nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒05‒21
111 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Circumventing the Zero Lower Bound with Monetary Policy Rules Based on Money By Michael T. Belongia; Peter N. Ireland
  2. The Post-Crisis Slump By Kollmann, Robert; Leeper, Eric; Roeger, Werner
  3. Great Recession, Slow Recovery and Muted Fiscal Policies in the US By Alice Albonico; Alessia Paccagnini; Patrizio Tirelli
  4. Government Policies and Financial Crises: Mitigation, Postponement or Prevention? By Jakob Kapeller; Michael Landesmann; Franz X. Mohr; Bernhard Schütz
  5. The History and Economics of Safe Assets By Gary B. Gorton
  6. On the limits of macroprudential policy By Marcin Kolasa
  7. Market Reforms in the Time of Imbalance By Cacciatore, Matteo; Duval, Romain; Fiori, Giuseppe; Ghironi, Fabio
  8. When does the cost channel pose a challenge to inflation targeting central banks? By Smith, Andrew Lee
  9. Measuring the effect of the zero lower bound on monetary policy By Carvalho, Carlos; Hsu, Eric; Nechio, Fernanda
  10. Environmental Policy and China’s Macroeconomic Dynamics Under Uncertainty---Based on The NK Model with Distortionary Taxation By Xu, Wenli; Xu, Kun; Lu, Hongyou
  11. The shadow rate as a predictor of real activity and inflation: Evidence from a data-rich environment By Hännikäinen, Jari
  12. Macroeconomic and Financial Effects of Oil Price Shocks: Evidence for the Euro Area By Claudio Morana
  13. The implications of labor market network for business cycles By Marcelo Arbex; Sydney Caetano; Dennis O'Dea
  14. Understanding the Great Recession: Some Fundamental Keynesian and Post-Keynesian Insights, with an Analysis of Possible Mechanisms to Achieve a Sustained Recovery By Mario Seccareccia; Marc Lavoie
  15. Money Illusion Matters for Consumption-Saving Decision-Making: An Experimental Investigation By Yasufumi Gemma
  16. Hysteresis in a New Keynesian Model By Craighead, William
  17. The predictive power of dividend yields for future infl?ation: Money illusion or rational causes? By Tom Engsted; Thomas Q. Pedersen
  18. Money supply expansion through a dynamic CGE model By C. Ciaschini; R. Pretaroli; F. Severini; C. Socci
  19. 我国“货币中性”再检验 By Xu, Kun; Xu, Wenli
  20. Disentangling the Monetary Policy Stance By Filippo Gori
  21. Identifying Ambiguity Shocks in Business Cycle Models Using Survey Data By Anmol Bhandari; Jaroslav Borovička; Paul Ho
  22. Countercyclical capital rules for small open economies By Daragh Clancy
  23. Finding the Equilibrium Real Interest Rate in a Fog of Policy Deviations By Taylor, John B.; Wieland, Volker
  24. Reservation wages and the wage flexibility puzzle By Felix Koenig; Alan Manning; Barbara Petrongolo
  25. Population ageing and inflation with endogenous money creation By Igor Fedotenkov
  26. Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan By Ali, Amjad; Ur Rehman, Hafeez
  27. Non-durable Consumption and Housing Net Worth in the Great Recession: Evidence from Easily Accessible Data By Kaplan, Greg; Mitman, Kurt; Violante, Giovanni L.
  28. Comments on Paul Davidson’s “Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice?†By Peter Temin; David Vines
  29. Commodity prices and labour market dynamics in small open economies By Martin Bodenstein; Gunes Kamber; Christoph Thoenissen
  30. Commodity prices and labour market dynamics in small open economics By Martin Bodenstein; Gunes Kamber; Christoph Thoenissen
  31. A Theory of Deflation: Can Expectations Be Influenced by a Central Bank? By Harashima, Taiji
  32. A Portfolio Model of Quantitative Easing By Signe Krogstrup
  33. Secular stagnation and progressive economic policy alternatives By Özlem Onaran
  34. Can currency competition work? By Fernandez-Villaverde, Jesus; Sanches, Daniel R.
  35. Optimal Forward Guidance By Bilbiie, Florin Ovidiu
  36. The term structure of expectations and bond yields By Crump, Richard K.; Eusepi, Stefano; Moench, Emanuel
  37. Effects of US monetary policy shocks during financial crises - A threshold vector autoregression approach By Renee Fry-McKibbin; Jasmine Zheng
  38. Fed Liftoff and Subprime Loan Interest Rates: Evidence from the Peer-to-Peer Lending Market By Bertsch, Christoph; Hull, Isaiah; Zhang, Xin
  39. International dynamics of inflation expectations By Aleksei Netšunajev; Lars Winkelmann; ;
  40. Ambiguity and the historical equity premium By Fabrice Collard; Sujoy Mukerji; Kevin Sheppard; Jean-Marc Tallon
  41. Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden By Jiaqian Chen; Francesco Columba
  42. Affine term structure pricing with bond supply as factors By Hayashi, Fumio
  43. Effective macroprudential policy: Cross-sector substitution from price and quantity measures By Janko Cizel; Jon Frost; Aerdt Houben; Peter Wierts
  44. Potential Output and Fiscal Rules in a Monetary Union under Asymmetric Information – 2nd ed By L. Marattin; S. Meraglia
  45. Exchange Rate Modeling: The Case of Ruble By Kuzmin, Anton
  46. Mauritius; 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Mauritius By International Monetary Fund. African Dept.
  47. Credit and Oil Consumption By Arora, Vipin
  48. Quality of Public Finance and Economic Growth in the Czech Republic By Irena Szarowská
  49. New Evidence for the Present-Value Model of Stock Prices: Why the REH Version Failed Empirically By Roman Frydman; Michael Goldberg; Nicholas Mangee
  50. Heterogeneity in euro-area monetary policy transmission: Results from a large multi-country BVAR model By Mandler, Martin; Scharnagl, Michael; Volz, Ute
  51. Term Premium Variability and Monetary Policy By Fuerst, Timothy S.; Mau, Ronald
  52. Debt-dependent effects of fiscal expansions By Bi, Huixin; Shen, Wenyi; Yang, Shu-Chun
  53. Communicating dissent on monetary policy: Evidence from central bank minutes By David-Jan Jansen; Richhild Moessner
  54. Anomalous empirical evidence on money long-run super-neutrality and the vertical long-run Phillips curve By Vaona, Andrea
  55. Hungary; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Hungary By International Monetary Fund
  56. Financial stress transmission in EMU sovereign bond market volatility: A connectedness analysis By Fernando Fernández-Rodríguez; Marta Gómez-Puig; Simón Sosvilla-Rivero
  57. Temporary Agency Work and the Great Recession By Baumgarten, Daniel; Kvasnicka, Michael
  58. Temporary Agency Work and the Great Recession By Baumgarten, Daniel; Kvasnicka, Michael
  59. Structural Reform in Germany By Tom Krebs; Martin Scheffel
  60. Traditional banks, shadow banks and the US credit boom: Credit origination versus financing By Unger, Robert
  61. Guinea; Sixth and Seventh Reviews under the Extended Credit Facility Arrangement, Financing Assurances Review, and Requests for Waivers of Nonobservance of Performance Criteria, Extension of the Arrangement, and Rephasing of Disbursements-Press Release; Staff Report; and Statement by the Executive Director for Guinea By International Monetary Fund. African Dept.
  62. Quasi-Real-Time Data of the Economic Tendency Survey By Billstam, Maria; Frändén, Kristina; Samuelsson, Johan; Österholm, Pär
  63. West African Economic and Monetary Union; Common Policies of Member Countries-Press Release; Staff Report; and Statement by the Executive Director for West African Economic and Monetary Union By International Monetary Fund. African Dept.
  64. Clans, Guilds, and Markets: Apprenticeship Institutions and Growth in the Pre-Industrial Economy By David de la Croix; Matthias Doepke; Joel Mokyr
  65. Sentiment and Bitcoin Volatility By Jaroslav Bukovina; Matus Marticek
  66. Blanchard and Kahn's (1980) Solution for a Linear Rational Expectations Model with One State Variable and One Control Variable: the Correct Formula By Robert Kollmann; Stefan Zeugner
  67. A proposal to revive the European Fiscal Framework By Grégory Claeys; Zsolt Darvas; Alvaro Leandro
  68. The pre-Great Recession slowdown in productivity By Cette, Gilbert; Fernald, John G.; Mojon, Benoit
  69. Internet searches and transactions on the housing market By Sander van Veldhuizen; Benedikt Vogt; Bart Voogt
  70. Endogenous UK Housing Cycles and the Risk Premium: Understanding the Next Housing Crisis By Geoffrey Meen; Alexander Mihailov; Yehui Wang
  71. Financialization and the crises of capitalism By Dünhaupt, Petra
  72. The Effect of Unexpected Inheritances on Wealth Accumulation: Precautionary Savings or Liquidity Constraints By Martinello, Alessandro
  73. Update on Minneapolis Fed Ending Too Big to Fail Initiative / Neel Kashkari, President ... Minneapolis, MN ... April 18, 2016 By Kashkari, Neel
  74. Household Saving Rates and Social Insurance Retirement Income: An International Comparison of the OECD Countries By Simin Mozayeni; Simon Li
  75. Climate and finance systemic risks, more than an analogy? The climate fragility hypothesis By Michel Aglietta; Etienne Espagne
  76. Credit risk interconnectedness: What does the market really know? By Abbassi, Puriya; Brownlees, Christian; Hans, Christina; Podlich, Natalia
  77. A new measure to quantify the effects of U.S. tax policy news By J. Nikolaj Dybowski; T. Philipp Dybowski
  78. The Effect of Policy Uncertainty on Investment Plans: Evidence from the Unexpected Acceptance of a Far-Reaching Referendum in Switzerland By Klaus Abberger; Andreas Dibiasi; Michael Siegenthaler; Jan-Egbert Sturm
  79. Gabon; 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Gabon By International Monetary Fund. African Dept.
  81. An Economic Outlook By Harker, Patrick T.
  82. Credit Default Swaps and Debt Contracts : Spillovers and Extensive Default Premium Choice By Darst, R. Matthew; Refayet, Ehraz
  83. The Economic Consequences of Brexit: A Taxing Decision By Rafal Kierzenkowski; Nigel Pain; Elena Rusticelli; Sanne Zwart
  84. Inequality of opportunity in Central and Eastern Europe: accounting for changes over time By Iga Magda; Micha³ Brzeziñski
  85. Age, Time, Vintage, and Price Indexes: Measuring the Depreciation Pattern of Houses By Iqbal Syed; Jan de Haan
  86. Optimal monetary policy in open economies revisited By Fujiwara, Ippei; Wang, Jiao
  87. Financial Stability and Interest-Rate Policy; A Quantitative Assessment of Costs and Benefits By Andrea Pescatori; Stefan Laseen
  88. The Curse of Conflict: understanding the effect of terrorism on fiscal volatility By Urbain Thierry Yogo
  89. Single Supervisory Mechanism as a response to the banking crisis. Analysis with the particular emphasis on the non-euro area EU member state By Pawel Pisany
  90. Determinacy analysis in high order dynamic systems: The case of nominal rigidities and limited asset market participation By Guido Ascari; Andrea Colciago; Lorenza Rossi
  91. Financial Inclusion Index at District Levels in Bangladesh: A Distance-based Approach By Hasan, Md Rashel; Islam, Md Ezazul
  92. International correlation of business cycles in a behavioral macroeconomic model By De Grauwe, Paul; Ji, Yuemei
  93. The Intended and Unintended Consequences of Financial-Market Regulations: A General Equilibrium Analysis By Adrian Buss; Bernard Dumas; Raman Uppal; Grigory Vilkov
  94. Local Independence, Monotonicity and Axiomatic Characterization of Price-Money Message Mechanism By Ken Urai; Hiromi Murakami
  95. Hedging Inflation with Individual US stocks: A long-run portfolio analysis By Georgios Bampinas; Theodore Panagiotidis
  96. Automating Analytics: Forecasting Time Series in Economics and Business By Gerunov, Anton
  97. Defining The Relationship Between The Real Exchange Volatility And Foreign Direct Investment In Turkey By fatih ayhan
  98. Dynamic Factor Models with infinite-dimensional factor space: asymptotic analysis By Mario Forni; Marc Hallin; Marco Lippi; Paolo Zaffaroni
  99. The Rational Inattention Filter By Mackowiak, Bartosz Adam; Matejka, Filip; Wiederholt, Mirko
  100. Resource Funds: Stabilizing, parking, and inter-generational transfer By Anthony J Venables; Samuel Wills
  101. VAR Information and the Empirical Validation of DSGE Models By Mario Forni; Luca Gambetti; Luca Sala
  102. A Life-Cycle Model of Trans-Atlantic Employment Experiences By Kitao, Sagiri; Ljungqvist, Lars; Sargent, Thomas J
  103. Macroprudential Policy: a Blessing or a Curse? By Lilit Popoyan
  105. Nigeria; 2016 Article IV Consultation- Press Release; Staff Report; and Statement by the Executive Director for Nigeria By International Monetary Fund. African Dept.
