nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒03‒29
102 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. An adaptive approach to forecasting three key macroeconomic variables for transitional China By Niu, Linlin; Xu, Xiu; Chen, Ying
  2. Understanding Inflation as a Joint Monetary-Fiscal Phenomenon By Eric M. Leeper; Campbell Leith
  3. How to monitor the exit from the Eurosystem's unconventional monetary policy: Is EONIA dead and gone? By Ronald Heijmans; Richard Heuver; Zion Gorgi
  4. The Impact of Monetary Policy on Inequality in the UK. An Empirical Analysis By Haroon Mumtaz; Angeliki Theophilopoulou
  5. Financial Frictions and Unconventional Monetary Policy in Emerging Economies By Roberto Chang; Andrés Velasco
  6. The interaction of monetary and macroprudential policies in economic stabilisation By Silvo, Aino
  7. Forward guidance and "lower for longer": The case of the ECB By Bletzinger, Tilman; Wieland, Volker
  8. Optimal fiscal policy with labor selection By Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian
  9. Monetary Policy and Inequality By Rory O’Farrell; Łukasz Rawdanowicz; Kei-Ichiro Inaba
  10. Credit-Market Sentiment and the Business Cycle By David López-Salido; Jeremy C. Stein; Egon Zakrajšek
  11. Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control By Funke, Michael; Mihaylovski, Petar; Zhu, Haibin
  12. Do inflation expectations matter in a stylised New Keynesian model? The case of Poland By Tomasz Łyziak
  13. A pro-cyclical stock market under a countercyclical monetary policy in a model of endogenous business cycles By Yanovski, Boyan
  14. How Did Pre-Fed Banking Panics End? By Gary Gorton; Ellis W. Tallman
  15. Sluggish Inflation Expectations: A Markov Chain Analysis By Narayana R. Kocherlakota
  16. Rational exuberance booms and asymmetric business cycles By Ambrocio, Gene
  17. Economic Policy Uncertainty and the Credit Channel: Aggregate and Bank Level U.S. Evidence over Several Decades By Michael D. Bordo; John V. Duca; Christoffer Koch
  18. The risk-taking channel of monetary policy in Norway By Artashes Karapetyan
  19. When more flexibility yields more fragility : the microfoundations of keynesian aggregate unemployment By Andrea Roventini; Maria Enrica Virgillito; Manoela Carrera Pereira; Giovanni Dosi
  20. Monetary Policy According to HANK By Greg Kaplan; Benjamin Moll; Giovanni L. Violante
  21. Firm’s precautionary savings and employment during a credit crisis By Davide Melcangi
  22. Deepening Contractions and Collateral Constraints By Jensen, Henrik; Ravn, Søren Hove; Santoro, Emiliano
  23. Aggregate Demand, Functional Finance and Secular Stagnation By Skott, Peter
  24. Comparing inflation and price level targeting: the role of forward guidance and transparency By Honkapohja, Seppo; Mitra, Kaushik
  25. Did the global financial crisis alter equilibrium adjustment dynamics between the US Fed rates and stock price volatility in the SSA region? By Phiri, Andrew
  26. Non-Linear Effects of Fiscal Policy on Economic Growth: Moroccan Case By Abdenour, Redouan; Tounsi, Said
  27. Rare Events and Long-Run Risks By Robert J. Barro; Tao Jin
  28. Accounting for Labor Gaps. By F. Langot; A. Pizzo
  29. Equilibrium Determinacy and Policy Rules : Role of Productive Money and Government Expenditure By Fujisaki, Seiya
  30. Interbank funding as insurance mechanism for (persistent) liquidity shocks By Bluhm, Marcel
  31. R&D 投資を導入した一般均衡動学モデルによる日本の経済成長分析 By 外木, 暁幸
  33. Can currency in circulation predict South African economic activity? By Cobus Vermeulen, Adél Bosch, Fanie Joubert and Jannie Rossouw
  34. Strategic Central Bank Communication:Discourse and Game-Theoretic Analyses of the Bank of Japan's Monthly Report By Kohei Kawamura; Yohei Kobashi; Masato Shizume; Kozo Ueda
  35. Investment and investment financing in Italy: some evidence at the macro level By Claire Giordano; Marco Marinucci; Andrea Silvestrini
  36. Strategic central bank communication: discourse and game-theoretic analyses of the Bank of Japan's Monthly Report By Kohei Kawamura; Yohei Kobashi; Masato Shizume; Kozo Ueda
  37. Safe Asset Scarcity and Aggregate Demand By Ricardo J. Caballero; Emmanuel Farhi; Pierre-Olivier Gourinchas
  38. No Role for the Hartz Reforms? Demand and Supply Factors in the German Labor Market, 1993-2014 By Michael C. Burda; ; ;
  39. Pensions, Education, and Growth: A Positive Analysis By Tetsuo Ono; Yuki Uchida
  40. Solution Methods for Models with Rare Disasters By Jesús Fernández-Villaverde; Oren Levintal
  41. Secular Stagnation, Rational Bubbles and Fiscal Policy By Teulings, Coen N
  42. Macroeconomic Regimes and Regime Shifts By James D. Hamilton
  43. Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops By Emmanuel Farhi; Jean Tirole
  44. Colonial Virginia's Paper Money Regime, 1755-1774: Value Decomposition and Performance By Farley Grubb
  45. Does bank liquidity creation contribute to economic growth? Evidence from Russia By Fidrmuc, Jarko; Fungácová, Zuzana; Weill, Laurent
  46. A Bilateral Monopsony Approach to Lending, and the Hidden Economy in LDCs By Soldatos, Gerasimos T.
  47. Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions By Benjamin B. Lockwood; Matthew C. Weinzierl
  48. Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence By Diego Anzoategui; Diego Comin; Mark Gertler; Joseba Martinez
  49. Asymmetric information in frictional markets for liquidity: on the non-equivalence of credit and sale By Florian Madison
  50. The quantity of corporate credit rationing with matched bank-firm data By Lorenzo Burlon; Davide Fantino; Andrea Nobili; Gabriele Sene
  51. The Sovereign-Bank Diabolic Loop and ESBies By Markus K. Brunnermeier; Luis Garicano; Philip Lane; Marco Pagano; Ricardo Reis; Tano Santos; David Thesmar; Stijn Van Nieuwerburgh; Dimitri Vayanos
  52. The real effects of credit crunch in the Great Recession: evidence from Italian provinces By Guglielmo Barone; Guido de Blasio; Sauro Mocetti
  53. Network Contagion and Interbank Amplification during the Great Depression By Mitchener, Kris James; Richardson, Gary
  54. Network Contagion and Interbank Amplification during the Great Depression By Mitchener, Kris James; Richardson, Gary
  55. Matching and credit frictions in the housing market By Eerola, Essi; Määttänen, Niku
  56. Not Working at Work: Loafing, Unemployment and Labor Productivity By Michael Burda; Katie R. Genadek; Daniel S. Hamermesh
  57. Reality Check for the Global Economy By Julien Acalin; Olivier Blanchard; Monica de Bolle; José De Gregorio; Caroline Freund; Joseph E. Gagnon; Nicholas R. Lardy; Adam S. Posen; David J. Stockton; Nicolas Veron
  58. Economic concentration and finance: Evidence from Russian regions By Hattendorff, Christian
  59. Is China fudging its figures? Evidence from trading partner data By Fernald, John; Hsu, Eric; Spiegel, Mark M.
  60. Accounting for the Rise in College Tuition By Grey Gordon; Aaron Hedlund
  61. Real-time forecasting with a MIDAS VAR By Mikosch, Heiner; Neuwirth, Stefan
  62. Solving DSGE Portfolio Choice Models with Asymmetric Countries By Grzegorz R. Dlugoszek; ; ;
  63. Implementación, Uso e Interpretación del "Fan Chart" By Juan Manuel Julio
  64. Public debt and economic growth: Economic systems matter By Ahlborn, Markus; Schweickert, Rainer
  65. Causality between credit depth and economic growth: Evidence from 24 OECD countries By Stolbov, Mikhail
  66. El ajuste educativo y ocupacional en España en el contexto de la crisis económica By Vera Grijalba, Joaquín; Cea D'Ancona, Francisca; Llorente Heras, Raquel
  67. Cash management and payment choices: a simulation model with international comparisons By Arango, Carlos; Bouhdaoui, Yassine; Bounie, David; Eschelbach, Martina; Hernandez, Lola
  68. Estimating the money market microstructure with negative and zero interest rates By Edoardo Rainone; Francesco Vacirca
  69. The Impacts of Oil Price Shocks on Stock Market Volatility: Evidence from the G7 Countries By Andrea Bastianin; Francesca Conti; Matteo Manera
  70. Devaluation of one's labor in labor-commodities-money-commodities-labor exchange as a cause of inequality growth By Tanguiane, Andranick S.
  71. Analysis of policy options to address Japan's declining population, shrinking birthrate, and aging society By Shimizu, Chihiro; Deng, Yongheng; Kawamura, Yasuhito; Nishimura, Kiyohiko
  72. What Makes US Government Bonds Safe Assets? By Zhiguo He; Arvind Krishnamurthy; Konstantin Milbradt
  73. Measuring expectations of inflation: Effects of survey mode, wording, and opportunities to revise By Wandi Bruine de Bruin; Wilbert van der Klaauw; Maarten van Rooij
  74. Do shadow banks create money? 'Financialisation' and the monetary circuit By Jo Michell
  75. Monetary policy and the over-investment cycle: China as an extreme case By Gros, Daniel
  76. An Axiomatic Characterization of the Price-Money Message Mechanism By Ken Urai; Hiromi Murakami
  77. Finance and Inclusive Human Development: Evidence from Africa By Simplice Asongu; Jacinta C. Nwachukwu
  78. The Implications of Richer Earnings Dynamics for Consumption, Wealth, and Welfare By Mariacristina De Nardi; Giulio Fella; Gonzalo Paz Pardo
  79. Some Unpleasant Currency Devaluation Arithmetic in a Post-Keynesian Macromodel By Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
  80. Complex dynamics in an OLG model of growth with inherited tastes By Luciano, Fanti; Luca, Gori; Cristiana, Mammana; Elisabetta, Michetti
  81. The Lender Of Last Resort By Marcello de Cecco
  82. The Colombian Sovereign Spread and its Determinants By Peter Rowland
  83. Sovereign debt issuance and selective default By Paczos, Wojtek; Shakhnov, Kirill
  84. Inflation uncertainty, disagreement and monetary policy: Evidence from the ECB Survey of Professional Forecasters By Glas, Alexander; Hartmann, Matthias
  85. Nowcasting Real GDP growth in South Africa By Alain Kabundi, Elmarie Nel and Franz Ruch
  86. Stock prices, inflation and inflation uncertainty in the U.S.: Testing the long-run relationship considering Dow Jones sector indexes By Claudiu Albulescu; Christian Aubin; Daniel Goyeau
  87. Interactions between Regional Public and Private Investment: Evidence from Japanese Prefectures By Tomomi Miyazaki
  88. The Evolution of Gender Gaps in Industrialized Countries By Claudia Olivetti; Barbara Petrongolo
  89. Relative Price Dispersion: Evidence and Theory By Greg Kaplan; Guido Menzio; Leena Rudanko; Nicholas Trachter
  90. Aggregate Employment, Job Polarization and Inequalities: A Transatlantic Perspective By Julien Albertini; Jean Olivier Hairault; ;
  91. Credit Aggregates, Countercyclical Buffer: stylised facts By Didier Faivre
  92. Relative Price Dispersion: Evidence and Theory By Kaplan, Greg; Menzio, Guido; Rudanko, Leena; Trachter, Nicholas
  93. Growth, Exploitation and Class Inequalities By Galanis, Giorgos; Veneziani, Roberto; Yoshihara, Naoki
  94. Property Price Index Theory and Estimation: A Survey By Shimizu, Chihiro; Karato, Koji
  95. How Exporters Grow By Doireann Fitzgerald; Stefanie Haller; Yaniv Yedid-Levi
  96. Relative price dispersion: evidence and theory By Kaplan, Greg; Menzio, Guido; Rudanko, Leena; Trachter, Nicholas
  97. Discussion of economic conditions and implications for monetary policy By Kaplan, Robert Steven
  98. Asset Bubbles, Endogenous Growth, and Financial Frictions By Hirano, Tomohiro; Yanagawa, Noriyuki
  99. What explains the recent growth performance in Sub-Saharan Africa? Results from a Bayesian Averaging of Classical Estimates (BACE) Approach By Beatrice D. Simo-Kengne
  100. Long Run Dynamic Volatilities between OPEC and non-OPEC Crude Oil Prices By Ghassan, Hassan B.; Alhajhoj, Hassan R.
  101. The intended and unintended consequences of financial-market regulations: A general equilibrium analysis By Buss, Adrian; Dumas, Bernard; Uppal, Raman; Vilkov, Grigory
  102. Forecasting Unemployment with Google Searches By Tuhkuri, Joonas

  1. By: Niu, Linlin; Xu, Xiu; Chen, Ying
    Abstract: We propose the use of a local autoregressive (LAR) model for adaptive estimation and forecasting of three of China’s key macroeconomic variables: GDP growth, inflation and the 7-day interbank lending rate. The approach takes into account possible structural changes in the data-generating process to select a local homogeneous interval for model estimation, and is particularly well-suited to a transition economy experiencing ongoing shifts in policy and structural adjustment. Our results indicate that the proposed method outperforms alternative models and forecast methods, especially for forecast horizons of 3 to 12 months. Our 1-quarter ahead adaptive forecasts even match the performance of the well-known CMRC Langrun survey forecast. The selected homogeneous intervals indicate gradual changes in growth of industrial production driven by constant evolution of the real economy in China, as well as abrupt changes in interestrate and inflation dynamics that capture monetary policy shifts.
