;General equilibrium models;gender inequality, informality, DSGE model, Indian economy, Bayesian estimation
    Date: 2016–02–09
  107. By: Kiyohiko G. Nishimura (Professor of Economics, University of Tokyo, Former Deputy Governor, Bank of Japan)
    Abstract: Three “seismic†shifts in the global economy are identified. (1) There is a persistent dampening fallout from the property bubbles, busts, and the ensuing financial crises in developed economies. (2) Information communication technology becomes ubiquitous and unfortunately employment -unfriendly. This impact is most severely felt in developed economies, but it will eventually impact on emerging economies as well. (3) Many economies have shifted or are close to shift from the demographic bonus phase of young and growing population to the demographic bonus phase of aging population. Most developed economies have turned this corner, and many emerging economies are about to follow suit. Finally, their policy implications are explored both in business cycles and long-run growth.
    Date: 2016–02
  108. By: Won Jun Nah; Marc Lavoie (University of Ottawa (CA))
    Abstract: A simple neo-Kaleckian open-economy model is presented and its implications for growth regimes are analyzed. The present model features long run-convergence to its normal rate of capacity utilization, which is conditionally achieved by incorporating the Harrodian principle of instability and autonomous growth in foreign demand. It is demonstrated that some aspects of the main Kaleckian results can be preserved not only in the short run but also in the long run, in the sense that both (i) a decrease in the propensity to save, and (ii) a change in income distribution favoring labor, bring about higher average rates of production growth and capital accumulation. However, the long-run impact of a change in the profit share is shown to be subjected to the condition that the responsiveness of the real exchange rate with respect to the profit share has to be bounded from above, confirming that the scope for wage-led demand or wage-led growth can be limited by open-economy considerations.
    Keywords: neo-Kaleckian, growth, capacity utilization, exports, profit share, real exchange rate
    JEL: E11 F41 O41
    Date: 2016–02
  109. By: Rima Turk
    Abstract: Sweden is experiencing double-digit housing price gains alongside rising household debt. A common interpretation is that mortgage lending boosted by expansionary monetary policy is driving up house prices. But theory suggests the value of housing collateral is also important for household’s capacity to borrow. This paper examines the interactions between housing prices and household debt using a three-equation model, finding that household borrowing impacts housing prices in the short-run, but the price of housing is the main driver of the secular trend in household debt over the long-run. Both housing prices and household debt are estimated to be moderately above their long-run equilibrium levels, but the adjustment toward equilibrium is not found to be rapid. Whereas low interest rates have contributed to the recent surge in housing prices, growth in incomes and financial assets play a larger role. Policy experiments suggest that a gradual phasing out of mortgage interest deductibility is likely to have a manageable effect on housing prices and household debt.
    Keywords: Demand for money;Europe;Sweden;Housing market, Household debt, Collateral, prices, debt, supply, variables, income, Housing Demand, Sweden.,
    Date: 2015–12–28
  110. By: G. Horny; M. Manganelli; B. Mojon
    Abstract: This paper analyses the determinants of euro area non-financial corporate bonds over the last decade. We decompose the spread between the yield of German, French, Italian and Spanish corporate bonds vis-à-vis the German Bund of similar maturity into country, credit and duration risk premia components via dummy regressions. We highlight three main findings. First, the initial phase of the financial crisis (2008-2009) caused an overall increase in credit risk premia. Since the beginning of 2013 credit risk premia are back to levels comparable to those preceding the financial crisis. Second, at the height of the euro area sovereign crisis (2011-2012), high credit risk premia were accompanied by strong and persistent signs of market fragmentation in Italy and Spain (but not in France). This fragmentation has reached its peak in the second half of 2012 and has started to recede only after the announcement of the OMT. Third, we provide a simple measure of financial integration across the big 4 member states of the euro area.
    Keywords: financial integration, credit risk, country premia, fragmentation index.