  106. Measuring Openness to Trade By Michael E. Waugh; B. Ravikumar
  107. A Method for Agent-Based Models Validation By Mattia Guerini; Alessio Moneta
  108. 省级财政支出效率空间溢出效应研究:基于超效率DEA和GSM模型 By Xu, Kun; Guan, Zhihua; Xu, Wenli
  109. Fiscal Multipliers for Brazil By Troy Matheson; Joana Pereira
  110. Implications of Food Subsistence for Monetary Policy and Inflation By Rafael Portillo; Luis-Felipe Zanna; Stephen A. O'Connell; Richard Peck
  111. The Dawn of the Plastic Jungle: The Introduction of the Credit Card in Europe and North America, 1950-1975 By Bernardo Batiz-Lazo; Gustavo A. Del Angel

  1. By: Michael T. Belongia (University of Mississippi); Peter N. Ireland (Boston College)
    Abstract: Discussions of monetary policy rules after the 2008-2009 recession highlight the potential impotence of a central bank's actions when the short-term interest rate under its control is limited by the zero lower bound. This perspective assumes, in a manner consistent with the canonical New Keynesian model, that the quantity of money has no role to play in transmitting a central bank's actions to economic activity. This paper examines the validity of this claim and investigates the properties of alternative monetary policy rules based on control of the monetary base or a monetary aggregate in lieu of a short-term interest rate. The results indicate that rules of this type have the potential to guide monetary policy decisions toward the achievement of a long run nominal goal without being constrained by the zero lower bound on a nominal interest rate. They suggest, in particular, that by exerting its influence over the monetary base or a broader aggregate, the Federal Reserve could more effectively stabilize nominal income around a long-run target path, even in a low or zero interest-rate environment.
    Keywords: Adjusted monetary base, Divisia monetary aggregates, Monetary policy rules, Nominal income targeting, Zero lower bound
    JEL: E31 E32 E37 E42 E51 E52 E58
    Date: 2016–05–01
  2. By: Kollmann, Robert; Leeper, Eric; Roeger, Werner
    Abstract: The global financial crisis of 2007-09 triggered a sharp fall in output growth that was followed by a persistent slump in Europe and other advanced economies. Almost a decade after the outbreak of the global financial crisis, the recovery remains very weak in many major advanced economies. This special issue of the European Economic Review consists of eleven papers that offer novel empirical and theoretical perspectives on the persistent post-crisis slump and on resulting challenges for global monetary and fiscal policies. All papers were presented at a conference at the European Commission in Brussels on 1-2 October 2015, organized by the European Economic Review, the European Commission, CAEPR, Indiana University and ECARES.
    Keywords: Global financial crisis, post-crisis slump, monetary and fiscal policy, secular stagnation.
    JEL: E2 E3 E4 E5 E6 F2 F3 F4 F6 G1
    Date: 2016
  3. By: Alice Albonico; Alessia Paccagnini; Patrizio Tirelli
    Abstract: This paper reconsiders the role of macroeconomic shocks and policies in determining the Great Recession and the subsequent recovery in the US. The Great Recession was mainly caused by a large demand shock and by the ZLB on the interest rate policy. In contrast with previous findings, the subsequent jobless recovery is explained by the ZLB effect. We estimate a fraction of non-Ricardian households which is close to 50%, and obtain comparatively large fiscal multipliers. However we cannot detect a significant contribution of fiscal policies in stabilizing the US economy. For instance, the 2007-2009 large increase in expenditure-to-GDP ratios was apparently determined by the adverse non-policy shocks that caused the recession.
    Keywords: DSGE; Limited asset market participation; Bayesian estimation; US economy; Business cycle; Monetary policy; Fiscal policy
    JEL: C11 C13 C32 E21 E32 E37
    Date: 2016–03
  4. By: Jakob Kapeller; Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Franz X. Mohr; Bernhard Schütz
    Abstract: Abstract In the aftermath of the Great Recession, governments have implemented several policy measures to counteract the collapse of the financial sector and the downswing of the real economy. Within a framework of Minsky-Veblen cycles, where relative consumption concerns, a debt-led growth regime and financial sector confidence constitute the main causes of economic fluctuations, we use computer simulations to assess the effectiveness of such measures. We find that the considered policy measures help to mitigate the impact of financial crises, though they do so at the cost of shortening the time between the initial financial crisis and the next. This result is due to an increase in solvency and confidence induced by the policy measures under study, which contribute to an increase in private credit and, thereby, increase effective demand. Our results suggest that without a strengthening of financial regulation any policy intervention remains incomplete.
    Keywords: financial crisis, financial regulation, fiscal policies, Minsky-Veblen cycles
    JEL: E32 E44 E62 E63 G01 G18 G28 H12 H81
    Date: 2016–05
  5. By: Gary B. Gorton
    Abstract: Safe assets play a critical role in an(y) economy. A “safe asset” is an asset that is (almost always) valued at face value without expensive and prolonged analysis. That is, by design there is no benefit to producing (private) information about its value. And this is common knowledge. Consequently, agents need not fear adverse selection when buying or selling safe assets. Safe assets can easily be used to exchange for goods or services or to exchange for another asset. These short-term safe assets are money or money-like. A long-term safe asset can store value over time or be used as collateral. Human history can be written in terms of the search for and production of safe assets. But, the most prevalent, privately-produced short-term safe assets—bank debt, are subject to runs and this has important implications for macroeconomics and for monetary policy.
    JEL: E3 E41 E42 E44 E5 G2
    Date: 2016–04
  6. By: Marcin Kolasa
    Abstract: This paper studies how macroprudential policy tools can complement the interest ratebased monetary policy in achieving a selection of dual stabilization objectives. We show analytically in a canonical New Keynesian model with collateral constraints that using the loan-to-value ratio as an additional policy instrument does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and either credit or house prices with monetary and macroprudential policy is possible only if the role of credit in the economy is sufficiently small. Any of these three dual stabilization objectives can be achieved with the monetary-fiscal policy mix. The identified limits to the LTV ratio-based policy are related to its predominantly intertemporal effect on decisions made by financially constrained agents.
    Keywords: macroprudential policy, monetary policy, stabilization tradeoffs
    JEL: E32 E58 E63 G21 G28
    Date: 2016
  7. By: Cacciatore, Matteo; Duval, Romain; Fiori, Giuseppe; Ghironi, Fabio
    Abstract: We study the consequences of product and labor market reforms in a two-country model with endogenous producer entry and labor market frictions. We focus on the role of business cycle conditions and external constraints at the time of reform implementation (or of a credible commitment to it) in shaping the dynamic effects of such policies. Product market reform is modeled as a reduction in entry costs and takes place in a non-traded sector that produces services used as input in manufacturing production. Labor market reform is modeled as a reduction in firing costs and/or unemployment benefits. We find that business cycle conditions at the time of deregulation significantly affect adjustment. A reduction of firing costs entails larger and more persistent adverse short-run effects on employment and output when implemented in a recession. By contrast, a reduction in unemployment benefits boosts employment and output by more in a recession compared to normal times. The impact of product market reforms is less sensitive to business cycle conditions. Credible announcements about future reforms induce sizable short-run dynamics, regardless of whether the announcement takes place in normal times or during an economic downturn. Whether the immediate effect is expansionary or contractionary varies across reforms. Finally, lack of access to international lending in the wake of reform can amplify the costs of adjustment.
    Keywords: Business cycle; External borrowing constraint; Labor market; Product market; Structural reforms
    JEL: E24 E32 F41 J64 L51
    Date: 2016–04
  8. By: Smith, Andrew Lee (Federal Reserve Bank of Kansas City)
    Abstract: In a sticky-price model where firms finance their production inputs, there is both a lower and an upper bound on the central bank's inflation response necessary to rule out the possibility of self-fulfilling inflation expectations. This paper shows that real wage rigidities decrease this upper bound, but coefficients in the range of those on the Taylor rule place the economy well within the determinacy region. However, when there is time-variation in the share of firms who finance their inputs (i.e. Markov-Switching) then inflation targeting interest rate rules are often found to result in indeterminacy, even if the central bank also targets output. In this case, adding money growth as an intermediate target in the Taylor rule can alleviate this indeterminacy and anchor inflation expectations. Whether the money growth target should be a constant feature of the central bank's policy rule or Markov-Switch depends on the weight the central bank places on output stability relative to inflation stability and the size of money demand shocks.
    Keywords: Taylors principle; Determinacy; Regime switching; Money; Cost channel; T Cost Channel; Taylor principle; Determinacy; Regime switching; Money
    JEL: C62 E3 E4 E5
    Date: 2015–06–01
  9. By: Carvalho, Carlos (PUC-Rio); Hsu, Eric (UC Berkeley); Nechio, Fernanda (Federal Reserve Bank of San Francisco)
    Abstract: The Zero Lower Bound (ZLB) on interest rates is often regarded as an important constraint on monetary policy. To assess how the ZLB affected the Fed’s ability to conduct policy, we estimate the effects of Fed communication on yields of different maturities in the pre-ZLB and ZLB periods. Before the ZLB period, communication affects both short and long-dated yields. In contrast, during the ZLB period, the reaction of yields to communication is concentrated in longer-dated yields. Our findings support the view that the ZLB did not put such a critical constraint on monetary policy, as the Fed retained some ability to affect long-term yields through communication.
    JEL: E43 E52 E58
    Date: 2016–04–01
  10. By: Xu, Wenli; Xu, Kun; Lu, Hongyou
    Abstract: This paper, by building a New Keynesian dynamic general equilibrium model that combines with distortionary taxation, pollution decision of firms, and environmental quality evolution under uncertainty, analyzes shocks from markets and taxation policies on macro-economy and environmental quality under different environmental policies circumstance theoretically. Further, parameters are calibrated on the basis of macroeconomic and pollution data from 1978 to 2014 in China as well as results from completed researches of others, and accordingly simulates differentiated response of macro-economy and environment to altering policy circumstance. Empirical results indicate that: (1) carrying out various environmental policies indeed causes economic loss, for which economic costs in average reach 0.1950% with 1% reduction of pollution elimination while change of economic costs (0.11149) under implement of pollution-discharge-permit system; (2) various environment polices play the role as automatic stabilizers for halting aggregate fluctuation, the most magnificently effect of decreasing instability relatively comes from Discharge Permit System in particular; (3) rising obstacles on price transmission lead to decreasing pollution-cut struggle from enterprises and increasing pollution emission; (4) taxation polices play effective roles for encouraging firms to participate on emission-cut activities. Potential suggestions, hence, root in: (1) putting environment regulation into effect fast, in which Discharge Permit police should be dominant and others be complementary; (2) carrying out marketization reforms by removing price intervention and posing fundamental effect of markets; (3) putting leading function of fiscal and taxation polices into effect by realizing green taxation institution.
    Keywords: Environmental Policy; Macroeconomic Dynamics; New Keynesian Model
    JEL: E32 E62 H3 Q58
    Date: 2016–05–15
  11. By: Hännikäinen, Jari
    Abstract: This paper examines the predictive content of the shadow rates for U.S. real activity and inflation in a data-rich environment. We find that the shadow rates contain substantial out-of-sample predictive power for inflation in non-zero lower bound and zero lower bound periods. In contrast, the shadow rates are uninformative about future real activity.
    Keywords: shadow rate; zero lower bound; unconventional monetary policy; forecasting; data-rich environment
    JEL: C53 E37 E43 E44 E58
    Date: 2016–05–18
  12. By: Claudio Morana (Università di Milano Bicocca, CeRP-Collegio Carlo Alberto and Rimini Centre for Economic Analysis)
    Abstract: The paper investigates the macroeconomic and financial effects of oil prices shocks in the euro area since its creation in 1999, with a special focus on the recent slump. The analysis is carried out episode by episode, within a time-varying parameter framework, consistent with the view that "not all the oil price shocks are alike", yet without imposing any a priori identification assumption. We find evidence of recessionary effects triggered not only by oil price hikes, but also by oil price slumps in some cases, likewise for the most recent episode, which is also rising deflation risk and financial distress. In addition through uncertainty effects, the current slump might then be depressing aggregate demand by increasing the real interest rate, as ECB monetary policy is already conducted at the zero lower bound. The increase in real money balances following the slump points to the accommodation of the shock by the ECB, concurrent with the implementation of the Quantitative Easing policy (Q.E.). Yet, in so far as Q.E failed to generate inflationary expectations within the current and expected environment of soft oil prices, the case for a more expansionary use of fiscal policy than in the past would become compelling, in order to counteract the deflationary and recessionary threats to the euro area.