    Keywords: Chinese economy, local parametric models, forecasting
    JEL: E43 E47
    Date: 2015–04–10
  2. By: Eric M. Leeper; Campbell Leith
    Abstract: We develop the theory of price-level determination in a range of models using both ad hoc policy rules and jointly optimal monetary and fiscal policies and discuss empirical issues that arise when trying to identify monetary-fiscal regime. The article concludes with directions in which theoretical and empirical developments may go. The article is prepared for the Handbook of Macroeconomics, volume 2 (John B. Taylor and Harald Uhlig, editors, Elsevier Press).
    JEL: E31 E52 E58 E61 E62 E63
    Date: 2016–01
  3. By: Ronald Heijmans; Richard Heuver; Zion Gorgi
    Abstract: This paper investigates the impact of the "unconventional" monetary policy measures taken by the Eurosystem on both the unsecured and the secured money markets. Furthermore, we provide insight into the shifts between the unsecured and secured markets. We provide a euro area overview and a Core-versus-Periphery breakdown. Our results show that: 1) there is a clear segmentation between Core and Periphery; 2) the use of the unsecured money market has decreased substantially and is no longer representative as a reflection of the euro area as a whole; and 3) the use of the secured money markets has increased substantially in value terms since the start of the crisis. Both the secured and the unsecured money markets reacted strongly to the first 3-year long term refinancing operations and quantitative easing. It is not to be expected that turnover in the money markets will revert to pre-crisis levels, in part because new regulation, such as the Basel III requirements, dissuades banks from engaging in short-term lending. Therefore, monetary policy experts should also devote their attention to steering the rates in the secured money market.
    Keywords: monetary policy; repo; GC Pooling; MTS Repo; unsecured money market; central bank; Basel III
    JEL: E42 E44 E58 G01
    Date: 2016–03
  4. By: Haroon Mumtaz (Queen Mary University of London); Angeliki Theophilopoulou (University of Westminister)
    Abstract: The UK has experienced a dramatic increase in earnings and income inequality over the past four decades. We use detailed micro level information to construct quarterly historical measures of inequality from 1969 to 2012. We investigate whether monetary policy shocks played a role in explaining this increase in inequality. We find that contractionary monetary policy shocks lead to a deterioration in earnings, income and consumption inequality and contribute to their fluctuation. The response of income and consumption at different quantiles suggests that contractionary policy has a larger negative effect on low income households and those that consume the least when compared to those at the top of the distribution. Our evidence also suggests that the policy of quantitative easing contributed to the increase in inequality over the Great Recession.
    Keywords: Inequality, Earnings, Income, SVAR, Monetary policy shocks
    JEL: E2 E3 E4 E5
    Date: 2016–02
  5. By: Roberto Chang; Andrés Velasco
    Abstract: We analyze conventional and unconventional monetary policies in a dynamic small open-economy model with financial frictions. In the model, financial intermediaries or banks borrow from the world market and lend to domestic households. Banks can borrow abroad up to a multiple of their equity; in turn, there is a limit to how much bank equity households can hold. An economy-wide credit constraint and an endogenous interest rate spread emerge from this combination of external and domestic frictions. The resulting financial imperfections amplify the domestic effects of exogenous shocks and make those effects more persistent. In response to external balance shocks, fixed exchange rates are contractionary and flexible exchange rates expansionary (although less so in the presence of currency mismatches); the opposite is true in response to increases in the world interest rate. Unconventional policies, including central bank direct credit, discount lending, and equity injections to banks, have real effects only if financial constraints bind. Because of bank leverage, central bank discount lending and equity injections are more effective than direct credit. Sterilized foreign exchange intervention is equivalent to lending directly to domestic agents. Unconventional policies are feasible only to the extent that the central bank holds a sufficient amount of international reserves.
    JEL: E52 E58 F41
    Date: 2016–02
  6. By: Silvo, Aino
    Abstract: ​I analyse the dynamics of a New Keynesian DSGE model where the financing of investments is affected by a moral hazard problem. I solve for jointly Ramsey-optimal monetary and macroprudential policies. I find that when a financial friction is present in addition to the standard nominal friction, the optimal policy can replicate the first-best if the social planner can conduct both monetary and macroprudential policy to control both inflation and the level of investments. Using monetary policy alone is not enough to fully stabilise the economy: it leads to a policy trade-off between stabilising inflation and the output gap. When policy follows simple rules instead, the source of fluctuations is highly relevant for the choice of the appropriate policy mix.
    Keywords: monetary policy, macroprudential policy, financial frictions
    JEL: E32 E44 E52 G28
    Date: 2016–02–10
  7. By: Bletzinger, Tilman; Wieland, Volker
    Abstract: A number of contributions to research on monetary policy have suggested that policy should be asymmetric near the lower bound on nominal interest rates. As inflation and economic activity decline, policy should ease more aggressively than it would in the absence of the lower bound. As activity recovers and inflation picks up, the central bank should act to keep interest rates lower for longer than without the bound. In this note, we investigate to what extent the policy easing implemented by the ECB since summer 2013 mirrors the rate recommendations of a simple policy rule or deviates from it in a way that indicates a 'lower for longer' approach to policy near zero interest rates.
    Keywords: monetary policy,interest rates,European Central Bank,forward guidance,zero lower bound
    JEL: E43 E47 E52 E58
    Date: 2016
  8. By: Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian
    Abstract: This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the tax-smoothing results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-modelconsistent wedges and inefficiencies in order to understand optimal tax volatility.
    Keywords: labor market frictions,hiring costs,efficiency,optimal taxation,labor wedge,zero intertemporal distortions
    JEL: E24 E32 E50 E62 E63 J20
    Date: 2016
  9. By: Rory O’Farrell; Łukasz Rawdanowicz; Kei-Ichiro Inaba
    Abstract: This paper analyses two-way interactions between monetary policy and inequality in selected advanced economies. In the context of a highly accommodative monetary stance over recent years, the analysis focuses on the effects of monetary policy on inequality over the business cycle via its impacts on returns on assets, the cost of debt servicing and asset prices. While monetary policy easing has a priori ambiguous effects on income and net wealth inequality, in practice these effects are estimated to be small. Cross-country differences in the size and distribution of income and net wealth explain contrasting effects. A house price increase generally reduces net wealth inequality, while the opposite is true for increases in equity and bond prices. Higher inequality can reduce the effectiveness of monetary policy stimulus in boosting private consumption, but such effects are estimated to be small. Cross-country differences in the size and composition of household financial assets rather than in their distribution are more relevant for differences in the effectiveness of monetary policy, especially via the wealth channel. Politique monétaire et inégalités Le présent article a pour objet d’analyser les interactions réciproques entre la politique monétaire et les inégalités dans certaines économies avancées. Dans le contexte d'une politique monétaire très accommodante au cours des dernières années, l'analyse se concentre sur les effets que la politique monétaire, par son impact sur les rendements des actifs, le coût du service de la dette et les prix des actifs, a eu sur les inégalités au cours du cycle conjoncturel. Si la politique monétaire accommodante a des effets a priori ambigus sur les inégalités de revenu et de richesse nette, dans la pratique, on estime que ces effets sont plutôt faibles. Les différences entre pays concernant le montant et la distribution des revenus et de richesse nette expliquent les divergences dans les effets. Une augmentation des prix des logements a généralement pour conséquence de réduire les inégalités de richesse nette, alors que l'augmentation des cours des actions et des obligations produit un effet contraire. Des inégalités élevées peuvent réduire l'efficacité des mesures de relance monétaire pour stimuler la consommation privée, mais on estime que ces effets sont faibles. Les différences entre pays en termes d’ampleur et de composition des actifs financiers des ménages sont plus pertinentes que les différences relevées dans leur distribution lorsqu’il s’agit d’apprécier l'efficacité de la politique monétaire, particulièrement via le canal de la richesse.
    Keywords: monetary policy, income inequality, net wealth inequality, consumption wealth effects, effets de la richesse sur la consommation, politique monétaire, inégalités de richesse nette, inégalités de revenu
    JEL: D31 D63 E21 E3 E5
    Date: 2016–03–03
  10. By: David López-Salido; Jeremy C. Stein; Egon Zakrajšek
    Abstract: Using U.S. data from 1929 to 2013, we show that elevated credit-market sentiment in year t – 2 is associated with a decline in economic activity in years t and t + 1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. That is, when our sentiment proxies indicate that credit risk is aggressively priced, this tends to be followed by a subsequent widening of credit spreads, and the timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t – 2 also forecasts a change in the composition of external finance: net debt issuance falls in year t, while net equity issuance increases, patterns consistent with the reversal in credit-market conditions leading to an inward shift in credit supply. Unlike much of the current literature on the role of financial frictions in macroeconomics, this paper suggests that time-variation in expected returns to credit market investors can be an important driver of economic fluctuations.
    JEL: E32 E44 G12
    Date: 2016–01
  11. By: Funke, Michael; Mihaylovski, Petar; Zhu, Haibin
    Abstract: The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.
    Keywords: DSGE model, monetary policy, financial market reform, shadow banking, China
    JEL: E32 E42 E52 E58
    Date: 2015–03–09
  12. By: Tomasz Łyziak
    Abstract: This paper estimates different versions of a stylised New Keynesian model of the Polish economy, in which alternative measures of inflation expectations are used. They include: model-based (rational) expectations as well as survey measures of inflation expectations formed by consumers, enterprises and financial sector analysts. After estimating the models we verify to what extent the use of different measures of inflation expectations affects the assessment of the monetary transmission mechanism, the exchange rate pass-through and the sacrifice ratio. Simulation results show different responses in all the analysed areas. For example, the maximum reaction of CPI inflation to the interest rate impulse is almost twice bigger if the direct measures of financial sector analysts are used instead of model-consistent expectations. Also the model with survey-based measures of producer inflation expectations displays stronger response of inflation to monetary policy impulse than the model, in which rational expectations are assumed. Estimates of the exchange rate pass-through from the models with survey-based expectations are very similar to each other, but stronger than in the model with rational expectations. The sacrifice ratio seems similar in the case of all versions of the New Keynesian model except its version with consumer inflation expectations that shows significantly larger output loss resulting from a permanent reduction of the inflation target than the other models. Differences in the assessment how monetary factors affect macroeconomic variables, particularly inflation, pose the question which model should be treated as the most adequate. To answer this question we run in-sample simulations, calculating inflation forecasting errors of all the models under consideration. We conclude that the model that assumes rational inflation expectations displays the lowest forecasting accuracy, while the model using inflation expectations of enterprises is the best-performing model. It suggests that the assumption of rational inflation expectations does not match the actual data well. Inflation expectations of Polish enterprises seem the most relevant from the macroeconomic point of view – more relevant than inflation expectations of consumers and financial sector analysts.
    Keywords: Inflation expectations, survey, New Keynesian model, monetary transmission mechanism, Poland.
    JEL: C54 D84 E17 E43
    Date: 2016
  13. By: Yanovski, Boyan
    Abstract: During the last 25 years, the stock market in the US has been strongly pro-cyclical in the presence of a counter-cyclical monetary policy. In this paper, we use an endogenous business cycle model to explore the factors contributing to a pro-cyclical stock market. A dynamic expectation structure in the real sector gives rise to a strong non-linearity and is responsible for the emergence of endogenous business cycles in the model. In the context of this model, we find that a timid or ineffective monetary policy allows the stock market to be dominated by the fluctuations of profits in the real sector. We model the potential ineffectiveness of monetary policy in terms of an endogenous risk premium. The model is calibrated to fit key properties of the data. In particular, it can generate a pro-cyclical stock market in the presence of a counter-cyclical monetary policy.