    JEL: E43 G12 G24 C23
    Date: 2016
  111. By: International Monetary Fund
    Abstract: This 2015 Article IV Consultation highlights that despite lower commodity prices and a weaker global environment, Mozambique’s economic prospects remain positive given planned massive investment in natural resources. Although GDP growth averaged 7 percent over the last five years, Mozambique’s per-capita income and human development index remain low. There is a need to continue implementing policies that support fiscal sustainability, infrastructure investment, and inclusive growth. Mozambique’s economic outlook remains robust. Growth of 6.3 percent is expected in 2015, and remains below potential at 6.5 percent in 2016, mainly owing to a stagnant mining sector and substantially tighter fiscal and monetary policies.
    Keywords: Sub-Saharan Africa;Mozambique;inflation, investment, monetary fund, commodity prices, balance of payments
    Date: 2016–01–08
  112. By: Lukas Maslo (Department of Economics, Faculty of Economics, University of Economics, Prague); Zdenek Chytil (Department of Economics, Faculty of Economics, University of Economics, Prague)
    Abstract: The subject matter of this paper is the controversy about realism of assumptions from the perspective of critical realism. The authors apply the notional apparatus of philosophical logic to clarify the essence of this controversy. By means of translating the often ambivalent and sometimes mysterious terms of Jespersen (2009) into the straightforward language of classical philosophy, they authors make an effort to tear down some of the barriers of the inter-paradigmatic controversies about methodology. The conclusion is drawn that as long as the assumptions of a model affect but the accidentia logica of the model’s constituting notions, the formalist stand can be taken and Friedman’s instrumentalist approach will be justifiable; as soon as the assumptions of a model affect the differentiae specificae of the model’s constituting notions, the substantivist stand must be taken and Friedman’s instrumentalist approach fails. Finally, the authors assert that the Post-Keynesian notion of critical realism is much more compatible with the perception thereof as a genus that the perception thereof as a species.
    Keywords: critical realism, differentia specifica, essentia generica, accidens logicum, ontology, epistemology
    JEL: A14 B41 E02
  113. By: Hecq A.W.; Jacobs J.P.A.M.; Stamatogiannis M. (GSBE)
    Abstract: Before being considered definitive, data currently produced by statistical agencies undergo a recurrent revision process resulting in different releases of the same phenomenon. The collection of all these vintages is referred to as a real-time data set. Economists and econometricians have realized the importance of this type of information for economic modeling and forecasting. This paper focuses on testing non-stationary data for forecastability, i.e., whether revisions reduce noise or are news. To deal with historical revisions which affect the whole vintage of time series due to redefinitions, methodological innovations etc., we employ the recently developed impulse indicator saturation approach, which involves potentially adding an indicator dummy for each observation to the model. We illustrate our procedures with the U.S. Real Gross National Product series from ALFRED and that revisions to this series neither reduce noise nor can be considered as news.
    Keywords: Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access; Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts;
    JEL: C32 C82 E01
    Date: 2016
  114. By: Thierry Tressel; Yuanyan Sophia Zhang
    Abstract: The crisis has highlighted the importance of setting up macro-prudential oversight frameworks, having effective macro-prudential instruments in place to be called upon to mitigate growing financial imbalances as needed. We develop a new approach using the euro area Bank Lending Survey to assess the effectiveness of macro-prudential policies in containing credit growth and house price appreciation in mortgage markets. We find instruments targeting the cost of bank capital most effective in slowing down mortgage credit growth, and that the impact is transmitted mainly through price margins, the same banking channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when monetary policy is excessively loose.
    Keywords: Financial crises;Macroprudential Policy;Euro Area;LTV ratios, capital requirement, mortage, bank lending, lending, monetary policy, instruments, mortgage, credit growth, General,
    Date: 2016–01–12
  115. By: Andres Fernandez; Andres Gonzalez; Diego Rodriguez
    Abstract: Fluctuations in commodity prices are an important driver of business cycles in small emerging market economies (EMEs). We document how these fluctuations correlate strongly with the business cycle in EMEs. We then embed a commodity sector into a multi-country EMEs’ business cycle model where exogenous fluctuations in commodity prices follow a common dynamic factor structure and coexist with other driving forces. The estimated model assigns to commodity shocks 42 percent of the variance in income, of which a considerable part is linked to the common factor. A further amplification mechanism is a †spillover†effect from commodity prices to risk premia.