    Keywords: Oil Price Shocks, Oil Price-macroeconomy Relationship, Risk Factors, Semiparametric Dynamic Conditional Correlation Model, Time-varying Parameter Models
    JEL: E30 E50 C32
    Date: 2016–03
  13. By: Marcelo Arbex (Department of Economics, University of Windsor); Sydney Caetano (Faculdade de Economia, Universidade Federal de Juiz de Fora); Dennis O'Dea (Department of Economics, University of Washington)
    Abstract: This paper modifies the standard labor market search model with social networks. Labor market networks is an important job information transmission channel and the complementarity of network and direct search by the unemployed amplify the economy's short-run response to a technological shock. We show that network search has important quantitative consequences for the business cycle, in particular, for output and unemployment.
    Keywords: Business Cycles; Labor Markets; Social networks; Job search.
    JEL: D85 E24 E32 J64
    Date: 2016–04
  14. By: Mario Seccareccia (University of Ottawa); Marc Lavoie (University of Ottawa)
    Abstract: Fears of deflation and long-term stagnation have become more commonplace since the Great Recession. Yet, within the mainstream, economists are divided into two camps: those who see the benefits of downward wage and price adjustment, as a private sector stabilizer, and those who fear deflationary pressures because of their destabilizing consequences. This paper reviews this theoretical literature using a simple “New Consensus†framework of analysis and it also seeks to describe how mainstream and heterodox economists analyzing the consequences of deflationary pressures come to very different conclusions on the nature of private sector stabilizers in a recessionary environment. After reviewing the different perspectives, the paper undertakes a comparative analysis of the experience of both the Great Depression and the Great Recession by looking at the behavior of certain key variables in three countries: Canada, the United States and the United Kingdom. The paper concludes that, if it was not for the quick actions of governments in stabilizing the economy through activist macroeconomic policies during the Great Recession, private sector stabilizers were actually less significant during the recent crisis than they were during the 1930s.
    Keywords: Deflation, self-correcting mechanism, private/public sector stabilizers, Great Depression and Great Recession.
    JEL: B22 B5 E1 E3 E5 E6
  15. By: Yasufumi Gemma (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan (Email:
    Abstract: By means of an economic experiment, this paper examines the effects of money illusion on consumption-saving decision-making. In the experiment, subjects make sequential consumption-saving decisions in economic situations where nominal values of economic variables are displayed differently but there is no difference in their real values in that an optimal real consumption path is the same. Nevertheless, the experimental results show that a nominal difference arising from a higher positive rate of inflation causes subjects to consume more in early periods of the experiment and less in later periods. Moreover, given the utility function assumed in the experiment and the estimated relationship between the slope of the consumption path and the inflation rate, such money illusion results in a higher level of utility for a subject who confronts a higher positive rate of inflation if the level of the inflation rate is modest. In deflationary situations, a nominal difference stemming from a lower negative rate of inflation generates a similar effect to that from a higher positive rate in terms of the consumption path. These findings suggest that in making consumption- saving decisions, subjects react to a rise of the inflation rate differently in inflationary situations and in deflationary situations, regardless of no change in the real interest rate.
    Keywords: Consumption-saving decision-making, Money illusion, Economic experiment
    JEL: C90 D91 E21 E31 E40
    Date: 2016–04
  16. By: Craighead, William
    Abstract: This paper examines “hysteresis” in which persistent unemployment takes on structural characteristics over time. Hysteresis is modeled as deterioration in labor market matching efficiency as the average duration of unemployment increases. This is embedded in a simple New Keynesian macro model. A decline in labor market matching efficiency would be consistent with the observed rightward shift of the Beveridge curve since the 2007-09 recession. Hysteresis is shown to lead to larger and more persistent responses of the unemployment rate and unemployment duration to productivity, intertemporal preference and monetary shocks. Hysteresis also generates an increase in the natural rate of unemployment.
    Keywords: Hysteresis, Unemployment, Labor Market Search
    JEL: E24 E32 J64
    Date: 2016–04–02
  17. By: Tom Engsted (Aarhus University and CREATES); Thomas Q. Pedersen (Aarhus University and CREATES)
    Abstract: In long-term US data the stock market dividend yield is a strong predictor of long-horizon inflation with a negative slope coefficient. This finding is puzzling in light of the traditional Modigliani-Cohn money illusion hypothesis according to which the dividend yield varies positively with expected inflation. To rationalize the finding we develop a consumption-based model with recursive preferences and money illusion. The model with reasonable values of risk aversion and intertemporal elasticity of substitution, and either rational or adaptive expectations, implies significantly negative slope coefficients that increase numerically with the horizon in regressions of future inflation onto the dividend yield, in accordance with the data. A purely rational version of the model with no money illusion, but with a link from expected inflation to real consumption growth, also generates a negative inflation-dividend yield relationship.
    Keywords: Modigliani-Cohn money illusion, predictive regressions, long-run risk, Campbell-Vuolteenaho methodology.
    JEL: C22 E31 E44 G12 G17
    Date: 2016–04–26
  18. By: C. Ciaschini (University of Macerata); R. Pretaroli (University of Macerata); F. Severini (University of Macerata); C. Socci (University of Macerata)
    Abstract: The ongoing economic stagnation and low inflation rates affecting EU have refuelled the debate on the role and the limits of monetary policy in pushing the economic growth. Given the tight margins for fiscal policy for EU state members, traditional and unconventional monetary policies are becoming more looked-for to break out of this condition. However, the main issue on whether the real or nominal aspects prevails still remains. In this situation, a framework able to identify and analyse any interaction between economic and financial flows becomes crucial to detect the dynamics pushing towards expansions or contractions resulting from monetary policies. Therefore, the aim of this paper is to investigate the direct and indirect impact of monetary policies implemented by the European Central Bank on the main Italian macroeconomic variables both in aggregate and disaggregate terms. For this purpose we use Dynamic Computable General Equilibrium model calibrated on the Social Accounting Matrix integrated with financial tools.
    JEL: C63 E17 E52 D57 D58
    Date: 2016–05
  19. By: Xu, Kun; Xu, Wenli
    Abstract: monetary neutrality exerts essential importance on the making of monetary policy targets, and its effect. This paper, by employing IRF and AIRF, tests the characteristic of monetary neutrality in china, plus fluctuation features as well. The testing results show: monetary stock, whatever defined by M0, M1, or M2, presents non-neutrality feature, increase of growth rate of M2 can bring permanent accumulative loss on real output; there is oscillation feature from real output, by giving monetary growth shock. Its underlying policy suggestions are: money in the short-run cannot be taken as stabilizer of economic growth; there are trade-offs between target of economic stable and growth; stable speed of money growth benefits economy stabilization
    Keywords: Monetary Neutrality; Phillips Curve; Accumulative Impulse Response Function; Oscillation Response
    JEL: E1 E5 E6
    Date: 2015–08
  20. By: Filippo Gori (The Graduate Institute of International and Development Studies)
    Abstract: This paper presents an account of the monetary policy stance for euro area countries from 1999 to the beginning of the crisis in 2008. The analysis starts with the derivation of a synthetic index measuring the average tightness of monetary policy across euro area members. The index is constructed using pseudo-Taylor residuals, obtained from an estimated monetary policy rule for the whole euro area and country speci c fundamentals. This measure is then decomposed to disentangle the role of in ation and fundamental economic dynamics. Results suggest that there were signi cant di erences in monetary policy stance across euro area members over the period considered. Such di erences are primarily driven by wedges in price dynamics, most of which are disconnected from real economic activity.
    Keywords: Monetary policy, Eonia, euro area.
    JEL: E52 E58 E61
    Date: 2016–05–09
  21. By: Anmol Bhandari; Jaroslav Borovička; Paul Ho
    Abstract: We develop a framework to analyze economies with agents facing time-varying concerns for model misspecification. These concerns lead agents to interpret economic outcomes and make decisions through the lens of a pessimistically biased 'worst-case' model. We combine survey data and implied theoretical restrictions on the relative magnitudes and comovement of forecast biases across macroeconomic variables to identify ambiguity shocks as exogenous fluctuations in the worst-case model. Our solution method delivers tractable linear approximations that preserve the effects of time-varying ambiguity concerns and permit estimation using standard Bayesian techniques. Applying our framework to an estimated New-Keynesian business cycle model with frictional labor markets, we find that ambiguity shocks explain a substantial portion of the variation in labor market quantities.
    JEL: C11 C63 D81 D84 E24 E32
    Date: 2016–05
  22. By: Daragh Clancy (European Stability Mechanism)
    Abstract: The growing literature on macroprudential regulation focuses on how a combination monetary and macroprudential policies can boost financial stability. We contribute to this literature by developing a DSGE model that assesses the effectiveness of countercyclical capital regulation in small open economies, in monetary unions or with exchange rate pegs, where policymakers do not have full control over traditional stabilisation instruments such as nominal interest and exchange rates. Our model shows that, in such economies, macroprudential policy must play an outsized role in mitigating the adverse effects of macro-financial feedback loops. To validate the model’s ability to replicate the stylised facts of financial crises, we calibrate using data for the Irish economy the recent housing crash. Our results demonstrate that the pro-active use of countercyclical capital regulation can indeed help ensure financial stability. In terms of policy advice, we find that bestowing even greater flexibility on regulators to act against the credit cycle has positive benefits. We also find that more aggressive action during the release phase can bolster the economy’s ability to absorb a negative shock.
    Keywords: small open economy, macroprudential policy, macro-financial linkages
    JEL: E44 E51 G10 G28
    Date: 2016–03
  23. By: Taylor, John B.; Wieland, Volker
    Abstract: Recently there has been an explosion of research on whether the equilibrium real interest rate has declined, an issue with significant implications for monetary policy. A common finding is that the rate has declined. In this paper we provide evidence that contradicts this finding. We show that the perceived decline may well be due to shifts in regulatory policy and monetary policy that have been omitted from the research. In developing the monetary policy implications, it is promising that much of the research approaches the policy problem through the framework of monetary policy rules, as uncertainty in the equilibrium real rate is not a reason to abandon rules in favor of discretion. But the results are still inconclusive and too uncertain to incorporate into policy rules in the ways that have been suggested.
    Keywords: equilibrium real interest rate; interest rate rules; Monetary policy
    JEL: E43 E52
    Date: 2016–05
  24. By: Felix Koenig; Alan Manning; Barbara Petrongolo
    Abstract: Wages are only mildly cyclical, implying that shocks to labour demand have a larger short-run impact on unemployment rather than wages, at odds with the quantitative predictions of the canonical search model – even if wages are only occasionally renegotiated. We argue that one source of the wage flexibility puzzles is plausibly the model for the determination of reservation wages, and consider an alternative reservation wage model based on reference dependence in job search. This extension generates less cyclical reservation wages than the canonical model, as long as reference points are less cyclical than forward-looking components of reservation wages such as the arrival rate of job offers. We provide evidence that reservation wages significantly respond to backward looking reference points, as proxied by rents earned in previous jobs. In a model calibration we show that backward-looking reference dependence markedly reduces the predicted cyclicality of both wages and reservation wages and can reconcile theoretical predictions of the canonical model with the observed cyclicality of wages and reservation wages.
    Keywords: job search; reservation wages; wage cyclicality; reference dependence
    JEL: E24 E31 E64
    Date: 2016–02
  25. By: Igor Fedotenkov (Bank of Lithuania)
    Abstract: This paper provides an explanation as to why population ageing is associated with deflationary processes. For this reason we create an overlapping-generations model (OLG) with money created by credits (inside money) and intergenerational trade. In other words, we combine a neoclassical OLG model with post-Keynesian monetary theory. The model links demographic factors such as fertility rates and longevity to prices. We show that lower fertility rates lead to smaller demand for credits, and lower money creation, which in turn causes a decline in prices. Changes in longevity affect prices through real savings and the capital market. Furthermore, a few links between interest rates and inflation are addressed; they arise in the general equilibrium and are not thoroughly discussed in literature. Long-run results are derived analytically; short-run dynamics are simulated numerically.