    Keywords: pro-cyclical stock market,Tobin's average Q,endogenous cycles,heterogeneous expectations,monetary policy
    JEL: D84 E12 E32 E52 G00
    Date: 2016
  14. By: Gary Gorton; Ellis W. Tallman
    Abstract: How did pre-Fed banking crises end? How did depositors’ beliefs change? During the National Banking Era, 1863-1914, banks responded to the severe panics by suspending convertibility, that is, they refused to exchange cash for their liabilities (checking accounts). At the start of the suspension period, the private clearing houses cut off bank-specific information. Member banks were legally united into a single entity by the issuance of emergency loan certificates, a joint liability. A new market for certified checks opened, pricing the risk of clearing house failure. Certified checks traded at a discount to cash (a currency premium) in a market that opened during the suspension period. Confidence was restored when the currency premium reached zero.
    JEL: E32 E42 E44 E58
    Date: 2016–02
  15. By: Narayana R. Kocherlakota
    Abstract: A large body of recent empirical work on inflation dynamics documents that current real variables (like unemployment or output gaps) have little explanatory power for future inflation. Motivated by these findings, I explore the properties of a wide class of models in which inflation expectations respond little, if at all, to real economic conditions. In this general context, I examine Markov equilibria to games in which the relevant forcing processes are Markov chains and the central bank chooses a short- term nominal interest rate at each date subject to a lower bound. I construct a simple numerical algorithm to solve for such Markov equilibria. I apply the algorithm to a numerical example. In the example, the economy can experience long periods of what looks like secular stagnation because households believe that there is a significant risk of a crisis (that is, a sharp decline in economic activity). Within the example, there are large benefits to being able to reduce the lower bound on the short-term nominal interest rate by as little as fifty basis points.
    JEL: E31 E32 E52 E58
    Date: 2016–02
  16. By: Ambrocio, Gene
    Abstract: I propose a theory of information production and learning in credit markets in which the incentives to engage in activities that reveal information about aggregate fundamentals vary over the business cycle and may account for both the excessive optimism that fueled booms preceding financial crises and the slow recoveries that followed. In my theory, information about aggregate fundamentals is produced along two dimensions. First, optimistic beliefs lead to a fall in private investment in information reducing the quality of information available, an intensive margin. This gives rise to episodes of rational exuberance where optimism sustains booms even as fundamentals decline in the buildup to crises. Second, the quantity of information is increasing in the level of economic activity, an extensive margin. Thus, recoveries are slow since the low levels of investment and output provide little information about improvements in the state of the economy. Consistent with model predictions, I find supporting evidence in terms of a U-shaped pattern in macro-uncertainty measures over the business cycle. I also discuss the implications on endogenous information production on cyclical macro-prudential policy.
    Keywords: business cycle asymmetry, macro-uncertainty, social learning
    JEL: D83 E32 E44 G01 G14
    Date: 2015–11–25
  17. By: Michael D. Bordo; John V. Duca; Christoffer Koch
    Abstract: Economic policy uncertainty affects decisions of households, businesses, policy makers and Financial intermediaries. We first examine the impact of economic policy uncertainty on aggregate bank credit growth. Then we analyze commercial bank entity level data to gauge the effects of policy uncertainty on Financial intermediaries' lending. We exploit the cross-sectional heterogeneity to back out indirect evidence of its effects on businesses and households. We ask (i) whether, conditional on standard macroeconomic controls, economic policy uncertainty affected bank level credit growth, and (ii) whether there is variation in the impact related to banks' balance sheet conditions; that is, whether the effects are attributable to loan demand or, if impact varies with bank level financial constraints, loan supply. We find that policy uncertainty has a significant negative effect on bank credit growth. Since this impact varies meaningfully with some bank characteristics – particularly the overall capital-to-assets ratio and bank asset liquidity–loan supply factors at least partially (and significantly) help determine the influence of policy uncertainty. Because other studies have found important macroeconomic effects of bank lending growth on the macroeconomy, our findings are consistent with the possibility that high economic policy uncertainty may have slowed the U.S. economic recovery from the Great Recession by restraining overall credit growth through the bank lending channel.
    JEL: E40 E50 G21
    Date: 2016–02
  18. By: Artashes Karapetyan (Norges Bank (Central Bank of Norway))
    Abstract: We identify the effects of monetary policy on credit risk-taking using a unique dataset covering the population of corporate borrowers in Norway. We find that a lower benchmark interest rate (interbank rates or overnight rates) induces the average bank to grant more loans to risky firms. We also find that the strength of the bank's balance-sheet is important: less capitalized banks are more likely to increase loan volumes to ex-ante risky firms compared to more capitalized ones (Jimenez et al., 2014). The data allow us to distinguish the changes in the supply of credit from the changes in credit demand. In all our specifications we control for both observed and unobserved firm and bank heterogeneity by using financial statement information and firm, bank and time fixed effects.
    Keywords: Risk-taking channel, monetary policy, nancial stability, credit risk
    JEL: E44 E5 G01 G21 G28 L14
    Date: 2016–02–15
  19. By: Andrea Roventini (Laboratory of Economics and Management (Pisa) (LEM)); Maria Enrica Virgillito; Manoela Carrera Pereira (Universidade Estadua del Campinas); Giovanni Dosi (Laboratory of Economics and Management)
    Abstract: Wages are an element of cost crucially affecting the competitiveness of individual rms. But the wage bill is also a crucial element of aggregate demand. Hence it could be that more “flexible"and fluid labour markets, while allowing for faster inter-firm reallocation of labour, may also render the whole economic system more fragile, more prone to recession, more volatile. In this work we investigate some conditions under which such a conjecture applies. The paper presents an agent-based model that investigates the effects of two “archetypes of capitalism", in terms of regimes of labour governance - defined by the mechanisms of wage determination, firing, labour protection and productivity gains sharing - upon (i) labour market regularities and (ii) macroeconomic dynamics (long-term rates of growth, GDP fluctuations, unemployment rates, inequality, etc..). The model is built upon the \Keynes meets Schumpeter" family of models (Dosi et al.,2010), explicitly incorporating different microfounded labour market regimes. Our results show that seemingly more rigid labour markets and labour relations are conducive to coordination successes with higher and smoother growth.
    Keywords: Involuntary unemployment; Aggregate demand; Wage determination; Labour market regimes; Keynesian coordination failures; Agent based models
    JEL: C63 E2 E12 E24
    Date: 2016–03
  20. By: Greg Kaplan; Benjamin Moll; Giovanni L. Violante
    Abstract: We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption.
    JEL: E0
    Date: 2016–01
  21. By: Davide Melcangi (University College London (UCL); Centre for Macroeconomics (CFM))
    Abstract: Can the macroeconomic effects of credit supply shocks be large even in an economy in which the share of credit-constrained firms is small? I address this question using a model with firm heterogeneity, in which the interaction between real and financial frictions gives rise to precautionary cash holdings. Using UK firm-level balance sheet data, I show that firms hoarded cash relative to their assets during the last recession, and cash-intensive firms cut their workforces by less. A quantitative version of the model, disciplined by these data, generates similar dynamics in response to a tightening of firms' credit conditions. The simulated economy experiences a sizeable fall in aggregate employment and prolonged substitution from capital to cash. Most of the aggregate dynamics are driven by unconstrained firms, pre-emptively responding to changes in credit conditions, in anticipation of future idiosyncratic productivity shocks. The model's ability to generate predictions in line with the data crucially relies on this precautionary channel.
    Keywords: financial frictions, precautionary savings, employment, heterogeneous firms
    JEL: E44 L25 G10 G32
    Date: 2016–03
  22. By: Jensen, Henrik; Ravn, Søren Hove; Santoro, Emiliano
    Abstract: The skewness of the US business cycle has become increasingly negative over the last decades. This finding can be explained by the concurrent increases in the loan-to-value ratios of both households and firms. To demonstrate this point, we devise a DSGE model with collateralized borrowing and occasionally non-binding credit constraints. Easier credit access increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further amplified due to tighter constraints. As a result, busts gradually become deeper than booms. Based on the differential impact that occasionally non-binding constraints exert on the shape of expansions and contractions, we are also able to reconcile a more negatively skewed business cycle with a moderation in its volatility. Finally, our model can account for an intrinsic feature of economic downturns preceded by private credit build-ups: Financially driven expansions lead to deeper contractions, as compared to equally-sized non-financial expansions.
    Keywords: Business Cycles; credit constraints; Deleveraging; Skewness
    JEL: E32 E44
    Date: 2016–03
  23. By: Skott, Peter (Department of Economics, University of Massachusetts, Amherst)
    Abstract: This paper makes three main points. Fiscal policy, first, may be needed in the long run to maintain full employment and avoid secular stagnation. If fiscal policy is used in this way, second, the long-run debt ratio depends (i) inversely on the rate of growth, (ii) inversely on government consumption, and (iii) directly on the degree of inequality. The analysis, third, suggests that policies and policy debates have been misguided. The recent rediscovery of ’secular stagnation’ by Summers and others should be welcomed, but the suggested theoretical redirection is unclear and does not go far enough.
    Keywords: functional finance, zero lower bound, liquidity trap, fiscal policy, secular stagnation, austerity, public debt.
    JEL: E62 E22
    Date: 2016
  24. By: Honkapohja, Seppo; Mitra, Kaushik
    Abstract: We examine global dynamics under learning in New Keynesian models with price level targeting that is subject to the zero lower bound. The role of forward guidance is analyzed under transparency about the policy rule. Properties of transparent and non-transparent regimes are compared to each other and to the corresponding cases of inflation targeting. Robustness properties for different regimes are examined in terms of the domain of attraction of the targeted steady state and volatility of inflation, output and interest rate. We analyze the effect of higher inflation targets and large expectational shocks for the performance of these policy regimes.
    Keywords: adaptive learning, monetary policy, inflation targeting, zero interest rate lower bound
    JEL: E63 E52 E58
    Date: 2015–04–07
  25. By: Phiri, Andrew
    Abstract: In this paper we use the recently introduced MTAR model to examine whether equilibrium adjustment dynamics between the US fed rates and stock market volatility in 5 SSA countries have changed from periods before the globally financial crisis (1999-2007) to periods after the crisis (2009-2015). We find that this relationship existed for all 5 SSA exchange before the crisis and yet for only 3 exchanges after the crisis. Furthermore, there exists a negative co-relationship between the time series before the crisis which turns positive afterwards. For periods before and after the crisis causality is found to run from stock market volatility in SSA countries to the Feds fund rate.
    Keywords: Stock price volatility; monetary policy; global financial crisis; sub-Saharan Africa (SSA).
    JEL: E43 E52 G15
    Date: 2016–03–11
  26. By: Abdenour, Redouan; Tounsi, Said
    Abstract: In the economic theory, many arguments were advanced to justify the efficiency of the fiscal policy with a view to stabilization. For some, expansionist fiscal policies can have favorable effects on the economic growth, while for others, the economy is always in a global balanced situation, and thus the fiscal policy will have no effect and can be even harmful for the economy. However, these two effects can coexist in the economy, therefore putting forward the nonlinear character of fiscal policy in the economy growth. This study has the objective of appreciating the nature of the relation between fiscal policy and the economic growth in a 36 developing country sample of, taking into account the existence of possible nonlinear effects of the fiscal policy. Due to the use of the methodology of endogenous thresholds, the iterative procedure for the determination of endogenous thresholds developed by Hansen (1996, 1999, 2000) has allowed us to identify an optimal budget deficit threshold of 5,1%, which makes the relation between budget deficit and growth become non-linear. In other words, below this threshold expansionist policies have favorable effects on the economic growth, while above these policies it becomes non-favorable.
    Keywords: economic growth, Keynesian regime, Threshold effects, Fiscal policy.
    JEL: E6 E62 H6
    Date: 2015
  27. By: Robert J. Barro; Tao Jin
    Abstract: Rare events (RE) and long-run risks (LRR) are complementary elements for understanding asset-pricing patterns, including the average equity premium and the volatility of equity returns. We construct a model with RE (temporary and permanent parts) and LRR (including stochastic volatility) and estimate this model with long-term data on aggregate consumption for 42 economies. RE typically associates with major historical episodes, such as the world wars and the Great Depression and analogous country- specific events. LRR reflects gradual and evolving processes that influence long-run growth rates and volatility. A match between the model and observed average rates of return requires a coefficient of relative risk aversion, γ, around 6. Most of the explanation for the equity premium derives from RE, although LRR makes a moderate contribution. We think the required γ will decline (and, thereby, become more realistic) if we allow for incomplete information about the underlying shocks, including the breakdown of RE into temporary and permanent parts. We thought that the addition of LRR to the RE framework would help to match the observed volatility of equity returns. However, the joint model still substantially understates this volatility. We think this aspect of the model will improve if we allow for stochastic evolution of the disaster probability.