    Keywords: Business cycles;Commodity prices;Emerging economies, common factors, Bayesian estimation, dynamic stochastic equilibrium models, commodity, prices, price, commodity price, Open Economy Macroeconomics, International Business Cycles, All Countries, dynamic stochastic equilibrium models.,
    Date: 2015–12–29
  116. By: Maurizio Baussola (DISCE, Università Cattolica); Chiara Mussida (DISCE, Università Cattolica)
    Abstract: The persistence of unemployment increased over the recent great recession in many European countries, however, with diversified impacts. We therefore analyse such impacts in four European countries – Italy, Spain, France, and the UK – representing different institutional frameworks which may reflect the so-called continental European and Anglo-Saxon framework, respectively. We analyse the determinants of unemployment persistence by using individual level data from the EU-SILC panel for the period 2007-2013. This data enables us to take into account initial conditions and state dependence in addition to individual and household characteristics. We primarily focus on gender and regional effects which indeed have a strong impact on the persistence in the state of unemployment.
    Keywords: unemployment persistence, state dependence, initial conditions, comparison across countries
    JEL: C23 C25 E24 J60 J64
    Date: 2015–12
  117. By: Mohammad Nor, Karina; Masih, Mansur
    Abstract: The growth of the financial sector such as, the stock market is usually found to be highly correlated with the growth of the real sector of an economy. It is important to examine the existence of the commodity-stock market nexus since there is expectation that commodity prices may influence stock market prices of commodity-based companies. Many studies have investigated this nexus most of them focused on either gold or oil, and there still persists a lack of consensus in the literature. Palm oil is the largest produced vegetable oil in the world. Traditionally, palm oil is an important component of soap, detergent, pharmaceutical products, cosmetics, fuels, food, cooking oil and oleo chemical products. Despite the growing importance of palm oil as an alternative source of cheap and clean energy, not much attention has been given to this “golden fruit”. This study is the first to investigate the dynamic relationship between spot and futures palm oil prices and stock market prices of a major palm oil producer. The methodology employed various unit root tests and Johansen’s cointegration test, followed by long-run structural modelling and vector error-correction modelling, variance decompositions, impulse response functions and persistence profile. The results showed that stock market prices lead spot and futures palm oil prices rather than vice versa for the Malaysian markets. In addition, the findings indicated that the performance of the stock market is dependent on fundamental macroeconomic variables. This has important policy implications in the regulation of the palm oil market whereby stock market performance and fundamental macroeconomic factors are key predictive inputs on the expected performance of the palm oil prices.
    Keywords: palm oil, spot price, futures price, stocks, Malaysia
    JEL: C22 C58 E44
    Date: 2016–01–15
  118. By: Jaelani, Aan
    Abstract: Poverty reduction has become the focus of historians, sociologists and economists throughout its history. The causative factors of poverty have been identified in the form of income ineligibility to social injustice and economic system. The efforts of poverty reduction into government policy to reform the social security system for socio-economic system reform. Because poverty is a multidimensional problem, solutions that do require a set of co-ordinated action, particularly through charity. Indonesia has a large population with the problem of poverty is the target completion in economic development. However, optimizing the potential of zakat which is high on the people of Indonesia and the cooperation among stakeholders and government regulation to be a solution in reducing poverty. It is certainly different from Brunei Darussalam to the level of a small population and government revenues are high, so the management of zakat by MUIB in the form of cash grants, capital of commerce, and others are implementable can resolve the problem of poverty in this country.
    Keywords: management of zakat, poverty alleviation, zakat recipients
    JEL: A23 E62 F52 G23 G28 H27 H3 H71 I3 I31 I38 N3
    Date: 2015–10–17

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