    Keywords: Population ageing, inflation, OLG model, inside money, credits
    JEL: E12 E31 E41 J10
    Date: 2016–02–23
  26. By: Ali, Amjad; Ur Rehman, Hafeez
    Abstract: This study tries to answer the question, “has macroeconomic instability detrimental impact on gross domestic product of Pakistan over the period of 1980 to 2012?” For reviewing macroeconomic instability a comprehensive macroeconomic instability index is constructed by incorporating inflation rate, unemployment rate, trade deficit and budget deficit. Autoregressive Distributed Lag (ARDL) model has been used for examining the cointegration among the variables of the models and Vector Error-Correction model is used for short-run dynamics of the models. For investigating the causal relationship among the variables of the model Granger causality test has been applied. The empirical results of the study confirm the existence of cointegration between macroeconomic instability and gross domestic product in Pakistan. The results of the study show that macroeconomic instability has deep rooted and detrimental impact on gross domestic product of Pakistan. Hence, for achieving desired level of gross domestic product, Pakistan should make macroeconomic environment stable.
    Keywords: Macroeconomic instability, Gross domestic product, Financial development, Secondary education, Foreign direct investment
    JEL: E22 F63 G32 I21 P24
    Date: 2015–12
  27. By: Kaplan, Greg; Mitman, Kurt; Violante, Giovanni L.
    Abstract: In an influential paper, Mian, Rao and Sufi (2013) exploit geographic variation in housing supply elasticities to measure the effect of changes in the housing share of net worth on total household expenditures during the Great Recession. Their widely-cited estimates are based on proprietary house price data, and use new vehicle registrations as the main proxy for total spending. We revisit their study using different, publicly available data on house prices, and an easily-accessible proxy for expenditures in non-durable goods. We re-affirm their findings in our data, and refine their analysis in several dimensions: (i) we separate the roles of falling house prices and initial leverage; (ii) we distinguish the effects on real consumption versus nominal expenditures; and (iii) we infer the implied elasticity of total non-durable expenditures in goods and services to housing net worth.
    Keywords: Consumption; great recession; House Prices; Non-durable expenditures
    JEL: E21 E32 R21
    Date: 2016–05
  28. By: Peter Temin (MIT); David Vines (Oxford University)
    Abstract: This is a response to a critique by Paul Davidson of our 2013 book Keynes: Useful Economics for the World Economy and related work,3 where we describe, amongst other things, how the Swan diagram can be used to show how economies can use policy tools to achieve internal and external balance. In his article “Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice?†Davidson rejects our use of the Swan diagram and argues that it distorts Keynes’ own views. We show here why Davidson’s critique is incorrect, inconsistent and ahistorical.
    Keywords: Swan Diagram, balance of payments, fiscal policy, neoclassical Synthesis Keynesianism, Post Keynesianism.
    JEL: B3 E12 E42 E61 F33 F41
    Date: 2015–12
  29. By: Martin Bodenstein; Gunes Kamber; Christoph Thoenissen
    Abstract: We investigate the connection between commodity price shocks and unemployment in advanced resource-rich small open economies from an empirical and theoretical perspective. Shocks to commodity prices are shown to influence labour market conditions primarily through the real exchange rate contrasting sharply with the transmission of technology shocks which are typically argued to affect the economy by changing labour productivity. The empirical impact of commodity price shocks is obtained from estimating a panel vector autoregression; a positive price shock is found to be expansionary for the components of GDP, causes the real exchange rate to appreciate, and improves labour market conditions. For every one percent increase in commodity prices, our estimates suggest a one basis point decline in the unemployment rate and at its peak a 0.3% increase in unfilled vacancies. We then match the impulse responses to a commodity price shock from a small open economy model with net commodity exports and search and matching frictions in the labour market to these empirical responses. As in the data, an increase in commodity prices raises consumption demand in the small open economy and induces a real appreciation. Facing higher relative prices for their goods, non-commodity producing firms post additional job vacancies, causing the number of matches between firms and workers to rise. As a result, unemployment falls, even if employment in the commodity-producing sector is negligible. For commodity price shocks, there is little difference between the standard Diamond (1982), Mortensen (1982), and Pissarides (1985) approach of modelling search and matching frictions and the alternating offer bargaining model suggested by Hall and Milgrom (2008).
    Keywords: Commodity prices, search and matching unemployment.
    JEL: E44 E61 F42
    Date: 2016–05
  30. By: Martin Bodenstein (Federal Reserve Board,); Gunes Kamber (Reserve Bank of New Zealand); Christoph Thoenissen (Department of Economics, University of Sheffield)
    Abstract: We investigate the connection between commodity price shocks and unemployment in advanced resource-rich small open economies from an empirical and theoretical perspective. Shocks to commodity prices are shown to influence labour market conditions primarily through the real exchange rate contrasting sharply with the transmission of technology shocks which are typically argued to affect the economy by changing labour productivity. The empirical impact of commodity price shocks is obtained from estimating a panel vector autoregression; a positive price shock is found to be expansionary for the components of GDP, causes the real exchange rate to appreciate, and improves labour market conditions. For every one percent increase in commodity prices, our estimates suggest a one basis point decline in the unemployment rate and at its peak a 0.3% increase in unfilled vacancies. We then match the impulse responses to a commodity price shock from a small open economy model with net commodity exports and search and matching frictions in the labour market to these empirical responses. As in the data, an increase in commodity prices raises consumption demand in the small open economy and induces a real appreciation. Facing higher relative prices for their goods, non-commodity producing firms post additional job vacancies, causing the number of matches between firms and workers to rise. As a result, unemployment falls, even if employment in the commodity-producing sector is negligible. For commodity price shocks, there is little difference between the standard Diamond (1982), Mortensen (1982), and Pissarides (1985) approach of modelling search and matching frictions and the alternating offer bargaining model suggested by Hall and Milgrom (2008).
    Keywords: commodity prices; search and matching unemployment
    JEL: E44 E61 F42
    Date: 2016
  31. By: Harashima, Taiji
    Abstract: This paper examines how to reverse deflation to inflation. Once deflation takes root, it is not easy to reverse because of the zero lower bound in nominal interest rates. My model indicates that there are two steady states where both inflation/deflation (i.e., changes in prices) and real activity (i.e., quantities) remain unchanged: that is, there are inflationary and deflationary steady states. The model indicates that, to switch a deflationary steady state to an inflationary steady state, a central bank needs to influence the time preference rates of the government and the representative household. It is not easy, however, to do so, and the best way of switching deflation to inflation may be to wait for a lucky event (i.e., an exogenous shock).
    Keywords: Deflation; The zero lower bound; Monetary policies; Quantitative easing; Time preference
    JEL: E31 E52 E58
    Date: 2016–05–15
  32. By: Signe Krogstrup (Swiss National Bank and Peterson Institute for International Economics)
    Abstract: This paper presents a portfolio model of asset price effects arising from large-scale asset purchases by central banks—commonly known as quantitative easing (QE). Two financial frictions, segmentation of the market for central bank reserves and imperfect asset substitutability, give rise to two distinct portfolio effects. One derives from the reduced supply of the purchased assets. The other runs through banks’ portfolio responses to the created reserves and is independent of the assets purchased. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases.
    Keywords: : unconventional monetary policy, transmission, reserve-induced portfolio balance channel
    JEL: G11 E43 E50 E52 E58
    Date: 2016–04
  33. By: Özlem Onaran (University of Greenwich)
    Abstract: This paper summarizes two main findings in the Post-Keynesian literature regarding the linkages between financialization, income distribution, accumulation and productivity. Firstly, at the core of secular stagnation lies the missing link between profits and investment. Secondly, rising inequality and financialization have been the main reasons for this missing link and hence the major brakes against capital accumulation and growth. The paper concludes with alternative progressive policies based on a coordinated policy mix of equality-led development and public investment.
    Keywords: wage share, inequality, wage-led growth, financialization, secular stagnation, public investment
    JEL: E12 E22 E25
    Date: 2016–05
  34. By: Fernandez-Villaverde, Jesus (University of Pennsylvania, NBER, and CEPR); Sanches, Daniel R. (Federal Reserve Bank of Philadelphia)
    Abstract: Can competition work among privately issued fiat currencies such as Bitcoin or Ethereum? Only sometimes. To show this, we build a model of competition among privately issued fiat currencies. We modify the current workhorse of monetary economics, the Lagos-Wright environment, by including entrepreneurs who can issue their own fiat currencies in order to maximize their utility. Otherwise, the model is standard. We show that there exists an equilibrium in which price stability is consistent with competing private monies but also that there exists a continuum of equilibrium trajectories with the property that the value of private currencies monotonically converges to zero. These latter equilibria disappear, however, when we introduce productive capital. We also investigate the properties of hybrid monetary arrangements with private and government monies, of automata issuing money, and the role of network effects.
    Keywords: Private money; Currency competition; Cryptocurrencies; Monetary policy
    JEL: E40 E42 E52
    Date: 2016–04–03
  35. By: Bilbiie, Florin Ovidiu
    Abstract: For how long should central banks prolong a low interest rates policy beyond the end of a liquidity trap? I solve analytically for the optimal, welfare-maximizing duration of forward guidance FG, modelled stochastically---through a probability of low interest rates once out of the trap. Optimal FG balances the welfare benefit of higher consumption (and lower volatility) today with the welfare cost of higher consumption volatility once the trap is over. Its main determinants are the trap duration and the severity of the recession. Reassuringly for policymakers, a simple rule consisting of announcing an expected FG duration equal to half the duration of the trap, times a factor proportional to interest rate spreads is close to optimal. I extend this analytical apparatus to more sophisticated models with heterogenous agents: informational asymmetries, and financial frictions
    Keywords: forward guidance; hand-to-mouth.; heterogenous agents; heterogenous beliefs; incomplete markets; liquidity trap; Optimal monetary policy; unemployment risk; zero lower bound
    JEL: E21 E31 E40 E50
    Date: 2016–04
  36. By: Crump, Richard K. (Federal Reserve Bank of New York); Eusepi, Stefano (Federal Reserve Bank of New York); Moench, Emanuel (Bundesbank)
    Abstract: How much do term premiums matter for explaining the dynamics of the term structure of interest rates? A lot. We characterize the expected path of nominal and real short-rates as well as inflation using the universe of U.S. surveys of professional forecasters covering more than 500 survey-horizon pairs. We obtain term premiums as the simple difference between observed government bond yields and survey-based expected average short rates. Our term premiums measured directly based on expectations accommodate perceived structural change and learning effects, are consistent with a lower bound on nominal interest rates, and uncover a number of important facts: 1) the bulk of the variation in medium- and long-term bond yields is driven by term premiums, not expected short rates or inflation; 2) term premiums co-move more strongly across maturities than expected short rates or even yields themselves; 3) the term premium, not the term spread or the expected path of future short rates, predicts quarterly real output growth; 4) macroeconomic factors are important drivers of term premiums, with demand shocks playing the most prominent role; and 5) the secular decline of U.S. long-term bond yields over the past thirty years is primarily the result of a decline of expected inflation and term premiums while expected future real rates have fluctuated around 2 percent.
    Keywords: term premiums; expectations formation; survey forecasts; monetary policy; business cycle fluctuations
    JEL: D84 E44 G12
    Date: 2016–05–01
  37. By: Renee Fry-McKibbin; Jasmine Zheng
    Abstract: This paper analyzes the impact of monetary policy during periods of low and high financial stress in the US economy using a Threshold Vector Autoregression model. There is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output. The existence of a cost channel effect during periods of high financial stress implies the existence of a short run output-inflation trade off during financial crises. Large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime.
    Keywords: Monetary policy, financial stress, threshold vector autoregression models
    JEL: F44 E44 E52
    Date: 2016–05
  38. By: Bertsch, Christoph (Research Department, Central Bank of Sweden); Hull, Isaiah (Research Department, Central Bank of Sweden); Zhang, Xin (Research Department, Central Bank of Sweden)
    Abstract: On December 16th of 2015, the Fed initiated "liftoff," raising the federal funds rate range by 25 basis points and ending a 7-year regime of near-zero rates. We use a unique dataset of 640,000 loan-hour observations to measure the impact of liftoff on interest rates in the peer-to-peer lending segment of the subprime market. We find that the average interest rate dropped by 16.9-22.6 basis points. This holds for 14 and 28 day windows centered around liftoff, and is robust to the inclusion of a broad set of loan-level controls and fixed effects. We also find that the spread between high and low credit rating borrowers decreased by 16% and demonstrate that this was not generated by a change in the composition of borrowers along observable dimensions. Furthermore, we find no evidence that either result was driven by a collapse in demand for funds. Our results are consistent with an investor-perceived reduction in default probabilities; and suggest that lifto provided a strong, positive signal about the future solvency of subprime borrowers, reducing their borrowing cost, even as short term rates increased in other markets.