    JEL: E0 G01 G12
    Date: 2016–01
  28. By: F. Langot; A. Pizzo
    Abstract: In this paper we develop a balanced growth model with labor supply and search and matching frictions in the labor market, to study the impact of economic policy variables on the two margins which constitute the (total) labor input: the extensive margin (the rate of employment) and the intensive margin (the hours worked per worker). We show that the dynamics of taxes primarily have an impact on hours worked, while labor market institutions have a significant influence on the rate of employment. However, our findings emphasize that there is an interaction between the two margins. The model is tested on four countries (US, France, Germany and the UK), which have experienced different tax and labor market dynamics since the sixties. Using this structural approach, we can then perform counterfactual experiments about the evolution of the policy variables, and compare the implications of policy changes in terms of production as well as average welfare.
    Keywords: Taxes, labor market institutions, hours, employment, labor market search.
    JEL: E20 E60 J22 J60
    Date: 2016
  29. By: Fujisaki, Seiya
    Abstract: We analyze the relation between policy mixture and equilibrium determinacy in an economy where money and government expenditures are used for production. We find that an adequate mix of income tax and interest-rate control is important to realize a stable economy, as well as the relation between contribution of government expenditures to production and the basic tax rate as a source of the revenue for these expenditure.
    Keywords: equilibrium determinacy, progressive income tax, Taylor rule, productive government expenditure and money
    JEL: E52 E62
    Date: 2016–03–03
  30. By: Bluhm, Marcel
    Abstract: The interbank market is important for the efficient functioning of the financial system, transmission of monetary policy and therefore ultimately the real economy. In particular, it facilitates banks' liquidity management. This paper aims at extending the literature which views interbank markets as mutual liquidity insurance mechanism by taking into account persistence of liquidity shocks. Following a theory of long-term interbank funding a financial system which is modeled as a micro-founded agent based complex network interacting with a real economic sector is developed. The model features interbank funding as an over-the-counter phenomenon and realistically replicates financial system phenomena of network formation, monetary policy transmission and endogenous money creation. The framework is used to carry out an optimal policy analysis in which the policymaker maximizes real activity via choosing the optimal interest rate in a trade-off between loan supply and financial fragility. It is shown that the interbank market renders the financial system more efficient relative to a setting without mutual insurance against persistent liquidity shocks and therefore plays a crucial role for welfare.
    Keywords: financial fragility,interbank market,liquidity,maturity,network model
    JEL: E44 E51 G01 G21 G28
    Date: 2015
  31. By: 外木, 暁幸
    Abstract: この研究の目的はR&D投資減税,公的R&D 支出といった科学技術政策の経済成長への影響を,R&D資本の公共財的な性質を組み込んだ一般均衡動学モデルにより評価することにある.R&D資本投資及び資本ストックのデータを構築し,SNAのデータを2008SNAの定義に整理した上で,2部門動学的一般均衡モデルの構造パラメーターを推計,またはカリブレートして数値モデル化した.最終財生産,R&D生産の生産関数を用いた成長会計からは,1990年代以降,最終財生産とR&D生産のTFP成長率が共に低下していたことが示された.景気循環会計からは,最終財生産の効率性ウェッジは1990年代以降の日本経済に対する影響は相対的に弱く,むしろ物的資本投資ウェッジ,労働投入ウェッジが大きな影響力を持ったことが明らかとなった.一方,R&D生産の効率性ウェッジ及びR&D投資ウェッジはR&D生産の変動に大きな影響を示した.政策実験の結果からは,R&D税額控除制度がなかった場合に最終財生産,R&D生産,消費共に低下していたことが示された.公的R&D のスピルオーバー効果の役割をモデルに組み込んで政策シミュレーションを行った結果, 公的R&D投資の増加がR&D生産をかなり押し上げ,また,最終財部門の生産,家計の 消費についても増加させることを明らかになった.
    Keywords: 研究開発投資, 一般均衡動学, 成長会計, 景気循環会計, 政策シミュレーション
    JEL: E01 E17 E22 O38 O41
    Date: 2015–10
  32. By: Barış Soybilgen (İstanbul Bilgi University); Ege Yazgan (İstanbul Bilgi University)
    Abstract: Expectations on the future state of the inflation play a critical part in the process of price level determination in the market. Therefore, central banks closely follow the developments in inflation expectations to able to pursue a successful monetary policy. In Turkey, the Central Bank of the Republic of Turkey (CBRT) asks experts and decision makers from ï¬ nancial and real sectors about their expectations/predictions on the current and the future state of inflation every month to obtain market expectations on inflation. This paper examines these predictions of inflation using techniques of forecasting literature. We analyze both point and sign accuracy of these predictions. Point predictions from CBRT surveys are compared with those obtained from AR models, and tested whether they are statistically different. Sign predictions are tested whether they are valuable to a user. We also test predictions for unbiasedness.
    Keywords: Inflation Expectations, Evaluation Procedures, Sign Forecast Accuracy
    JEL: E37 E31
    Date: 2016–02
  33. By: Cobus Vermeulen, Adél Bosch, Fanie Joubert and Jannie Rossouw
    Abstract: The money supply can be broadly defined as consisting of currency and deposits. While currency forms but a small portion of the total money supply, it can be a crucial determinant of spending behaviour and subsequently economic activity. The ability of the money supply to predict an up- or downswing in economic activity, as measured by a positive or negative output gap, is evaluated over a sample period 1980 – 2012. Two models are estimated, one using only the currency component and a second using the total money supply (M3). It is found that the growth rate of real currency in circulation is reasonably accurate in predicting economic activity 6 months ahead, whereas the total money supply can predict economic activity up to 9 months ahead. It is concluded that currency in circulation can be a valuable additional source of information to policymakers and can complement other approaches of forecasting economic activity.
    Keywords: Business Cycle, Output gap, currency in circulation, probit
    JEL: C25 E32 E37 E51
    Date: 2016
  34. By: Kohei Kawamura (University of Edinburgh); Yohei Kobashi (Waseda University); Masato Shizume (Waseda University); Kozo Ueda (Waseda University and Centre for Applied Macroeconomic Analysis (CAMA))
    Abstract: We conduct a discourse analysis of the Bank of Japan's Monthly Report and examine its characteristics in relation to business cycles. We find that the difference between the number of positive and negative expressions in the reports leads the leading index of the economy by approximately three months, which suggests that the central bank's reports have some superior information about the state of the economy. Moreover, ambiguous expressions tend to appear more frequently with negative expressions. Using a simple persuasion game, we argue that the use of ambiguity in communication by the central bank can be seen as strategic information revelation when the central bank has an incentive to bias the reports (and hence beliefs in the market) upwards.
    Keywords: monetary policy; transparency; natural language processing; modality;latent Dirichlet allocation (LDA); verifiable disclosure model
    JEL: D78 D82 E58 E61
    Date: 2016–03
  35. By: Claire Giordano (Bank of Italy); Marco Marinucci (Bank of Italy); Andrea Silvestrini (Banca d'Italia)
    Abstract: We analyse the developments of investment and investment financing in Italy since 1995, based on data from national accounts and the flow of funds. The exceptional fall in investment after the global financial crisis in 2007 concerned all institutional sectors and asset categories. However, appropriately deflated data highlight the more intense fall of household capital expenditure. Consistently, on the asset side, construction was one of the most hard-hit capital goods; ICT and intangible investment instead weathered the double recession better. Focusing on investment financing, the eruption of the crisis caused a major contraction in the availability of external finance for non-financial corporations and households. Long-term loans to non-financial corporations became more important, crowding out their short-term counterparts. Also the weight of debt securities increased significantly, especially after 2008.
    Keywords: gross fixed capital formation, investment financing, national accounts, financial accounts
    JEL: E22 G01 G31 G32
    Date: 2016–02
  36. By: Kohei Kawamura; Yohei Kobashi; Masato Shizume; Kozo Ueda
    Abstract: We conduct a discourse analysis of the Bank of Japan's Monthly Report and examine its characteristics in relation to business cycles. We find that the difference between the number of positive and negative expressions in the reports leads the leading index of the economy by approximately three months, which suggests that the central bank' reports have some superior information about the state of the economy. Moreover, ambiguous expressions tend to appear more frequently with negative expressions. Using a simple persuasion game, we argue that the use of ambiguity in communication by the central bank can be seen as strategic information revelation when the central bank has an incentive to bias the reports (and hence beliefs in the market) upwards.
    Keywords: Monetary policy, transparency, natural language processing, modality, latent Dirichlet allocation (LDA), verifiable disclosure model
    JEL: D78 D82 E58 E61
    Date: 2016–03
  37. By: Ricardo J. Caballero; Emmanuel Farhi; Pierre-Olivier Gourinchas
    Abstract: We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming environment. Acute safe asset scarcity forces the economy into a “safety trap” recession. In the open economy, safe asset scarcity spreads from one country to the other via capital flows, equalizing interest rates. Acute global safe asset scarcity forces the economy into a global safety trap. The exchange rate becomes indeterminate but plays a crucial role in both the distribution and the magnitude of output adjustment across countries. Policies that increase the net supply of safe assets somewhere are output enhancing everywhere.
    JEL: E0 F3 F4 G1
    Date: 2016–02
  38. By: Michael C. Burda; ; ;
    Abstract: The supply and demand framework of Katz and Murphy (1992) provides new evidence on the source of changes in socially insured full-time and part-time employment in years preceding and following the implementation of the landmark Hartz reforms in Germany. Our findings are consistent with a stable demand for labor, especially in western Germany, implying that supply factors were decisive for the evolution of the labor market after 2003. The correlation of changes in wages and labor force participation is also consistent with a positive labor supply shock at a given working-age population. We also show that part-time employment played a decisive role in the post-2003 improvement of the German labor market.
    Keywords: German labor market miracle, Hartz reforms, part-time work, wage inequality
    JEL: E24 J21
    Date: 2016–02
  39. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study presents an overlapping generations model to capture the nature of the competition between generations regarding two redistribution policies, public education and public pensions. From a political economy viewpoint, we investigate the effects of population aging on these policies and economic growth. We show that greater longevity results in a higher pension-to-GDP ratio. However, an increase in longevity produces an initial increase followed by a decrease in the public education- to-GDP ratio. This, in turn, results in a hump-shaped pattern of the growth rate.
    Keywords: economic growth; population aging; public education; public pen-sions
    JEL: D78 E24 H55
    Date: 2014–12
  40. By: Jesús Fernández-Villaverde; Oren Levintal
    Abstract: This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with rare disasters along the line of those proposed by Rietz (1988), Barro (2006}, Gabaix (2012), and Gourio (2012). DSGE models with rare disasters require solution methods that can handle the large non-linearities triggered by low-probability, high-impact events with sufficient accuracy and speed. We solve a standard New Keynesian model with Epstein-Zin preferences and time-varying disaster risk with perturbation, Taylor projection, and Smolyak collocation. Our main finding is that Taylor projection delivers the best accuracy/speed tradeoff among the tested solutions. We also document that even third-order perturbations may generate solutions that suffer from accuracy problems and that Smolyak collocation can be costly in terms of run time and memory requirements.
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2016–02
  41. By: Teulings, Coen N
    Abstract: It is well known that rational bubbles can be sustained in a dynamically ineffcient economy, where the return to capital r is below the growth rate g. However, empirical evidence suggests that modern economies are most of the time on an efficient path with r > g. This paper shows that rational bubbles can be sustained when r g "on average". Fiscal policy can enhance both welfare and financial stability. Contrary to common wisdom, trade in bubbly assets implements inter generational transfers, while fiscal policy is needed for theimplementation of intragenerational transfers. Finally, we show that in an economy with risk aversion, bubbles may emerge even when there exists an asset with a risk-free return growing at rate g.
    Keywords: bubbles; dynamic efficiency; Fiscal policy; macro; secular stagnation
    JEL: E44 E62
    Date: 2016–03
  42. By: James D. Hamilton
    Abstract: Many economic time series exhibit dramatic breaks associated with events such as economic recessions, financial panics, and currency crises. Such changes in regime may arise from tipping points or other nonlinear dynamics and are core to some of the most important questions in macroeconomics. This paper surveys the literature for studying regime changes and summarizes available methods. Section 1 introduces some of the basic tools for analyzing such phenomena, using for illustration the move of an economy into and out of recession. Section 2 focuses on empirical methods, providing a detailed overview of econometric analysis of time series that are subject to changes in regime. Section 3 discusses theoretical treatment of macroeconomic models with changes in regime and reviews applications in a number of areas of macroeconomics. Some brief concluding recommendations for applied researchers are offered in Section 4.
    JEL: C32 E32 E37
    Date: 2016–01
  43. By: Emmanuel Farhi; Jean Tirole
    Abstract: The recent unravelling of the Eurozone’s financial integration raised concerns about feedback loops between sovereign and banking insolvency, and provided an impetus for the European banking union. This paper provides a “double-decker bailout” theory of the feedback loop that allows for both domestic bailouts of the banking system by the domestic government and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions.
    JEL: E0 F34 F36 G28 H63
    Date: 2016–01
  44. By: Farley Grubb
    Abstract: I decompose Virginia’s paper money into expected real-asset present value, risk discount, and transaction premium or “moneyness” value. The value of Virginia’s paper money was determined primarily by its real-asset present value. The transaction premium was small. Positive risk discounts occurred in years when treasurer malfeasance was suspected. Virginia’s paper money was not a fiat currency, but a barter asset, with just enough “moneyness” value to make it the preferred medium of exchange for local transactions. Compared with alternative models, my decomposition model of inside monies is superior conceptually and statistically for explaining the performance of American colonial paper monies.
    JEL: E42 E51 G12 H60 N12 N22
    Date: 2016–01
  45. By: Fidrmuc, Jarko; Fungácová, Zuzana; Weill, Laurent
    Abstract: The financial crisis has shown that the liquidity creation function of banks is critical for the economy. In this paper, we empirically investigate whether bank liquidity creation fosters economic growth in a large emerging market, Russia. We follow the methodology of Berger and Bouwman (2009) to measure bank liquidity creation using a rich and exhaustive dataset of Russian banks. We perform fixed effects and GMM estimations to examine the relation of liquidity creation to economic growth for Russian regions in the period 2004–2012. Our results suggest that bank liquidity creation fosters economic growth. This effect was not washed out by the financial crisis. Our conclusion thus supports a positive impact of financial development on economic growth in Russia.
    Keywords: growth, bank liquidity creation, financial development
    JEL: E44 G21
    Date: 2015–03–05
  46. By: Soldatos, Gerasimos T.
    Abstract: A model is presented in which one firm borrows from one bank with a positive supply curve of loans. The bank monitors firm’s output, which firm produces output underground too, in order to avoid this monitoring and minimize its marginal expenditure on loans by defaulting. The model incorporates also a laborer-consumer who allocates labor between the formal and informal sectors in a way preserving full employment. In this model, the following results obtain: There cannot be underground only economy even in the absence of government national-accounting induced output monitoring once part at least of the output has to be monitored by the bank. The capital employed officially is always more than that underground. Bank monopoly power induces lexicographic preferences towards underground economy income. The stability of the system depends on the relative size of the official to total capital ratio and the response of loan demand to the interest rate. The introduction of government and indirect taxation alter the optimal official to total capital ratio. Yet, the steady-state and stability of the system remain unchanged under a tax financed balanced budget. Government borrowing by a rent-seeking government or to cope with tax-evasion induced budget deficits lowers lending to the firm and leads thereby the system to equilibrium away from steady-state; but tax evasion increases such lending towards steady-state restoration.
    Keywords: Developing economies, Concentrated banking, Bilateral monopsony, Underground economy, Taxation
    JEL: D70 E26 H20 L10 O10
    Date: 2015
  47. By: Benjamin B. Lockwood; Matthew C. Weinzierl
    Abstract: Calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion. One approach is to elicit the relevant moral criteria from real-world policy choices, converting a normative decision into a positive inference, as in the recent surge of "inverse-optimum" research. We find that capitalizing on the potential of this approach is not as straightforward as we might hope. We perform the inverse-optimum inference on U.S. tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations.
    JEL: D63 E32 H21
    Date: 2016–01
  48. By: Diego Anzoategui; Diego Comin; Mark Gertler; Joseba Martinez
    Abstract: We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We first present some descriptive evidence in support of our approach. We then augment a workhorse New Keynesian DSGE model with an endogenous TFP mechanism that allows for both costly development and adoption of new technologies. We estimate the model and use it to assess the sources of the productivity slowdown. We find that a significant fraction of the post-Great Recession fall in productivity was an endogenous phenomenon. The endogenous productivity mechanism also helps account for the slowdown in productivity prior to the Great Recession, though for this period shocks to the effectiveness of R&D expenditures are critical. Overall, the results are consistent with the view that demand factors have played a role in the slowdown of capacity growth since the onset of the recent crisis. More generally, they provide insight into why recoveries from financial crises may be so slow.
    JEL: E3 O3
    Date: 2016–02
  49. By: Florian Madison
    Abstract: In the aftermath of the global financial crisis, the market for unsecured credit literally dried out and collateral secured debt became the most widely used concept to coinsure against liquidity shocks. However, since financial assets are usually unproductive, the question comes up why institutions in the need of cash do not just simply sell these assets rather than using them as collateral. The aim of this paper is to develop a non-equivalence between secured credit and outright sale in the presence of asymmetric information and to show through a signaling game, why the willingness to deposit assets as collateral is a best response.
    Keywords: Liquidity, asymmetric information, collateral, undefeated equilibrium
    JEL: D82 E44 G12 G21
    Date: 2016–02
  50. By: Lorenzo Burlon (Bank of Italy); Davide Fantino (Bank of Italy); Andrea Nobili (Bank of Italy); Gabriele Sene (Bank of Italy)
    Abstract: This paper provides measures of credit rationing in the market of term loans to Italian non-financial firms. We identify non-price allocations of credit by exploiting a unique bank-firm dataset of more than 5 million observations, which matches the quantity and the cost of credit available from the Credit Register with a number of bank- and firm-specific characteristics from different sources of microdata. We propose an approach that endogenously identifies all the bank-firm transactions subject to credit rationing, thus circumventing aggregation biases stemming from the use of less detailed information. The estimates suggest that in the Italian case, rationing mostly reflected an increase in non-performing loans in banks' portfolios and a decline in available collateral. Borrowers' characteristics played a minor role, although banks did switch their supply of funds in favour of firms with greater creditworthiness after the outbreak of the sovereign debt crisis.
    Keywords: credit rationing, bank-firm relationships, ML estimation
    JEL: E44 G01 G21
    Date: 2016–02
  51. By: Markus K. Brunnermeier; Luis Garicano; Philip Lane; Marco Pagano; Ricardo Reis; Tano Santos; David Thesmar; Stijn Van Nieuwerburgh; Dimitri Vayanos
    Abstract: We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks’ domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio – known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.
    JEL: E58 F34 G01 G15 G21 G23
    Date: 2016–02
  52. By: Guglielmo Barone (Bank of Italy); Guido de Blasio (Bank of Italy); Sauro Mocetti (Bank of Italy)
    Abstract: The paper estimates the effects on the real economy of the sharp reduction in the supply of credit following the 2008 financial crisis. We develop a measure of local credit supply that is based on the market shares of the banks that serve a local economy and the national change in each bank’s lending that is attributable to supply factors (i.e. purged of local demand factors). The decrease in our credit supply indicator, which is strongly correlated to the growth of outstanding loans, accounts for 13 per cent of the contraction in real value added with respect to the pre-crisis period. The negative effects also concern employment, although to a lesser extent. The real effects of the credit crunch are concentrated on small firms and in the areas that are more dependent upon external finance. Finally, credit supply shocks affected lending but not real outcomes in the pre-crisis period.
    Keywords: credit crunch, economic crisis, local growth
    JEL: E51 G21 R11
    Date: 2016–02
  53. By: Mitchener, Kris James; Richardson, Gary
    Abstract: Interbank networks amplified the contraction in lending during the Great Depression. Banking panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate lending in the U.S. economy by an estimated 15 percent.
    Keywords: Bank networks; banking panics; contagion; Great Depression; interbank market
    JEL: E44 G01 G21 L14 N22
    Date: 2016–03
  54. By: Mitchener, Kris James (Santa Clara University); Richardson, Gary (Federal Reserve Bank of Richmond)
    Abstract: Interbank networks amplified the contraction in lending during the Great Depression. Banking panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate lending in the U.S. economy by an estimated 15 percent.
    JEL: E44 G01 G21 L14 N22
    Date: 2016–03–15
  55. By: Eerola, Essi; Määttänen, Niku
    Abstract: ​We study the interaction of matching and credit frictions in the housing market. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. We analyze how borrowing constraints influence house price determination in the presence of matching frictions. We also show that credit frictions greatly magnify the effects of matching frictions. For instance, in the presence of matching frictions, a moderate tightening of the borrowing constraint increases idiosyncratic price dispersion and the average time-on-the-market substantially.
    Keywords: housing, borrowing constraint, matching
    JEL: E21 R21 C78
    Date: 2015–10–05
  56. By: Michael Burda; Katie R. Genadek; Daniel S. Hamermesh
    Abstract: We use the American Time Use Survey (ATUS) 2003-12 to estimate time spent by workers in non-work while on the job. Non-work time is substantial and varies positively with the local unemployment rate. While average time spent by workers in non-work conditional on any positive amount rises with the unemployment rate, the fraction of workers reporting positive values varies pro-cyclically, declining in recessions. These results are consistent with a model in which heterogeneous workers are paid efficiency wages to refrain from loafing on the job. That model correctly predicts relationships of the incidence and conditional amounts of non-work with wage rates and measures of unemployment benefits in state data linked to the ATUS, and it is consistent with estimated occupational differences.
    JEL: E24 J23
    Date: 2016–01
  57. By: Julien Acalin (Peterson Institute for International Economics); Olivier Blanchard (Peterson Institute for International Economics); Monica de Bolle (Peterson Institute for International Economics); José De Gregorio (Peterson Institute for International Economics); Caroline Freund (Peterson Institute for International Economics); Joseph E. Gagnon (Peterson Institute for International Economics); Nicholas R. Lardy (Peterson Institute for International Economics); Adam S. Posen (Peterson Institute for International Economics); David J. Stockton (Peterson Institute for International Economics); Nicolas Veron (Peterson Institute for International Economics)
    Abstract: After five years of disappointing recovery throughout the major economies, almost everyone is ready to believe the worst. The widespread large declines in global asset prices indicate a significant divergence between what financial markets fear and what most mainstream macroeconomic forecasts are showing for the world economy. Having some clarity to distinguish between the more solid underlying economic outlook and the shadows thrown by financial puppetry is critical to avoid an unnecessary recession. In this Briefing, a group of PIIE scholars came together to provide a reality check for the global economy. They set out what is known, both about macroeconomic dynamics and policy capabilities, in a context where distrust of both mainstream economic analysis and policymakers' credibility has become excessive. Global economic fundamentals today are not so grim, though there is room for improvement in key areas including China, the United States, European banks, Brazil and Latin America, oil markets, global trade, and monetary policy options
  58. By: Hattendorff, Christian
    Abstract: ​The paper investigates the relationship between economic concentration and level of financial development to illuminate the linkage of real economy structure and financial markets. Using data from 81 Russian regions for the period 2005–2011, empirical evidence is offered to show that poor diversification weakens credit. Geographical variables are used as instruments of concentration in accounting for endogeneity. This work supports previous findings at the national level that policymakers seeking to promote economic development should place stronger emphasis on output diversification.
    Keywords: economic concentration, diversification, financial development, Russia
    JEL: E51 O11 R11
    Date: 2015–05–18
  59. By: Fernald, John; Hsu, Eric; Spiegel, Mark M.
    Abstract: How reliable are China’s GDP and other data? We address this question by using trading partner exports to China as an independent measure of its economic activity from 2000–2014. We find that the information content of Chinese GDP improves markedly after 2008.We also consider a number of plausible, non-GDP indicators of economic activity that have been identified as alternative Chinese output measures. We find that activity factors based on the first principal component of sets of indicators are substantially more informative than GDP alone. The index that best matches activity in-sample uses four indicators: electricity, rail freight, an index of raw materials supply, and retail sales. Adding GDP to this group only modestly improves in-sample performance. Moreover, out of sample, a single activity factor without GDP proves the most reliable measure of economic activity.