    Keywords: peer-to-peer lending; subprime consumer loans; Fed liftoff; monetary policy signaling; default channel; household debt
    JEL: D14 E43 E52 G21
    Date: 2016–04–01
  39. By: Aleksei Netšunajev; Lars Winkelmann; ;
    Abstract: To what extent are US and Euro Area (EA) inflation expectations determined by foreign shocks? How do transmissions change during the great recession and European sovereign debt crisis? We address these questions with a flexible structural VAR model of weekly financial markets’ inflation expectations and an index of commodity futures. For the identification of the model, we exploit the heteroscedasticity of the data. We propose instrument-type regressions to uncover the economic nature and origin of identified shocks. In line with the discussion about global inflation, we find that inflation expectations can be labeled global over short expectations horizons but local at long horizons. While large US macro shocks explain the strong drop in US and EA inflation expectations during the great recession, expectations shocks are the important driver from 2009 on.
    Keywords: Spillover, monetary policy, expectations shocks, financial crisis, identification through heteroskedasticity
    JEL: E31 F42 E52
    Date: 2016–03
  40. By: Fabrice Collard (Department of Economics - University of Bern); Sujoy Mukerji (Department of Economics and University College - University of Oxford); Kevin Sheppard (Department of Economics and Oxford-Man Institute of Quantitative Finance - University of Oxford); Jean-Marc Tallon (Paris School of Economics)
    Abstract: This paper assesses the quantitative impact of ambiguity on historically observed financial asset returns and growth rates. The single agent, in a dynamic exchange economy, treats the conditional uncertainty about the consumption and dividends next period as ambiguous. We calibrate the agent's ambiguity aversion to match only the first moment of the risk-free rate in data and measure the uncertainty each period on the actual, observed history of (U.S.) macroeconomic growth outcomes. Ambiguity aversion accentuates the conditional uncertainty endogenously in a dynamic way, depending on the history; e.g., it increases during recessions. We show the model implied time series of asset returns substantially match the first and second conditional moments of observed return dynamics. In particular, we find the time-series properties of our model generated equity premium, which may be regarded as an index measure of revealed uncertainty, relates closely to those of the macroeconomic uncertainty index recently developed in Jurado, Ludvigson, and Ng (2013)
    Keywords: Equity premium, ambiguity.
    JEL: G12 E21 D81 C63
    Date: 2011–05
  41. By: Jiaqian Chen; Francesco Columba
    Abstract: We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households face a ceiling on their loan-to-value ratio and must amortize their mortgages. The government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that demand-side macroprudential measures are more effective in curbing household debt ratios than monetary policy, and they are less costly in terms of foregone consumption. A tighter macroprudential stance is also found to be welfare improving, by promoting lower consumption volatility in response to shocks, especially when using a combination of macroprudential instruments.
    Keywords: Housing;Sweden;Mortgages;Housing prices;Debt;Macroprudential Policy;Monetary policy;General equilibrium models;Macroprudential Policies; Monetary Policy; Collateral Constraints
    Date: 2016–03–23
  42. By: Hayashi, Fumio (National Graduate Institute for Policy Studies)
    Abstract: This paper presents a theoretical model for analyzing the effect of the maturity structure of government debt on the yield curve. It is an ATSM (affine term structure model) in which the factors for the yield curve include, in addition to the short rate, the government bond supply for each maturity. The supply shock is not restricted to be perfectly correlated across maturities. The effect on the yield curve of a bond supply shock that is local to a maturity is largest at the maturity. This hump-shaped response of the yield curve persists in spite of the absence of preferred-habitat investors.
    Keywords: ATSM; yield curve; portfolio balance channel; supply of government bonds; impulse responses
    JEL: E43 E58 G12
    Date: 2016–04–01
  43. By: Janko Cizel; Jon Frost; Aerdt Houben; Peter Wierts
    Abstract: Macroprudential policy is increasingly being implemented worldwide. Key questions are its effectiveness in influencing bank credit and substitution effects beyond banking. Our results confirm the expected effects of macroprudential policies on bank credit, both for advanced economies and emerging market economies. But results also confirm substitution effects towards non-bank credit, especially in advanced economies, reducing the policies' effect on total credit. Quantity restrictions are particularly potent in constraining bank credit but also cause the strongest substitution effects. Policy implications indicate a need to extend macroprudential policy beyond banking, especially in advanced economies.
    Keywords: Financial cycle; macroprudential regulation; financial supervision; (shadow) banking
    JEL: E58 G10 G18 G20
    Date: 2016–04
  44. By: L. Marattin; S. Meraglia
    Abstract: We analyze fiscal rules within a Monetary Union in the presence of (i) asymmetric information on member states’ potential output and (ii) bail-out among member states. The first-best deficit is contingent on the cycle, that is, on member states’ output gap. In the presence of asymmetric information and bailout, the first-best deficit is not implementable. Bail-out lowers the scope for signalling (discrimination) by member states (lenders) and induces overborrowing by member states characterized by a low output gap. The Monetary Union can design a mechanism such that a member state with a smaller negative output gap runs an optimal budget deficit upon receiving a transfer form the Union. We show that, this ‘cyclically-contingent’ fiscal framework Pareto dominates the ‘cyclically-adjusted’ fiscal rule currently enforced by the European Monetary Union. Our model can then account for a situation where both asymmetric information over cyclical positions and the presence of bail-out among member states does not induce borrowing distortions.
    JEL: E62 D82 F33 F34
    Date: 2016–04
  45. By: Kuzmin, Anton
    Abstract: The model of the equilibrium exchange rate of ruble is under construction on the basis of streams of the balance of payments of Russia taking into account trade conditions. Export-import transactions, factors of movement of the capital, a trade condition, indexes of the internal and export prices, and real gross domestic product, factors of elasticity of the foreign trade operations, decisions of microagents are used as base determinants in the model. In the process of creating the model it was justified a number of key internal dynamic functional dependencies were found that has allowed us to put the capital flows in the model on formal logical level, and, thus, to extend the model to the case of capital mobility. We discuss the relationship results from the fundamental equilibrium exchange rate in the framework of the author's conceptual approach to the assessment of the equilibrium exchange rate based on international flows (IFEER). The technique of adjustment of model internal parametres is offered with a view of macroeconomic regulation of the exchange rate of ruble. Based on the modeling results we built the analysis of the dynamics of the nominal exchange rate of ruble in 2013- 2015.
    Keywords: Ethe equilibrium exchange rate, exchange rate of ruble, the balance of payments, a trade condition, the macroeconomic policy, capital streams
    JEL: E44 E52 F31 F37 F38 F41 F47
    Date: 2015–09–01
  46. By: International Monetary Fund. African Dept.
    Abstract: Mauritius’ upper-middle income economy has continued to grow at a moderate rate; inflation is low; and the external position has improved. Macroeconomic conditions remain stable but the authorities face macro-financial challenges stemming from the recent collapse of a large financial conglomerate, which affected the real economy, as well as risk exposures and potential spillovers from the massive offshore sector and its sizeable inter-linkages with domestic banking activities. These challenges, discussed in the FSAP and in the consultation as a macro-financial pilot, require a significant strengthening of the macro-prudential and financial stability policy frameworks. The authorities are also resolute to avoid the middle-income trap, but face a tight tradeoff, anchored by a statutory medium-term debt target, between spending on social entitlements versus infrastructure upgrading, much needed as competiveness and productivity have been eroding and investment rates declining. Given the low female labor force participation in a shrinking labor force, the consultation with Mauritius is also a pilot for the analysis of gender inequality.
    Keywords: Mauritius;Sub-Saharan Africa;investment, monetary fund, investment rates, banking sector, reserve
    Date: 2016–03–22
  47. By: Arora, Vipin
    Abstract: Credit greases the wheels of oil consumption—it is prevalent in purchases of cars, trucks, and even the construction of factories. But the traditional view is that it affects oil consumption only through economic activity and the price of oil. I argue that credit is important in its own right. To make my case, I first show that an association between credit and oil consumption growth exists across countries and time. I then give a nod to the traditional view, and conclude by showing that changes in credit alter oil consumption—even after accounting for economic activity and oil prices.
    Keywords: credit; oil consumption; economic activity; VAR
    JEL: E51 F39 Q47
    Date: 2016–02–14
  48. By: Irena Szarowská (Department of Finance and Accounting, School of Business Administration, Silesian University)
    Abstract: Quality of public finances belongs to a key policy challenge as its improvement should lead to a long-term economic growth. The aim of the paper is to investigate if the key channels and tools used by the public finance (structure of revenue system, size of the government and composition of expenditure, level and sustainability of fiscal position) affect economic growth in the Czech Republic in the period 1995-2013. The empirical model is based on the methodology of Barro and Sala-i-Martin (2003) and the model of Mankiw et al. (1992) which is adapted to the framework of this study. The results of dynamic regressions suggest that economic growth is affected by public finance variables only partly and traditional sources of economic growth (human capital or openness) play bigger role. Provided evidence shows that total tax burden as well as the structure of revenue system (especially implicit tax rates on labour and consumption) should be primarily used as tools for maintain macroeconomic objectives. On the contrary, changes in size and composition of expenditure, balance and debt report not statistically significant impact.
    Keywords: corporate income tax rates, global economy, tax competition, tax coordination and harmonization
    JEL: E62 H20 H50 C51
    Date: 2016–04–25
  49. By: Roman Frydman (Department of Economics, New York University); Michael Goldberg (Peter T. Paul College of Business and Economics, University of New Hampshire); Nicholas Mangee (Department of Economics, Armstrong State University)
    Abstract: Shiller (1981) and others have shown that the quantitative predictions of the REH present-value model are inconsistent with time-series data on stock prices and dividends. In this paper, we assess the empirical relevance of the model without explicitly representing how a rational market participant forecasts dividends and interest rates. We find that stock prices are driven largely by news about fundamental factors. Moreover, this news moves prices through changes in the market’s forecasts of dividends and/or interest rates in ways that are remarkably consistent with the present-value model. We also find that the structure of the process underpinning stock prices undergoes quantitative change, and that both fundamental and psychological factors play an important role in this process. Taken together, Shiller’s findings and ours point to a novel explanation of the present-value model’s empirical difficulties. They also imply that macroeconomists and finance theorists should rethink how to represent rational forecasting in real-world markets.
    JEL: E44 G12 G14
    Date: 2015–02
  50. By: Mandler, Martin; Scharnagl, Michael; Volz, Ute
    Abstract: We study cross-country differences in monetary policy transmission across the large four euro-area countries (France, Germany, Italy and Spain) using a large Bayesian vector autoregressive model with endogenous prior selection. Drawing both on the posterior distributions of the cross-country differences in impulse responses as well as on a battery of other tests, we find real output to respond less negatively in Spain to monetary policy tightening than in the other three countries, while the decline in the price level is weaker in Germany. Bond yields rise more strongly and more persistently in France and Germany than in Italy and Spain.
    Keywords: monetary policy,transmission mechanism,euro area,Bayesian vector autoregression
    JEL: C11 C54 E52
    Date: 2016
  51. By: Fuerst, Timothy S. (Federal Reserve Bank of Cleveland); Mau, Ronald (University of Notre Dame)
    Abstract: Two traditional explanations for the mean and variability of the term premium are: (i) time-varying risk premia on long bonds, and (ii) segmented markets between long- and short-term bonds. This paper integrates these two approaches into a medium-scale DSGE model. We consider two sources of business cycle variability: shocks to total factor productivity (TFP), and shocks to the marginal efficiency of investment (MEI). The ability of the risk approach to match the first moment of the term premium depends upon the relative importance of these two shocks. If MEI shocks are an important driver of the business cycle, then long bonds are a hedge against the business cycle so that the average term premium is negative. The opposite is the case for the TFP shocks. But for either source of shocks, the risk approach to the term premium predicts a trivial amount of variability in the term premium. In contrast, the segmented markets model can easily match both moments. The market segmentation reflects a real distortion, so that smoothing the term premium is typically welfare-improving. There are two difficulties with such a policy. First, the mean level of the term premium will not properly reflect the segmentation distortion because of the risk adjustment. Second, if the term premium is measured with error, the welfare gain of a term premium peg is naturally reduced. The paper demonstrates that both of these effects are quantitatively modest so that the welfare advantage to a term premium peg survives.
    Keywords: Term premium peg; time-varying risk premia; DSGE; total factor productivity; marginal efficiency of investment; monetary policy;
    JEL: E52 G12 G17
    Date: 2016–05–06
  52. By: Bi, Huixin (Federal Reserve Bank of Kansas City); Shen, Wenyi; Yang, Shu-Chun
    Abstract: Economists often postulate that fiscal expansions are less stimulative when government debt is high than when it is low. Empirical evidence, however, is ambiguous. Using a nonlinear neoclassical growth model, we show that the difference in government spending effects between high- and low-debt environments depends on the wealth effect on labor supply and on whether the government uses taxes or spending to retire debt. Because of interrelated state variables, structural VAR estimations conditioning on debt alone can fail to isolate debt-dependent effects. Also, uncertainty on when the government will conduct fiscal consolidations generates wide confidence bands for spending multipliers, further complicating efforts to estimate debt-dependent government spending effects.