    Keywords: China, GDP, principal components, structural break, forecasting
    JEL: C53 C82 E20 F17
    Date: 2015–10–15
  60. By: Grey Gordon; Aaron Hedlund
    Abstract: We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. The framework extends the quality-maximizing college paradigm of Epple, Romano, Sarpca, and Sieg (2013) and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in underlying costs, reforms to the Federal Student Loan Program (FSLP), and changes in the college earnings premium have caused tuition to increase. All these changes combined generate a 106% rise in net tuition between 1987 and 2010, which more than accounts for the 78% increase seen in the data. Changes in the FSLP alone generate a 102% tuition increase, and changes in the college premium generate a 24% increase. Our findings cast doubt on Baumol’s cost disease as a driver of higher tuition.
    JEL: D40 D58 E21 G11
    Date: 2016–02
  61. By: Mikosch, Heiner; Neuwirth, Stefan
    Abstract: This paper presents a MIDAS type mixed frequency VAR forecasting model. First, we propose a general and compact mixed frequency VAR framework using a stacked vector approach. Second, we integrate the mixed frequency VAR with a MIDAS type Almon lag polynomial scheme which is designed to reduce the parameter space while keeping models fexible. We show how to recast the resulting non-linear MIDAS type mixed frequency VAR into a linear equation system that can be easily estimated. A pseudo out-of-sample forecasting exercise with US real-time data yields that the mixed frequency VAR substantially improves predictive accuracy upon a standard VAR for dierent VAR specications. Forecast errors for, e.g., GDP growth decrease by 30 to 60 percent for forecast horizons up to six months and by around 20 percent for a forecast horizon of one year.
    Keywords: Forecasting, mixed frequency data, MIDAS, VAR, real time
    JEL: C53 E27
    Date: 2015–04–13
  62. By: Grzegorz R. Dlugoszek; ; ;
    Abstract: 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: Nelson-Siegel factor model; Value-at-risk; Encompassing test; Backtesting; Conditional predictive ability
    JEL: E44 F41 G11
    Date: 2016–02
  63. By: Juan Manuel Julio
    Abstract: El "Fan Chart" representa la función de probabilidades de los valores futuros de una variable, condicional a la información conocida en el presente. En contraste con la tradicional senda de pronósticos puntuales y sus bandas confidenciales simétricas, el Fan Chart presenta dos ventajas: Primero, describe completamente la densidad marginal de pronóstico en cada uno de los periodos del horizonte. Y segundo, su formulación permite que la densidad marginal de pronóstico sea asimétrica. Cuando esta densidad no es simétrica, la probabilidad (o riesgo) de que el valor futuro de la variable asuma valores por encima de la senda central de pronóstico es diferente a la de que asuma valores por debajo de dicha senda. Esta característica lo hace muy deseable para representar los riesgos de que se cumplan metas sobre el valor futuro de la variable en cuestión. En el caso del Informe de Inflación el "Fan Chart" cumple con dos objetivos: Primero, comunicar al público las previsiones de la autoridad monetaria sobre la evolución futura de la inflación con base en el "mejor conocimiento" actual de la economía, propósito relacionado con la transparencia del esquema de inflación objetivo y con la credibilidad de las políticas para alcanzar dichas metas. Y segundo, organizar la forma como la autoridad monetaria aborda el problema de pronosticar la inflación, lo cual tiene que ver con el desarrollo del Informe sobre Inflación y su distribución temática. En esta nota se describe en detalle la implementación actual del "Fan Chart" que utiliza el Banco de la Republica para su Informe sobre Inflación, se presenta un ejemplo que ilustra su adecuada utilización, se describe la manera como este se debe interpretar y se describe el uso de un programa que facilita su aplicación. Con esto, se persigue explicitar el uso e interpretación del "Fan Chart".
    Keywords: Fan Chart, Forecasting Distribution, Statistical Graphics, Inflation Targeting, Inflation Report, “Fan Chart”, Distribución de Pronóstico, gráficas estadísticas, Esquema de Inflación Objetivo, Informe sobre Inflación.
    JEL: E31
  64. By: Ahlborn, Markus; Schweickert, Rainer
    Abstract: Most studies on the relationship between public debt and economic growth implicitly assume homogeneous debt effects across their samples. We - in accordance with recent literature - challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinavian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of heterogeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, while for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.
    Keywords: public debt,economic growth,economic systems,fiscal policy,welfare state
    JEL: E62 P10 P51 H10
    Date: 2016
  65. By: Stolbov, Mikhail
    Abstract: Causality between the ratio of domestic private credit to GDP and growth in real GDP per capita is investigated in a country-by-country time-series framework for 24 OECD economies over the period 1980-–2013. The proposed threefold methodology to test for causal linkages integrates (i) lag-augmented VAR Granger causality tests, (ii) Breitung-Candelon causality tests in the frequency domain, and (iii) testing for causal inference based on a fully modified OLS (FMOLS) approach. For 12 of 24 countries in the sample, the three tests yield uniform results in terms of causality presence (absence) and direction. Causality running from credit depth to economic growth is found for the UK, Australia, Switzerland, and Greece. The findings lend no support to the view that financial development shifts from a supply-leading to demand-following pattern as economic development proceeds. The aggregate results mesh well with the current discussion on “too much finance” and disintermediation effects. However, idiosyncratic country determinants also appear significant.
    Keywords: causality, economic growth, financial development, FMOLS, frequency domain
    JEL: C22 E44 G21 O16
    Date: 2015–04–30
  66. By: Vera Grijalba, Joaquín (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Cea D'Ancona, Francisca (Departamento de Economía Aplicada (Estadística). Universidad Autónoma de Madrid.); Llorente Heras, Raquel (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: In this paper is established than, beyond asymmetric job loss during crisis, at least in its initial period, the occupational transformation can also be explained by changes in the educational requirements. From 2011 to 2014, the polarization that had been produced in our country has slowed due to higher job losses inside skilled manual occupations. But most importantly is that the education requirements have increased for whole occupations, this increase has been higher inside technical manual occupations. In sum, the transformation of the labor market during crisis leading to professionalization and educational dualization, stablishing a poor relative presence of intermediate occupation of classes
    Keywords: labour, education, labour occupations, crisis, dualization
    JEL: J62 J82 I21 E24
    Date: 2016–02
  67. By: Arango, Carlos; Bouhdaoui, Yassine; Bounie, David; Eschelbach, Martina; Hernandez, Lola
    Abstract: Despite various payment innovations, today, cash is still heavily used to pay for low-value purchases. This paper proposes a simulation model based on two optimal cash management and payment policies in the payments economics literature to explain cash usage. First, cash is preferred to other payment instruments whenever consumers have enough balances at hand. Second, it is optimal for consumers to hold a stock of cash for precautionary reasons. Exploiting survey payment diaries from Canada, France, Germany and the Netherlands, the results of the simulations show that both optimal policies are well suited to understand the high shares of low-value cash payments in Canada, France and Germany. Yet, they do not perform as well in the case of the Netherlands, overestimating the share of low-value cash payments. We discuss how the differences in payment markets across countries may explain the limitations of the two optimal policies.
    Keywords: cash management, payment choices, international comparison
    JEL: C61 E41 E47
    Date: 2015–11–25
  68. By: Edoardo Rainone (Bank of Italy); Francesco Vacirca (ECB and Bank of Italy)
    Abstract: Money market microstructure is fundamental to studying bank behaviour, to evaluating monetary policy and to assessing the financial stability of the system. Given the lack of granular data on interbank loans, Furfine (1999) proposed an algorithm to estimate the microstructure using data from the payment system. We propose an econometric methodology to assess and improve the quality of the money market microstructure estimated by the Furfine algorithm in the presence of zero and negative rates, exploiting information coming from market regularities. We first extend the standard Furfine algorithm to include negative rates and verify the presence of significant noise at a specific rate. Secondly, we propose an inferential procedure that enriches and corrects the standard algorithm based on the economic likelihood of loans. Market regularities observed in this decentralized market are used to increase the reliability of the estimated interbank network. Thirdly, the methodology is applied to TARGET2, the European wholesale payment system. The main impacts of recent monetary policy decisions on key interest rates are studied, comparing the standard algorithm with the new econometric procedure.
    Keywords: interbank markets, money, payment systems, trading networks, measurement error
    JEL: E52 E40 C21 G21 D40
    Date: 2016–02
  69. By: Andrea Bastianin (University of Milan and Fondazione Eni Enrico Mattei); Francesca Conti (Fondazione Eni Enrico Mattei); Matteo Manera (University of Milan-Bicocca and Fondazione Eni Enrico Mattei)
    Abstract: We study the effects of crude oil price shocks on the stock market volatility of the G7 economies. We rely on a structural VAR model to identify the causes underlying the oil price shocks and gauge the differential impact that oil supply and oil demand innovations have on financial volatility. We show that stock market volatility does not respond to oil supply shocks. On the contrary, demand shocks impact significantly on the variability of the G7 stock markets.
    Keywords: Volatility, Oil Price Shocks, Oil Price, Stock Prices, Structural VAR
    JEL: C32 C58 E44 Q41 Q43
    Date: 2015–10
  70. By: Tanguiane, Andranick S.
    Abstract: The inequality growth during the last quarter century is explained as caused by a decreasing labor-labor exchange rate, i.e. devaluation of one's labor in exchange for other's labor embodied in the commodities affordable for one's earnings. We show that the productivity growth allows employers to compensate workers with always a lower labor equivalent, i.e., in a sense increasingly underpay works, maintaining however an impression of fair pay due to an increasing purchasing power of earnings. This conclusion is based on the OECD 1990-2014 data for G7 countries (Canada, France, Germany, Italy, Japan, United Kingdom and United States) and Denmark (known for the world least inequality). Finally, it is shown that the dependence between the degree of inequality and the degree of decline of the labor-labor exchange rate is statistically highly significant.
    Keywords: inequality,productivity,hourly earnings,consumer prices,housing prices,labor-labor exchange rate
    JEL: D31 D63 E31 E64 J24 J3 O47
    Date: 2016
  71. By: Shimizu, Chihiro; Deng, Yongheng; Kawamura, Yasuhito; Nishimura, Kiyohiko
    Abstract: Based on an analysis of the housing market, this study measures how Japan's declining population and aging society influences its economic system in order to clarify empirically the effects of various policies to address these issues. Specifically, we simulate the decline in housing asset prices brought about by these population changes by 2040 and estimates the effects of three policies designed to suppress this decline: a) accepting more immigrants, b) raising the retirement age, and c) promoting the social advancement of women. The results obtained show that a) staving off the decline in asset prices would be impossible unless 40 million working-age immigrants were encouraged to migrate to Japan by 2040, that b) raising the retirement age to 70 or 75 would have a significant effect on maintaining residential price, and that c) promoting the social advancement of women would not have a significant effect despite incurring considerable social costs. We also extend our empirical model to a multinational-level data and show that some of the largest economies, such as China and Germany, would experience the aging of society in the next 30 years and those demographic changes will negatively impact on residential prices like Japan. This indicate that the findings of this study offer numerous suggestions not only for Japan but also for European and other Asian countries whose societies are expected to age at a greater rate in the future.
    Keywords: Housing bubble, old-age dependency ratio, asset meltdown, immigration policy, social advancement of women
    JEL: E31 R21 R31
    Date: 2016–02
  72. By: Zhiguo He; Arvind Krishnamurthy; Konstantin Milbradt
    Abstract: US government bonds are widely considered to be the world’s safe store of value. US government bonds are a large fraction of safe asset portfolios, such as the porfolios of many central banks. The world demand for safe assets leads to low yields on US Treasury bonds. During periods of economic turmoil, such as the events of 2008, these yields fall even further. Moreover, despite the fact that US government debt has risen substantially relative to US GDP over the last decade, US government bond yields have not risen. What makes US government bonds “safe assets”? Our answer in short is that safe asset investors have nowhere else to go but invest in US government bonds.
    JEL: E0 F0 F3 G0 G11
    Date: 2016–02
  73. By: Wandi Bruine de Bruin; Wilbert van der Klaauw; Maarten van Rooij
    Abstract: Several national consumer surveys aim to elicit consumers' inflation expectations. Median reported expectations have been shown to track objective inflation estimates over time, although respondents display relatively large disagreement. Observed medians, however, tend to differ between consumer surveys, possibly reflecting survey design differences. In this paper, we examine the importance of three survey features in explaining these differences: question wording ('prices in general' vs. 'inflation'), interview mode (face-to-face vs. web), and the explicit opportunity to revise responses. We find systematic effects on item non-responses, reported inflation expectations and their dispersion. We discuss implications of our findings for survey design.
    Keywords: Consumer surveys; inflation expectations; question wording; mode effects
    JEL: E31 D84
    Date: 2016–03
  74. By: Jo Michell (University of the West of England)
    Abstract: The rise of the shadow banking system is viewed throught the lens of Graziani's Monetary Theory of Production. Graziani's categories of 'initial finance' and 'final finance' are used to analyse the new forms of credit created in the shadow banking sector. It is argued that the accumulation of leverage in the shadow banking system and the creation of credit money by the traditional banking sector are symbiotic processes. While Graziani's triangular debtor-bank-creditor relationship remains central, the circuit operates in a perverse form in which household debt is stored on the balance sheets of shadow banks, allowing the banking system to break the historical connection between money creation and productive activity.
    Keywords: monetary circuit, endogenous money, shadow banking, financialization, Graziani
    JEL: E12 E40 G21
    Date: 2016–03
  75. By: Gros, Daniel
    Abstract: Against the background of the severe turbulence that is hitting global stock markets, Daniel Gros examines the looming slowdown in the Chinese economy in this CEPS Commentary, which he attributes to an underlying ‘real’ domestic investment/savings imbalance. Given the magnitude of this imbalance, Gros thinks it is unlikely to be solved by monetary policy and that the best that can be hoped for is that the central banks will manage to ‘paper over’ some of the unavoidable symptoms in credit markets.
    Date: 2015–09
  76. By: Ken Urai (Graduate School of Economics, Osaka University); Hiromi Murakami (Graduate School of Economics, Osaka University)
    Abstract: The axiomatic characterization of price or market equilibrium is one of the most important problems in the general equilibrium theory. There does not seem to exist, however, so many papers on the axiomatic characterization problem of monetary equilibrium. The overlapping-generations model with a double in nity of commodities and agents is one of the most fundamental frameworks for introducing money into an economic model, although a simple game-theoretic or welfare characterization on the role of money under competitive mechanism is widely known to be difficult. In this paper, we show that the informational efficiency axiomatic characterization as in Hurwicz (1960), Mount and Reiter (1974) and Sonnenschein (1974) is possible for the price-money competitive mechanism for overlapping- generations economies among the class of all allocation mechanisms with messages. In particular, the category theoretic universal mapping characterization in Sonnenschein (1974) is generalized and applied to the overlapping-generations framework through our monetary version of Debreu-Scarf's core limit theorem of Urai and Murakami (2015). Our argument is also closely related to the replica characterization approaches of Walrasian social choice mechanism like Thomson (1988) and Nagahisa (1994), and provides a comprehensive perspective on them.
    Keywords: Axiomatic Characterization, Resource Allocation Mechanism, Informational Efficiency, Monetary Equilibrium, Overlapping-Generations Model, Replica Core Equivalence, Universal Mapping Property
    JEL: C60 C71 D51 D82 E00
    Date: 2015–12
  77. By: Simplice Asongu (Yaoundé/Cameroun); Jacinta C. Nwachukwu (Coventry University)
    Abstract: This study investigates direct and indirect linkages between financial development and inclusive human development in data panels for African countries using a battery of estimation techniques, notably: Two-Stage Least Squares, Fixed Effects, Generalized Method of Moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database (FDSD) of the World Bank are considered. The main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development. Policy implications are discussed in the light of fighting surplus liquidity and providing information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers.
    Keywords: Banking; human development; Africa
    JEL: E00 G20 I00 O10
    Date: 2015–12
  78. By: Mariacristina De Nardi; Giulio Fella; Gonzalo Paz Pardo
    Abstract: Earnings dynamics are richer than those typically used in macro models. This paper provides multiple contributions. First, it proposes a non-parametric way to model rich earnings dynamics that is easy to use in structural models. Second, it constructs a large, synthetic, data set that matches the earnings dynamics of the U.S. tax earnings. Third, it estimates our non-parametric earnings processes using two data sets: the Panel Study of Income Dynamics and our synthetic tax data. Fourth, it compares the implications of our earnings processes to those of a standard AR(1) in a life cycle structural model of savings and consumption.
    JEL: D14 D31 E21 J31
    Date: 2016–01
  79. By: Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
    Abstract: Conventional view argues that devaluation increases the price competitiveness of domestic goods, thus allowing the economy to achieve a higher level of economic activity. However, these theoretical treatments largely neglect two important effects following devaluation: (i) the inflationary impact on the price of imported intermediate inputs which raises the prime costs of firms and deteriorates partially or totally their price competitiveness; and (ii) the redistribution of income from wages to profits which affects ambiguously the aggregate demand as workers and capitalists have different propensities to save. New structuralist economists have explored these stylised facts neglected by the orthodox literature and, by and large, conclude that devaluation has contractionary effects on growth and positive effects on the external balance. Given that empirical evidence on the correlation between devaluation and growth is quite mixed, we develop a more general Keynesian-Kaleckian model that takes into account both opposing views in order to analyse the net impact of currency depreciation on the short-run growth rate and the current account. We demonstrate that this impact can go either way, depending on several conditions such as the type of growth regime, that is, wage-led or profit-led, and the degree of international price competitiveness of domestic goods.
    Keywords: Currency devaluation; price competitiveness; wage-led and profit-led growth.
    JEL: O40 O33 E25
    Date: 2016–03–02
  80. By: Luciano, Fanti; Luca, Gori; Cristiana, Mammana; Elisabetta, Michetti
    Abstract: The aim of this article is to study the local and global dynamics of a general equilibrium closed economy with overlapping generations and inherited tastes (aspirations). It shows that the interaction between the intensity of aspirations and the elasticity of substitution of effective consumption, affects the qualitative and quantitative long-term dynamics of the model. In addition, periodic cycles and complex features emerge. It remarkably extends the literature on endogenous fluctuations showing that: 1) in an OLG model with aspirations there exists a super-critical Neimark-Sacker bifurcation, 2) endogenous fluctuations occur even when the elasticity of substitution of effective consumption is smaller than one, thus reconciling the existence of economic cycles with empirical estimates, and 3) the interaction between aspirations and inter-temporal preferences affects the steady-state equilibrium and dynamic outcomes.
    Keywords: Aspirations; Nonlinear dynamics; Overlapping generations; Bifurcations; Business cycles
    JEL: C61 C62 C68 E32 J22 O41
    Date: 2016–03–08
  81. By: Marcello de Cecco (LUISS Guido Carli)
    Abstract: In this note I will deal with the structural transformation undergone by the US financial system in the last decades and with the implications they have had and still have for the lender of last resort as a concept and with its practical implementation.
    Keywords: US Financial System
    JEL: E58
  82. By: Peter Rowland
    Abstract: The surge in Colombian sovereign international bond issues during the 1990s has created an increasing need for the Colombian Government and the Banco de la República to understand the dynamics and the determinants of the sovereign spread. This is the first comprehensive study of the Colombian sovereign spread and its determinants. It shows that contagion and spillovers play an important part in the determination of the spread, particularly in the short term. A study of daily spread changes between 1998 and 2003 using an OLS regression framework finds contagion, changes in the US stock market and changes in the Colombian exchange rate to significantly influence the spread. A study of the long-term determinants of the spread uses a Johansen framework of multivariate cointegration together with monthly data from 1998 to 2002, and finds exports, the exchange rate, the economic growth rate and the US T-Bill rate as significant explanatory variables of the spread. A weakness of the study, as with all single-country studies, is that the time period is too short to study variables published only with annual frequency, and some such variables have, indeed, by cross-country studies been shown to significantly influence the spread. Such variables include, for example, the debt ratio and the debt-service ratio.
    Keywords: Sovereign Spread and its Determinants
    JEL: E52 E31
  83. By: Paczos, Wojtek; Shakhnov, Kirill
    Abstract: We propose a novel theory to explain why sovereigns borrow on both domestic and international markets and why defaults are mostly selective (on either domestic or foreign investors). Domestic debt issuance can only smooth tax distortion shocks, whereas foreign debt can also smooth productivity shocks. If the correlation of these shocks is sufficiently low, the sovereign borrows on both markets to avoid excess consumption volatility. Defaults on both types of investors arise in equilibrium due to market incompleteness and the government's limited commitment. The model matches business cycle moments and frequencies of different types of defaults in emerging economies and we show our hypothesis is confirmed by the data. We also find that secondary markets are not a sufficient condition to avoid sovereign defaults. The outcome of the trade in bonds on secondary markets depends on how well each group of investors can coordinate their actions.
    Keywords: Sovereign Debt, Selective Default, Debt Composition, Secondary Markets
    JEL: E43 F34 G15 H63
    Date: 2016
  84. By: Glas, Alexander; Hartmann, Matthias
    Abstract: We analyze the determinants of average individual inflation uncertainty and disagreement based on data from the European Central Bank's Survey of Professional Forecasters. We empirically confirm the implication from a theoretical decomposition of inflation uncertainty that disagreement is an incomplete approximation to overall uncertainty. Both measures are associated with macroeconomic conditions and indicators of monetary policy, but the relations differ qualitatively. In particular, average individual inflation uncertainty is higher during periods of expansionary monetary policy, whereas disagreement rises during contractionary periods.
    Keywords: Inflation uncertainty; Disagreement; Density forecast; Central banking;Survey of Professional Forecasters.
    Date: 2016–03–15
  85. By: Alain Kabundi, Elmarie Nel and Franz Ruch
    Abstract: This paper uses nowcasting to forecast real GDP growth in South Africa from 2010Q1 to 2014Q3 in real time. Such an approach exploits the ‡ow of high-frequency information underlying the state of the economy. It overcomes one of the major challenges faced by forecasters, policymakers, and economic agents - having a clear view of the state of the economy in real time. This is often not the case as many economic variables are only available at low frequency and with considerable lags, making it di¢ cult to have information on the state of the economyeven after the end of the quarter. The pseudo out-of-sample forecasts show that he nowcasting model’s performance is comparable to those of professional forecasters even though the latter enhance their forecasting accuracy with judgement. The nowcast model also outperforms all other benchmark models by a signi…cant margin.
    Keywords: Nowcasting, Factor Model, Bayesian VAR, forecasting
    JEL: E52 C53 C33
    Date: 2016
  86. By: Claudiu Albulescu (UPT); Christian Aubin (CRIEF); Daniel Goyeau (CRIEF)
    Abstract: We test for the long-run relationship between stock prices, inflation and its uncertainty for different U.S. sector stock indexes, over the period 2002M7 to 2015M10. For this purpose we use a cointegration analysis with one structural break to capture the crisis effect, and we assess the inflation uncertainty based on a time-varying unobserved component model. In line with recent empirical studies we discover that in the long-run, the inflation and its uncertainty negatively impact the stock prices, opposed to the well-known Fisher effect. In addition we show that for several sector stock indexes the negative effect of inflation and its uncertainty vanishes after the crisis setup. However, in the short-run the results provide evidence in the favor of a negative impact of uncertainty, while the inflation has no significant influence on stock prices, except for the consumption indexes. The consideration of business cycle effects confirms our findings, which proves that the results are robust, both for the long-and the short-run relationships.
    Date: 2016–03
  87. By: Tomomi Miyazaki (Graduate School of Economics, Kobe University)
    Abstract: This paper examines the effects of government investment on private sector capital investment by investigating Japanese prefecture data. Empirical results show that crowding-out effect is observed in some sectors especially in rural areas where the government had invested heavily before the 1990s. This suggests that public investment is not necessarily useful to stimulate the economic activities through private capital formation there.
    Keywords: Regional public investment; Crowding-in/out effect; Sector investment
    JEL: E62 H54 R42
    Date: 2016–03
  88. By: Claudia Olivetti; Barbara Petrongolo
    Abstract: Women in developed economies have made major inroads in labor markets throughout the past century, but remaining gender differences in pay and employment seem remarkably persistent. This paper documents long-run trends in female employment, working hours and relative wages for a wide cross-section of developed economies. It reviews existing work on the factors driving gender convergence, and novel perspectives on remaining gender gaps. The paper finally emphasizes the interplay between gender trends and the evolution of the industry structure. Based on a shift-share decomposition, it shows that the growth in the service share can explain at least half of the overall variation in female hours, both over time and across countries.
    JEL: E24 J16 J31
    Date: 2016–01
  89. By: Greg Kaplan; Guido Menzio; Leena Rudanko; Nicholas Trachter
    Abstract: We use a large dataset on retail pricing to document that a sizeable portion of the cross-sectional variation in the price at which the same good trades in the same period and in the same market is due to the fact that stores that are, on average, equally expensive set persistently different prices for the same good. We refer to this phenomenon as relative price dispersion. We argue that relative price dispersion stems from sellers' attempts to discriminate between high-valuation buyers who need to make all of their purchases in the same store, and low-valuation buyers who are willing to purchase different items from different stores. We calibrate our theory and show that it is not only consistent with the extent and sources of dispersion in the price that different sellers charge for the same good, but also with the extent and sources of dispersion in the prices that different households pay for the same basket of goods, as well as with the relationship between prices paid and the number of stores visited by different households.