    Keywords: Dependent fiscal policy effects; Fiscal multipliers; Fiscal uncertainty
    JEL: E62 H30 H60
    Date: 2016–03–01
  53. By: David-Jan Jansen; Richhild Moessner
    Abstract: We study whether differences in views during monetary policy meetings affect central bank transparency. Using data published by four central banks, we find that dissent among committee members increases the file size of minutes of policy meetings. However, dissent does not affect the readability of these minutes. We conclude that minutes can still be useful in providing accountability when views differ without necessarily impairing transparency.
    Keywords: monetary policy; minutes; dissent; transparency; accountability
    JEL: E52 E58
    Date: 2016–05
  54. By: Vaona, Andrea
    Abstract: Money long-run super-neutrality and the vertical long-run Phillips curve are two widely shared beliefs in the economics profession and among economic policy-makers. The present survey is devoted to anomalous empirical evidence which challenges this view. We consider a variety of studies, differing in terms of models, estimation strategies, and countries analyzed. We conclude with a brief discussion of some future possible developments of the literature.
    Keywords: long-run,money non-super-neutrality,non-vertical Phillips curve,empirical evidence
    JEL: E31 E40 E50 J64
    Date: 2016
  55. By: International Monetary Fund
    Abstract: Context. Supportive macroeconomic policies over the past few years, a favorable external environment, and high utilization of EU funds have contributed to a strong growth rebound and a welcome drop in unemployment. There has also been a continuous decline in vulnerabilities, which has underpinned Hungary’s financial stability during bouts of global market volatility. Still, debt levels and associated financing needs remain elevated, thus leaving the economy prone to shocks. At the same time, a weak business environment, low productivity, and labor market problems weigh on Hungary’s medium-term growth prospects. While the overall strategy has been successful in maintaining strong growth in the near term, it has also expanded the role of the state in the economy and shifted risks to the public sector. Policy recommendations. Policies should aim at supporting strong, sustained, private sector-led growth while further reducing vulnerabilities.
    Keywords: Article IV consultation reports;Economic conditions;Economic growth;Fiscal policy;Fiscal consolidation;Fiscal reforms;Monetary policy;Banking sector;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Hungary;
    Date: 2016–04–29
  56. By: Fernando Fernández-Rodríguez (Department of Quantitative Methods in Economics, Universidad de Las Palmas de Gran Canaria, 35017 Las Palmas de Gran Canaria, Spain.); Marta Gómez-Puig (Department of Economic Theory, Universitat de Barcelona. 08034 Barcelona, Spain.); Simón Sosvilla-Rivero (Complutense Institute of International Studies Department of Quantitative Economics, Universidad Complutense de Madrid.)
    Abstract: This paper measures the connectedness in EMU sovereign market volatility between April 1999 and January 2014, in order to monitor stress transmission and to identify episodes of intensive spillovers from one country to the others. To this end, we first perform a static and dynamic analysis to measure the total volatility connectedness in the entire period (the system-wide approach) using a framework recently proposed by Diebold and Yılmaz (2014). Second, we make use of a dynamic analysis to evaluate the net directional connectedness for each country and apply panel model techniques to investigate its determinants. Finally, to gain further insights, we examine the time-varying behaviour of net pair-wise directional connectedness at different stages of the recent sovereign debt crisis.
    Keywords: Sovereign debt crisis; Euro area; Market linkages; Vector autoregression; Variance decomposition.
    Date: 2015
  57. By: Baumgarten, Daniel; Kvasnicka, Michael
    Abstract: We investigate with German data how the use of temporary agency work has helped establishments to manage the economic and financial crisis in 2008/09. We examine the (regular) workforce development, use of short-time work, and business performance of establishments that made differential use of temporary agency work prior to the crisis. Overall, our results suggest that establishments with a greater use of temporary agency work coped better with the sharp decline in demand and made less frequent use of government-sponsored short-time work schemes.
    Keywords: labour demand; employment adjustment; economic crisis; temporary agency work; short-time work; establishment data
    JEL: E32 J23 L23 J68
    Date: 2016–04
  58. By: Baumgarten, Daniel (Ludwig-Maximilians-Universität München); Kvasnicka, Michael (Otto-von-Guericke University Magdeburg)
    Abstract: We investigate with German data how the use of temporary agency work has helped establishments to manage the economic and financial crisis in 2008/09. We examine the (regular) workforce development, use of short-time work, and business performance of establishments that made differential use of temporary agency work prior to the crisis. Overall, our results suggest that establishments with a greater use of temporary agency work coped better with the sharp decline in demand and made less frequent use of government-sponsored short-time work schemes.
    Keywords: labour demand, employment adjustment, economic crisis, short-time work, temporary agency work, establishment data
    JEL: E32 J23 L23 J68
    Date: 2016–04
  59. By: Tom Krebs; Martin Scheffel
    Abstract: This paper provides a quantitative evaluation of the macroeconomic, distributional, and fiscal effects of three reform proposals for Germany: i) a reduction in the social security tax in the low-wage sector, ii) a publicly financed expansion of full-day child care and full-day schooling, and iii) the further deregulation of the professional services sector. The analysis is based on a macroeconomic model with physical capital, human capital, job search, and household heterogeneity. All three reforms have positive short-run and long-run effects on employment, wages, and output. The quantitative effects of the deregulation reform are relatively small due to the smal size of professional services in Germany. Policy reforms i) and ii) have substantial macroeconomic effects and positive distributional consequences. Ten years after implementation, reforms i) and ii) taken together increase employment by 1.6 percent, potential output by 1.5 percent, real hourly pre-tax wages in the low-wage sector by 3 percent, and real hourly pre-tax wages of women with children by 2.7 percent. The two reforms create fiscal deficits in the short run, but they also generate substantial fiscal surpluses in the long-run. They are fiscally efficient in the sense that the present value of short-term fiscal deficits and long-term surpluses is positive for any interest (discount) rate less than 9 percent.
    Keywords: Fiscal reforms;Germany;Payroll and social security taxes;Tax reforms;Primary education;Services sector;Econometric models;Structural reform, macroeconomic model, Germany, labor tax, professional services, child care, schooling
    Date: 2016–04–25
  60. By: Unger, Robert
    Abstract: The US credit boom has been identified as one of the causes of the global financial crisis and the resulting debt overhang is seen as the primary reason for the weak economic recovery. Most of the existing literature links the credit boom to the emergence of the shadow banking system. This paper shows that the largest part of the shadow banking system merely transforms existing financial claims against ultimate borrowers that have been originated by traditional banks. Based on financial accounts data, it is estimated that, shortly before the onset of the financial crisis, just about 12% of loans to the non-financial private sector had been originated by shadow banks. Consequently, dampening credit creation by the traditional banking sector might be an additional policy instrument to reduce the build-up of systemic risk in the shadow banking system.
    Keywords: banks,credit boom,credit creation,financial crisis,shadow banks,systemic risk
    JEL: E40 E50 F30 G21 G23
    Date: 2016
  61. By: International Monetary Fund. African Dept.
    Abstract: Guinea was declared free of the Ebola epidemic at end-2015 and after two years of stagnant activity, growth is expected to rebound this year. Pent-up demand coupled with robust agricultural growth, and improved electricity provision will be the main drivers of activity, lifting growth to around 4 percent. However, given the severity of the shocks that have hit Guinea during 2014–15 and continued depressed commodities prices, the recovery is expected to be gradual and will need to be supported by policies to restore macroeconomic stability and rebuild domestic and external buffers. Structural reforms are also needed to improve the business environment, including in the mining sector, and strengthen the delivery of public service.
    Keywords: Extended Credit Facility;External shocks;Commodity price fluctuations;Mining sector;Fiscal policy;Fiscal reforms;Monetary policy;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Performance criteria waivers;Guinea;
    Date: 2016–04–04
  62. By: Billstam, Maria (National Institute of Economic Research); Frändén, Kristina (National Institute of Economic Research); Samuelsson, Johan (National Institute of Economic Research); Österholm, Pär (National Institute of Economic Research)
    Abstract: Survey data from businesses and households are widely used for fore-casting and economic analysis. In Sweden, the most important survey of this kind is the Economic Tendency Survey of the National Institute of Economic Research. A shortcoming with this survey is that real-time data of it largely are unavailable. In this paper, we describe how two quasi-real-time data sets of this survey have been constructed and made publicly available – one monthly and one quarterly. The data sets consist of monthly/quarterly vintages of the most important series of the survey, including the main confidence indicators. A natural usage of these data sets is evaluations of model-based forecasts and nowcasts. We illustrate this with an application to Swedish GDP growth. This shows that all models based on indicators from the Economic Tendency Survey, except the one relying on the confidence indicator for the construction industry, have higher forecast precision than the benchmark models.
    Keywords: Data revisions; Nowcasting
    JEL: C83 E17
    Date: 2016–04–26
  63. By: International Monetary Fund. African Dept.
    Abstract: Context. The region continues to experience strong growth in 2015, and the immediate outlook is positive. Inflation is projected to remain low, reflecting the exchange rate peg and positive terms of trade developments. However, risks are on the downside. In the short term, security risks remain high. In the medium term, weaker trading partner growth, tighter global financial conditions, sluggish structural reforms, and difficulties delivering on the planned fiscal consolidation could weaken growth prospects.
    Keywords: Staff Reports;West African Economic and Monetary Union;Economic growth;Fiscal consolidation;Fiscal policy;Monetary policy;Financial sector;Bank supervision;Financial stability;Economic indicators;Press releases;West Africa;
    Date: 2016–04–01
  64. By: David de la Croix (Universite Catholique de Louvain); Matthias Doepke (Northwestern University); Joel Mokyr (Northwestern University)
    Abstract: In the centuries leading up to the Industrial Revolution, Western Europe gradually pulled ahead of other world regions in terms of technological creativity, population growth, and income per capita. We argue that superior institutions for the creation and dissemination of productive knowledge help explain the European advantage. We build a model of technological progress in a pre-industrial economy that emphasizes the person-to-person transmission of tacit knowledge. The young learn as apprentices from the old. Institutions such as the family, the clan, the guild, and the market organize who learns from whom. We argue that medieval European institutions such as guilds, and specific features such as journeymanship, can explain the rise of Europe relative to regions that relied on the transmission of knowledge within extended families or clans.
    Keywords: apprenticeship, guilds, clans, dissemination of knowledge, population growth
    JEL: E02 J24 N10 N30 O33 O43
    Date: 2016–04
  65. By: Jaroslav Bukovina (Department of Finance, Faculty of Business and Economics, Mendel University in Brno); Matus Marticek (Faculty of Business and Economics, Mendel University in Brno)
    Abstract: This paper augments the current research suggesting the less rational factors like attractiveness of Bitcoin and speculative investments to be influential for excessive volatility. In particular, it examines the sentiment as a driver of Bitcoin volatility. The paper contributes with economic rationale about a link between sentiment and Bitcoin. Further, the authors propose a unique decomposition of Bitcoin price to rational and less rational components. The paper tests this theoretical prediction with unique sentiment intraday data in the period of 12/12/2013 – 12/31/2015. The findings of the paper show the marginal presence of sentiment during the overall studied period. However, the explanato- ry power of sentiment significantly increases during the period of excessive volatility, especially dur- ing the bubble period at the end of the year 2013 and beginning of 2014. Moreover, the findings show that positive sentiment is more influential for Bitcoin excessive volatility.
    Keywords: Bitcoin, volatility, sentiment, Bitcoin bubble
    JEL: E49
    Date: 2016–03
  66. By: Robert Kollmann; Stefan Zeugner
    Abstract: This note corrects Blanchard and Kahn’s (1980) solution for a linear dynamic rational expectations model with one state variable and one control variable.
    JEL: C00 C60 E30
    Date: 2016–03
  67. By: Grégory Claeys; Zsolt Darvas; Alvaro Leandro
    Abstract: Highlights • Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU’s fiscal framework in achieving its two main objectives - public debt sustainability and fiscal stabilisation. • In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilisation during a recession. However, implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts,leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque. • The current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with. • The best option, re-designing the fiscal framework from scratch, is currently unrealistic. Therefore we propose to eliminate the structural balance rules and tointroduce a new public expenditure rule with debt-correction feedback, embodied in a multi-annual framework, which would also support the central bank’s inflation target. A European Fiscal Council could oversee the system.