    JEL: D40 D83 E31 L11
    Date: 2016–01
  90. By: Julien Albertini; Jean Olivier Hairault; ;
    Abstract: This paper develops a multi-sectorial search and matching model with endogenous occupational choice in a context of structural change. Our objective is to shed light on the way labor market institutions aect aggregate employment, job polarization and inequalities observed in the US and in European countries. We consider the cases of the US, France and Germany that are representative of alternative institutional settings, having the potential to induce divergent time-paths in the evolution of labor market outcomes during the process of technological transition. In the US and in Germany, we nd employment gains from technological change and job polarization, whereas, in France, the technological change reduces aggregate employment in a context of job polarization. In the US, an half of these employment gains are due to the technological change, and the other half to the changes in the LMI, the contribution of the rise in share of skilled worker being negligible. In France, the change in LMI aects new job opportunities in manual jobs: the reallocation of routine workers towards manual jobs is obstructed for want of job creations of manual services. Hence, without technological change, the fall in French employment would have been cut by 70%. The model also predicts that, without the increase in skilled labor supply, the fall in French employment would have doubled. The improvement in educational attainment dampened the unfavorable consequences of technological change. we show that Germany transforms this structural change in employment gains, only after the labor reforms implemented after the middle of the 90s.
    Keywords: Search and matching, job polarization, reallocation, labor market institutions
    JEL: E24 J62 J64 O33
    Date: 2016–03
  91. By: Didier Faivre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The relationship between Credit to private sector, Growth and investment is in a first step evaluated empirically through Error Correction model (ECM), using Credit Level for various national economies. The more important results are the following: the quality of estimation results for the relationship between Investment (with a separate analysis for Business and Households) and Credit is much better than for the relationship between GDP and Credit and in most cases it's the Investment cycle that explains the Credit cycle. In addition, specific results for United States are given, replacing Credit Level data by Credit Flow data. In this case, both cycles drive each other for Business, whereas for Households, it's the investment cycle that drives the Credit cycle.
    Abstract: La relation entre stock de crédit au secteur privé, croissance et investissement est évaluée pour divers pays grâce à des modèles à correction d'erreur. Les plus importants résultats sont les suivants : la qualité des estimations pour la relation entre investissement (analyse séparée pour entreprises et ménages) et crédit est bien meilleure que pour la relation entre PIB et crédit. Le cycle d'investissement explique le plus souvent celui du crédit. Spécifiquement pour les Etats-Unis, en remplaçant données de stock par données de flux pour le crédit, une relation statistique très significative est trouvée pour les entreprises et les ménages entre flux de crédit et investissement. Pour les entreprises, les deux cycles se guident mutuellement. A l'inverse, pour les ménages, le cycle d'investissement pilote le cycle de crédit. Toujours pour les Etats-Unis et sur deux sous-périodes, 1959-1986 et 1986-2014, le cycle du crédit suit ceux du GDP et de l'investissement avec un retard d'environ trois trimestres. Pour la première sous-période les cycles des masses monétaires M0, M2-M1 et M2 précèdent les cycles du PIB et du crédit de trois trimestres, tandis que dans la deuxième sous-période, on observe uniquement que le cycle du PIB précède celui de M2-M1 de trois trimestres.
    Keywords: Private Credit,Credit Cycle,Error Correction Model,Modèle à correction d'erreur,Cycle du crédit,Cointégration,Crédit au secteur privé
    Date: 2016–02
  92. By: Kaplan, Greg (Princeton University and NBER); Menzio, Guido (University of Pennsylvania and NBER); Rudanko, Leena (Federal Reserve Bank of Philadelphia); Trachter, Nicholas (Federal Reserve Bank of Richmond)
    Abstract: We use a large dataset on retail pricing to document that a sizable portion of the cross-sectional variation in the price at which the same good trades in the same period and in the same market is due to the fact that stores that are, on average, equally expensive set persistently different prices for the same good. We refer to this phenomenon as relative price dispersion. We argue that relative price dispersion stems from sellers’ attempts to discriminate between high-valuation buyers who need to make all of their purchases in the same store and low-valuation buyers who are willing to purchase different items from different stores. We calibrate our theory and show that it is not only consistent with the extent and sources of dispersion in the price that different sellers charge for the same good, but also with the extent and sources of dispersion in the prices that different households pay for the same basket of goods and with the relationship between prices paid and the number of stores visited by different households.
    JEL: D40 D83 E31 L11
    Date: 2016–01–15
  93. By: Galanis, Giorgos; Veneziani, Roberto; Yoshihara, Naoki
    Abstract: This paper provides a formal dynamic analysis of exploitation, class inequalities and profits. A stylised model of a capitalist economy with two classes - workers and capitalists - is considered which extends Roemer [26, 27]. First, a dynamic generalisation of a key Marxian insight is provided by proving that the profitability of capitalist production is synonimous with the existence of exploitation. Second, it is shown that, in a competitive environment, asset inequalities are fundamental for the emergence of exploitation, but they are not sufficient for its persistence, both in equilibria with accumulation and growth, and, perhaps more surprisingly, in stationary intertemporal equilibrium paths. Finally, it is shown that labour-saving technical progress may yield persistent exploitation by ensuring the persistent abundance of labour.
    Keywords: Dynamics, accumulation, exploitation, classes
    JEL: E11 D51 D63 C61 B24
    Date: 2016–02
  94. By: Shimizu, Chihiro; Karato, Koji
    Abstract: Property has the particularity of being a non-homogeneous good, and based on this, it is necessary to perform quality adjustment when estimating property price indexes. Various methods of quality adjustment have been proposed and applied, such as the hedonic method often used in price statistics and, due to the fact that the information that can be used in estimation is limited, the repeat sales price method, methods using property appraisal price information, and so forth. However, since there is a lack of theoretical knowledge and data restrictions, it is no exaggeration to say that it is difficult to evaluate their practical application in the present situation. Therefore, focusing on the hedonic method that has been proposed as a quality adjustment method for property price indexes, in addition to repeat sales price indexes and indexes employing property appraisal prices, this paper aimed to outline the underlying econometric theory and clarify the advantages and disadvantages of the respective estimation methods.
    Keywords: Hedonic price index, Repeat sales price index, Age effect, Hybrid method, Property appraisal price method, SPAR
    JEL: C2 C23 C43 D12 E31 R21
    Date: 2016–02
  95. By: Doireann Fitzgerald; Stefanie Haller; Yaniv Yedid-Levi
    Abstract: We show that after firms enter new export markets, there are striking dynamics of quantities, but no dynamics of prices, controlling for both costs and selection. This points to an important role for demand in the growth of successful exporters, and to a nonprice mechanism through which quantity demanded grows. A model where firms engage in costly investment in customer base through marketing and advertising, and learn about their idiosyncratic demand, can qualitatively match these facts, along with a declining exit hazard. We structurally estimate the model and find that costs of adjusting customer base are key to explaining how exporters grow.
    JEL: E2 F1 L1
    Date: 2016–01
  96. By: Kaplan, Greg (Princeton University and NBER); Menzio, Guido (University of Pennsylvania and NBER); Rudanko, Leena (Federal Reserve Bank of Philadelphia); Trachter, Nicholas (Federal Reserve Bank of Philadelphia)
    Abstract: We use a large data set on retail pricing to document that a sizable portion of the cross-sectional variation in the price at which the same good trades in the same period and in the same market is due to the fact that stores that are, on average, equally expensive set persistently different prices for the same good. We refer to this phenomenon as relative price dispersion. We argue that relative price dispersion stems from sellers’ attempts to discriminate between high-valuation buyers who need to make all of their purchases in the same store and low-valuation buyers who are willing to purchase different items from different stores. We calibrate our theory and show that it is not only consistent with the extent and sources of dispersion in the price that different sellers charge for the same good, but also with the extent and sources of dispersion in the prices that different households pay for the same basket of goods and with the relationship between prices paid and the number of stores visited by different households.
    Keywords: Price dispersion; Equilibrium product market search; Retail pricing; Goods;
    JEL: D40 D83 E31 L11
    Date: 2016–02–29
  97. By: Kaplan, Robert Steven (Federal Reserve Bank of Dallas)
    Abstract: Remarks before the University of Texas Investment Management Company 20th Anniversary Event, Austin, TX, March 3, 2016.
    Date: 2016–03–03
  98. By: Hirano, Tomohiro; Yanagawa, Noriyuki
    Abstract: This paper analyzes the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range, implying that improving the financial market might increase the potential for asset bubbles. Moreover, when the degree of pledgeability is relatively low, bubbles boost long-run growth; when it is relatively high, bubbles lower growth. Furthermore, we examine the effects of a bubble burst, and show that the effects depend on the degree of pledgeability, i.e., the quality of the financial system. Finally, we conduct a full welfare analysis of asset bubbles.
    Keywords: Asset Bubbles, Endogenous Growth, Financial Frictions
    Date: 2016–02
  99. By: Beatrice D. Simo-Kengne
    Abstract: This paper empirically identifies the main driving forces behind the recent development in economic growth across Sub-Saharan Africa based on a two-step procedure. Given the role of convergence in explaining the level of economic development, the first step employs the new extension of the sigma convergence developed by Phillip and Sul (2007) to test and endogenously identify the formation of different steady state paths across a sample of 34 countries selected based on available data over the period 1996-2010. Empirical results vindicate the existence of three main convergence clubs and a divergent group of 8 countries; suggesting that Sub-Sahara African countries do not form a homogenous club. The second step implements a Bayesian Averaging of Classical Estimates (BACE) method on the only convergent groups in order to explicitly account for the assumed conditional convergence in cross-sectional growth regressions. Estimation results prove support that 8 out of 18 selected explanatory variables documented in the literature are significantly and strongly associated with the long term economic growth. Particularly, investment and the relative price of exports are found to be favourable to the recent regional economic performance while public consumption and remittances appear to be of less contribution. Other important variables include scientific research, trade taxes, land availability and population growth which are unexpectedly found to be negatively associated with economic growth. Although their sign certainty probabilities are reportedly insignificant, these results raise a number of policy challenges including poor quality of institutions, the exposure to world shocks given the dependence to international trade taxes, the poor quality of human capital and more importantly a threat of skilled labour immigration.
    Keywords: economic growth, BACE, Convergence club, Sub Saharan Africa
    JEL: E20 E60 N17
    Date: 2016
  100. By: Ghassan, Hassan B.; Alhajhoj, Hassan R.
    Abstract: Understanding the long-run dynamics of OPEC and non-OPEC crude oil prices is important in an era of increased financialization of petroleum markets. Utilizing an ECM within a threshold cointegration and CGARCH errors framework, we provide evidence on the cointegrating relationship and estimate how and to what extent the respective prices adjust to eliminate disequilibrium. Our findings suggest that the adjustment process of OPEC prices to the positive discrepancies is slow which implies that OPEC producers do not prefer moderate oil prices; however, the reverse holds for non-OPEC producers. These results reflect distinct competitive behaviors between OPEC and non-OPEC producers.
    Keywords: Dynamic volatility, Threshold cointegration, Component GARCH, OPEC, Oil prices.
    JEL: C5 E39 F53
    Date: 2015–06–03
  101. By: Buss, Adrian; Dumas, Bernard; Uppal, Raman; Vilkov, Grigory
    Abstract: In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, we show that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as constraints on stock positions, borrowing constraints, and the Tobin tax have similar effects on financial and macroeconomic variables. Borrowing limits and a financial transaction tax improve welfare because they substantially reduce speculative trading without impairing excessively risk-sharing trades.
    Keywords: Tobin tax,borrowing constraints,short-sale constraints,stock market volatility,incomplete markets,differences of opinion
    JEL: G01 G18 G12 E44
    Date: 2016
  102. By: Tuhkuri, Joonas
    Abstract: Data on Google searches help predict the unemployment rate in the U.S. But the predictive power of Google searches is limited to short-term predictions, the value of Google data for forecasting purposes is episodic, and the improvements in forecasting accuracy are only modest. The results, obtained by (pseudo) out-of-sample forecast comparison, are robust to a state-level fixed effects model and to different search terms. Joint analysis by cross-correlation function and Granger non-causality tests verifies that Google searches anticipate the unemployment rate. The results illustrate both the potentials and limitations of using big data to predict economic indicators.
    Keywords: Big Data, Google, Internet, Nowcasting, Forecasting, Unemployment
    JEL: C22 C53 C82 E27
    Date: 2016–03–02

This nep-mac issue is ©2016 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.