    Date: 2016–03
  68. By: Cette, Gilbert (Banque de France); Fernald, John G. (Federal Reserve Bank of San Francisco); Mojon, Benoit (Banque de France)
    Abstract: In the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. For the United States and Europe, we highlight that this slow pace began prior to the Great Recession. The timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. For the United States, at the frontier of knowledge, there was a burst of innovation and reallocation related to the production and use of information technology in the second half of the 1990s and the early 2000s. That burst ran its course prior to the Great Recession. Continental European economies were falling back relative to that frontier at varying rates since the mid-1990s. We provide VAR and panel-data evidence that changes in real interest rates have influenced productivity dynamics in this period. In particular, the sharp decline in real interest rates that took place in Italy and Spain seem to have triggered unfavorable resource reallocations that were large enough to reduce the level of total factor productivity, consistent with recent theories and firm-level evidence.
    JEL: D24 E23 E44 F45 O47
    Date: 2016–03–28
  69. By: Sander van Veldhuizen; Benedikt Vogt; Bart Voogt
    Abstract: We use Google searches of the word “mortgage†to explain housing transactions in the Netherlands in the period from 2004 until 2015. Our estimates indicate that Google searches of the previous months are significantly positively associated with housing transactions in the current month. This provides evidence that internet search data can provide information about real market behaviour.
    JEL: E2 E27 R2 R3
    Date: 2016–05
  70. By: Geoffrey Meen (Department of Economics, University of Reading); Alexander Mihailov (Department of Economics, University of Reading); Yehui Wang (Department of Economics, University of Reading)
    Abstract: Despite the lessons of the post-2007 housing crisis, it would be dangerous to suggest that there will be no similar future events. Here we define a ‘crisis’ as a period of sustained worsening in affordability followed by a collapse in house prices, both of which were features of the 1996-2009 period. Extending the standard life-cycle housing approach to a three-asset model which incorporates interactions with financial markets and uncertainty, it can be shown that endogenous housing cycles can explain volatility. Three parameters drive the system – the income and price elasticities of housing demand and the degree of risk aversion. Furthermore, a key feature of UK housing policy over the last ten years or more has been an attempt to increase housing supply in order to stabilise affordability. The model demonstrates that stabilisation is impossible for any plausible level of construction, if affordability is measured by the ratio of house prices to incomes. Nevertheless, the market has built-in stabilisers; this is demonstrated through the use of stochastic simulations, which illustrate the dynamics of house prices implied by our expected utility model. The model derives explicitly a housing risk premium as a key determinant of the user cost and, hence, house prices and affordability, a factor commonly ignored in many housing models. Moreover, we find that exogenous, persistent ‘ups and downs’ similar to the Great Moderation – Global Financial Crisis period complement the endogenous propagation mechanism of our model.
    Keywords: house prices, life-cycle housing model, affordability, housing risk premium, endogenous housing cycles
    JEL: E32 E37 G11 R21 R31 R38
    Date: 2016–04–15
  71. By: Dünhaupt, Petra
    Abstract: Since the 1980s, the financial sector and its role have increased significantly. This development is often referred to as financialization. Authors working in the heterodox tradition have raised the question whether the changing role of finance manifests a new era in the history of capitalism. The present article first provides some general discussion on the term financialization and presents some stylized facts which highlight the rise of finance. Then, it proceeds by briefly reviewing the main arguments in the Marxian framework that proposedly lead to crisis. Next, two schools of thought in the Marxian tradition are reviewed which consider financialization as the latest stage of capitalism. They highlight the contradictions imposed by financialization that disrupt the growth process and also stress the fragilities imposed by the new growth regime. The two approaches introduced here are the Social Structure of Accumulation Theory and Monthly Review School. The subsequent part proceeds with the Post-Keynesian theory, first introducing potential destabilizing factors before discussing financialization and the finance-led growth regime. The last section provides a comparative summary. While the basic narrative in all approaches considered here is quite similar, major differences stem from the relationship between neoliberalism and financialization and, moreover, from the question of whether financialization can be considered cause or effect.
    Keywords: Financialization,Crisis,Periods of Capitalism,Heterodox Economics
    JEL: E02 E11 E12 P16 P51
    Date: 2016
  72. By: Martinello, Alessandro (Department of Economics, Lund University)
    Abstract: Combining a Danish population panel of yearly administrative wealth reports with the unexpected timing of parental deaths, I show that heirs deplete the majority of their inheritance within ten years. However, while liquid assets quickly converge to their pre-inheritance levels, consistently with the predictions of a buffer-stock model of consumption, investments in housing and financial markets persist over time. Heirs exploit inheritances to accumulate housing equity if young, and precautionary savings if liquidity constrained. By estimating the causal effect of inheritance on wealth accumulation in the long run, this paper shows that specific wealth components serve different coexisting saving strategies.
    Keywords: Inheritance; Savings; Liquidity constraints; Buffer-stock model; Housing equity; Lifecycle; Precautionary savings; Long-run
    JEL: D14 D91 E21 G11
    Date: 2016–04–18
  73. By: Kashkari, Neel (Federal Reserve Bank of Minneapolis)
    Date: 2016–04–18
  74. By: Simin Mozayeni (State University of New York at New Paltz); Simon Li (SUNY New Paltz)
    Abstract: The motivation for this research is to examine the debate about the effect of social insurance on private savings as suggested by Feldstein (1974) and Leimmer and Lesony (1982). The null hypothesis is whether expected social insurance benefits in retirement displace household private savings. We use a panel data comprised of most OECD countries (driven by data availability), incorporating 2004-2014. We also reconsider the G7 countries (Mozayeni, 2015) with the data currently available. In both cases, our dependent variable is the Household Saving Rate (HS), measured as the percentage of Disposable Income, as reported in the National Income Accounts. The dependent variables are: the Gross Replacement Rate (GRR) for retirement benefits, which had become available for 2004-2014; the Long Term Interest Rate, which is the daily average for ten year-governments’ bond rates, and two fixed-effect variables, which account for the specific effects of the countries and the years in the data. Overall, our models predicts the relationships well, with R2 =0.88 for the OECD panel and 0.94for G7. We first discuss our results for the OECD panel and then the G7. In the OECD regression, the sign for HS varies year to year and from county to country. The significant levels are high only for 11of 26 countries in the sample. With an F value of 26.94, compared to 4.052 for α=0.01, the ANOVA test strongly rejects the null hypothesis that between-groups and within-groups variations are the same. We therefore reject the null hypothesis that β1= β2 ,…, βj = 0 and accept the alternative hypothesis β≠0 for at least one value of the overall test. Our results show NO systematic dependence of household savings on retirement benefits. Our G7 regression produces an F test of 36.55, R2 = 0.94, and negative signs for all the years in the data and positive signs for the Country effect for some and negative for others--for Germany, Japan, United Kingdom and US, the signs are negative; whereas for France and Italy are positive. The Country significance levels are high only for Italy and UK. In conclusion, we reject the proposition that expected social security income in retirement displaces household savings for the OECD countries and G7 in our sample. We methodically consider any specific effect the period in our data may have on households’ saving behavior.
    Keywords: Household Savings, Private Savings Displacement, Gross Replacement Rates and Private Saving
    JEL: D69 E21 H55
  75. By: Michel Aglietta; Etienne Espagne
    Abstract: In this paper, we develop the notion of climate systemic risk. Climate change is usually considered as a negative externality, against which society can insure itself through a carbon tax or an emission trading market. But except under the unrealistic efficient market hypothesis, there is little chance that such a simple approach to climate policy succeeds in mitigating climate damages. Financial and climate fragility reinforce each other. We argue that in concrete economies, a collective insurance approach to climate change has to target the financial sector, as well as its articulation with monetary policy. As in the financial world, climate change thus constitutes a systemic risk against which specific ex ante and ex post monetary policies and financial regulations should be deployed. The Paris Agreement of COP21 ignores the policy consequences of such an approach to the climate threat, but the exegesis of the text still offers some indispensable pillars to promote a new financial order mitigating climate systemic risk.
    Keywords: Systemic Risk;Climate Fragilit;Monetary Policy;Macroprudential Policy;COP21
    JEL: Q51 Q54 Q58 E42 E44
    Date: 2016–04
  76. By: Abbassi, Puriya; Brownlees, Christian; Hans, Christina; Podlich, Natalia
    Abstract: We analyze the relation between market-based credit risk interconnectedness among banks during the crisis and the associated balance sheet linkages via funding and securities holdings. For identification, we use a proprietary dataset that has the funding positions of banks at the bank-to-bank level for 2006-13 in conjunction with investments of banks at the security level and the credit register from Germany. We find asymmetries both cross-sectionally and over time: when banks face difficulties to raise funding, the interbank lending affects market-based bank interconnectedness. Moreover, banks with investments in securities related to troubled classes have a higher credit risk interconnectedness. Overall, our results suggest that market-based measures of interdependence can serve well as risk monitoring tools in the absence of disaggregated high-frequency bank fundamental data.
    Keywords: Credit Risk,Networks,CDS,Interbank Lending,Portfolio Distance
    JEL: C33 C53 E44 F36 G12 G14 G18 G21
    Date: 2016
  77. By: J. Nikolaj Dybowski; T. Philipp Dybowski
    Abstract: Recent empirical research on tax policy stresses the importance of tax news measures to gauge anticipation or sentiment effects. Yet, variables with adequate informational content on tax policies are scarce and only exist for the United States. By using a probabilistic topic model, known as LDA (Latent Dirichlet Allocation), we investigate the tax policy content of over 97,000 presidential documents from 1945 to 2015. This allows us to obtain a probability for each document to cover tax policy issues and to construct a continuous time series for presidential tax news. The dynamics of this variable show high consistency with documented U.S. tax reforms. We use this measure to augment well-known SVAR frameworks and study the effects of tax policy news on output and its components. We find that increased tax news stimulate economic activity temporarily. The attractiveness of our tax news measure is its time-efficient and low-cost construction from narrative sources, and hence, opens up new perspectives to analyze similar effects for other countries.
    Keywords: topic model, tax policy, news, SVAR
    JEL: C32 C82 D72 D83 E62
    Date: 2016–05
  78. By: Klaus Abberger (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Andreas Dibiasi (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Siegenthaler (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Does increased policy uncertainty dampen investment plans of firms? We provide direct evidence on this question by examining the effects of an unexpectedly accepted and farreaching referendum in Switzerland in February 2014. The vote has put several economically relevant agreements between Switzerland and its main trading partner, the European Union, at stake. Using firm-level survey data levied before and after the vote, we examine whether firms that reported to be affected by the induced policy uncertainty have revised their investment plans differently from those that did not perceive an increase in uncertainty. We find strong evidence that an increase in policy uncertainty does lead firms to reduce their investment plans. As theoretically expected, these effects are concentrated among those firms that view their investments as largely irreversible. Moreover, the uncertainty shock mainly dampened firms’ plans to extend their production capacities, while other types of investment such as replacement investment were not affected.
    Keywords: investment, uncertainty, irreversibility, business survey
    JEL: D81 D84 E22
    Date: 2016–05
  79. By: International Monetary Fund. African Dept.
    Abstract: Context. The recent collapse in oil prices is a major test to Gabon’s macroeconomic resilience. It has substantially worsened the growth outlook, government revenue performance, and the external position. The shock highlights the need to accelerate the implementation of Gabon’s plan to diversify its economy (Plan Stratégique Gabon Emergent, or PSGE), but also considerably lowers available domestic financing. At the same time, foreign financing has become increasingly costly. The implementation of further policy adjustments will be complicated by the political environment prior to the 2016 elections. As a key member of the CEMAC currency and economic union, Gabon’s economic policies have significant regional implications and spillovers. Outlook and Risks. The oil price shock has negatively affected domestic demand and GDP growth in 2015. Some positive momentum is expected in the medium term as non-oil natural resource projects ramp up. The main risk to the outlook remains insufficient fiscal adjustment to weak oil prices that could further deplete fiscal buffers and weaken the external position. Ancillary risks concern a stronger-than-expected spillover of the oil price shock to non-oil economic activity, and persistent fragility at three small distressed state-owned banks.
    Keywords: Article IV consultation reports;Economic conditions;Economic growth;Terms of trade;External shocks;Oil prices;Banking sector;Economic indicators;Balance of payments statistics;Millennium Development Goals;Debt sustainability analysis;Staff Reports;Press releases;Gabon;
    Date: 2016–03–18
  80. By: Konchyn, Vadym; Horban, Yuliia
    Abstract: The article is devoted to a retrospective analysis of transitional model of Ukrainian state’s economic behavior in the context of public goods’ distribution based on the Lala-Mint classification. The characteristics and nature of the rent of fractional oligarchic state as a stationary bandit in Ukraine are defined on the basis of the McGuire-Olson model. Using basic mathematical and graphical tools and also the results of built multiple regression models the potential effects of reducing or maintaining economic rent of the stationary bandit in Ukraine are reflected. The problem of economic bifurcation point was outlined for Ukrainian oligarchic state.
    Keywords: model of stationary bandit, economic point of bifurcation, fractional oligarchic state, facade democracy, distribution of public goods, economic interest of the state in the form of rent, behavioral models of the state, liberalization, European economic integration, people's capitalism.
    JEL: C32 E65 H10 H50 P27
    Date: 2016–04–25
  81. By: Harker, Patrick T. (Federal Reserve Bank of Philadelphia)
    Abstract: President Patrick T. Harker presents his economic outlook at the Greater Philadelphia Chamber of Commerce’s Region on the Rise event about the city’s construction and real estate development. He also offers his views on monetary policy.
    Keywords: Economic outlook; Philadelphia; Monetary policy; Equity markets; Inflation; Real estate
    Date: 2016–04–12
  82. By: Darst, R. Matthew; Refayet, Ehraz
    Abstract: This paper highlights two new effects of credit default swap (CDS) markets on credit markets. First, when firms' cash flows are correlated, CDS trading impacts the cost of capital and investment for all firms, even those that are not CDS obligors. Second, CDSs generate a tradeoff between default premiums and default risk. CDSs alter firm incentives to invest along the extensive default premium margin, even absent maturity mis-match. Firms are more likely to issue safe debt when default premiums are high and vise versa. The direction of the tradeoff depends on whether investors use CDSs for speculation or hedging.
    Keywords: credit derivatives ; spillovers ; investment ; default risk
    JEL: D52 D53 E44 G10 G12
    Date: 2016–04–19
  83. By: Rafal Kierzenkowski; Nigel Pain; Elena Rusticelli; Sanne Zwart
    Abstract: Membership of the European Union has contributed to the economic prosperity of the United Kingdom. Uncertainty about the outcome of the referendum has already started to weaken growth in the United Kingdom. A UK exit (Brexit) would be a major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries. In some respects, Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the UK remained in the EU. The shock would be transmitted through several channels that would change depending on the time horizon. In the near term, the UK economy would be hit by tighter financial conditions and weaker confidence and, after formal exit from the European Union, higher trade barriers and an early impact of restrictions on labour mobility. By 2020, GDP would be over 3% smaller than otherwise (with continued EU membership), equivalent to a cost per household of GBP 2200 (in today’s prices). In the longer term, structural impacts would take hold through the channels of capital, immigration and lower technical progress. In particular, labour productivity would be held back by a drop in foreign direct investment and a smaller pool of skills. The extent of foregone GDP would increase over time. By 2030, in a central scenario GDP would be over 5% lower than otherwise – with the cost of Brexit equivalent to GBP 3200 per household (in today’s prices). The effects would be larger in a more pessimistic scenario and remain negative even in the optimistic scenario. Brexit would also hold back GDP in other European economies, particularly in the near term resulting from heightened uncertainty would create about the future of Europe. In contrast, continued UK membership in the European Union and further reforms of the Single Market would enhance living standards on both sides of the Channel. Les conséquences économiques du BREXIT : les coûts d'une décision L’adhésion à l’Union européenne a contribué à la prospérité économique du Royaume-Uni. Les incertitudes entourant l’issue du referendum ont déjà commencé à affaiblir la croissance britannique. Une sortie du Royaume-Uni de l’UE (Brexit) conduirait à un choc négatif majeur pour l’économie du pays et aurait des incidences pour tous les membres de l’OCDE, en particulier en Europe. Dans une certaine mesure, le Brexit équivaudrait à un impôt sur le PIB, imposant un coût durable et croissant sur l’économie, qui ne serait pas encouru si Royaume-Uni restait dans l’UE. Ce choc serait transmis par le jeu successif de différents canaux. Sur le court terme, l’économie britannique serait affectée par le durcissement des conditions financières et l’affaiblissement de la confiance puis, après sa sortie officielle de l’Union européenne, par le relèvement des obstacles aux échanges et les conséquences précoces des limitations à la mobilité de la main-d’oeuvre. À l’horizon 2020, le PIB serait plus faible de 3 % qu’autrement (en cas de maintien dans l’UE), équivalent à un coût moyen de 2250 GBP par foyer (en prix actuels). Sur le plus long terme, les effets structurels s’affirmeraient par le biais de trois canaux : les capitaux, l’immigration et un progrès technique moindre. En particulier, la productivité du travail serait pénalisée par une baisse de l’investissement étranger direct et par l’accès à un volume de compétences plus limité. Le manque à gagner en termes de PIB se creuserait avec le temps. En 2030, selon le scénario de référence, le PIB serait inférieur de plus 5% qu’autrement – et le montant de l’« impôt Brexit » atteindrait alors 3200 GBP par ménage (en prix actuels). Les conséquences seraient encore plus marquées dans le scénario le plus défavorable, et resteraient négatives y compris dans le scénario favorable. Une sortie du Royaume-Uni de l’UE entraverait également le PIB dans d’autres économies européennes, notamment sur le court terme, en raison des incertitudes politiques sur l’avenir de l’Europe. À l’inverse, un maintien du Royaume-Uni dans l’Union européenne et la poursuite des réformes du marché unique amélioreraient les niveaux de vie des deux côtés de la Manche.
    Keywords: trade, uncertainty, risk premia, FDI, immigration, European Union, skills, deregulation, confidence, Brexit, Brexit, compétences, IDE, confiance, Union européenne, immigration, incertitude, prime de risque, commerce
    JEL: C54 E24 E44 H12
    Date: 2016–04–28
  84. By: Iga Magda; Micha³ Brzeziñski
    Abstract: We study changes in income inequality and inequality of opportunity (IO) in seven Central and Eastern European (CEE) countries. Using EU SILC 2005 and 2011 data, we make a first attempt to apply inequality decompositions based on RIF regression to the problem of changes in IO over time. Our results indicate that there is considerable heterogeneity in levels of inequality and in the evolution of inequality over time in CEE countries, linked to both changes in the parental backgrounds of individuals and the effects of these changes on current incomes, and to micro-economic factors that correspond to the labour market status and educational attainment levels of households. Differentiating between the CEE countries, we provide evidence of a strong decrease in both overall income inequality and absolute IO in Poland; a decrease in absolute IO accompanied by modest changes in income distribution in Lithuania; and a relatively high and growing share of “unfair” inequality accompanied by a low levels of overall income dispersion in Hungary.
    Keywords: inequality of opportunity, income inequality, RIF decomposition, Central and Eastern Europe
    JEL: D31 D63 E24 O15
    Date: 2016–04
  85. By: Iqbal Syed (School of Economics and CAER, UNSW Business School, UNSW); Jan de Haan (Statistics Netherlands and Delft University of Technology, The Netherlands)
    Abstract: Age, time and vintage are key determinants of house prices, yet they cannot be included together linearly or as dichotomous variables in hedonic regressions as construction time + age of house = sale time. We introduce a method where the estimates of the age, time and vintage effects on prices are obtained in a flexible manner, without requiring us to specify a pre-determined functional form for either of these variables. Applying our method to Dutch data, we find that the estimated depreciation pattern over the life of houses does not follow the functional forms typically specified for the age of houses in hedonic regressions.
    Keywords: Age-price profile, capital formation, hedonic regressions, GEKS index
    JEL: C43 E01 E31 R31
    Date: 2016–02
  86. By: Fujiwara, Ippei (Keio University); Wang, Jiao (Australian National University)
    Abstract: This paper revisits optimal monetary policy in open economies, in particular, focusing on the noncooperative policy game under local currency pricing in a two-country dynamic stochastic general equilibrium model. We first derive the quadratic loss functions which noncooperative policy makers aim to minimize. Then, we show that noncooperative policy makers face extra trade-offs regarding stabilizing the real marginal costs induced by deviations from the law of one price under local currency pricing. As a result of the increased number of stabilizing objectives, welfare gains from cooperation emerge even when two countries face only technology shocks, which usually leads to equivalence between cooperation and noncooperation. Still, gains from cooperation are not large, implying that frictions other than nominal rigidities are necessary to strongly recommend cooperation as an important policy framework to increase global welfare.
    JEL: E52 F41 F42
    Date: 2016–05–01
  87. By: Andrea Pescatori; Stefan Laseen
    Abstract: Should monetary policy use its short-term policy rate to stabilize the growth in household credit and housing prices with the aim of promoting financial stability? We ask this question for the case of Canada. We find that to a first approximation, the answer is no— especially when the economy is slowing down.
    Keywords: Interest rate policy;Canada;Household credit;Housing prices;Credit expansion;Financial risk;Monetary policy;Financial stability;Monetary Policy, Endogenous Financial Risk, Bayesian VAR, Non-Linear Dynamics, Policy Evaluation.
    Date: 2016–03–21
  88. By: Urbain Thierry Yogo
    Abstract: This paper investigates the effect of terrorism on fiscal policy volatility in developing countries. Using panel data analysis of 66 countries from 1970 to 2012, we find that an increase in the number of terrorist incidents raises the volatility of the discretionary component of fiscal policy. In addition, the analysis shows that investment is more responsive to terrorist attacks than consumption. We then turn to the role played by fiscal rules which appears to reduce the effect of terrorism on fiscal policy volatility. Our results are robust to reverse causality, endogeneity bias and the presence of various controls. This paper complements and extends the previous literature by providing the evidence that terrorism substantially increases the uncertainty surrounding the conduct of fiscal policy in developing countries.
    Keywords: Fiscal policy; Terrorism; Fiscal rules
    JEL: E60 H30 D74 O11
    Date: 2016
  89. By: Pawel Pisany (Warsaw School of Economics)
    Abstract: The aim of this article is to present Single Supervisory Mechanism in the context of challenges in the post-crisis economy. One analyzed the topic from the perspective of non-euro area EU member state. The article consists of three main parts. Firstly, the short literature review related to banking crisis as a background for institutional reforms, was conducted. The second part refers to the legal base of SSM and its impact on the final shape of this institution. In the last part, the negative recommendation in terms of accession of Poland to SSM through OPT-IN procedure, was presented and justified by a simple economic game.
    Keywords: Single Supervisory Mechanism; banking regulations; banking crisis
    JEL: E61 G28 G21
    Date: 2016–05
  90. By: Guido Ascari; Andrea Colciago; Lorenza Rossi
    Abstract: We show how to use Hurwitz polynomials to study the stability and uniqueness of Rational Expectation equilibria in Dynamic General Equilibrium models. We apply this method to a model characterized by staggered wage and price contracts and by limited asset market participation (LAMP). We prove analytically in a fourth-order dynamics system that, once nominal wage stickiness is taken into account, LAMP does not invalidate the Taylor Principle: for any plausible degree of asset market participation an active interest rate rule ensures the uniqueness of the rational expectation equilibrium.
    Keywords: determinacy; high-order dynamics; sticky wages; non-Ricardian household
    JEL: C62 E50
    Date: 2016–04
  91. By: Hasan, Md Rashel; Islam, Md Ezazul
    Abstract: This paper computes an index of financial inclusion (IFI) of Bangladesh at the district levels by using a distance based approach and incorporating various dimensions of inclusive finance. The IFI indicates that most of the districts of Bangladesh have experienced significant progress in financial inclusion over the period of 2008 to 2014 with the exception of Khagrachhari, Netrokona, Kurigram, and Sunamganj. Furthermore, the financial inclusion map reflects that the process of financial inclusion gets accelerated at the end of 2010, just after the inclusive finance policy initiatives undertaken by Bangladesh Bank. Hence, the index can be used to compare the extent of financial inclusion across districts and to monitor the progress of the financial inclusion over time. The index value reflecting overall financial inclusion of Bangladesh increased to 0.697 in 2014 from 0.503 in 2008. There are policy implications of this finding for making inclusive finance strategies in Bangladesh. The index may guide Bangladesh Bank and the Government to pursue inclusive growth for reducing regional disparities to meet Vision 2021 as well as the Sustainable Development Goals.
    Keywords: Inclusive growth, financial inclusion, financial inclusion index, district, Bangladesh economy
    JEL: E50 G21
    Date: 2016–05
  92. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: Business cycles among industrial countries are highly correlated. We develop a two-country behavioral macroeconomic model where the synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of “animal spirits†, i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We do not need a correlation of exogenous shocks to generate synchronization. We also empirically test the main predictions of the model.
    Keywords: animal spirits; behavioral macroeconomics; Business Cycles
    Date: 2016–05
  93. By: Adrian Buss; Bernard Dumas; Raman Uppal; Grigory Vilkov
    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 e ects on financial and macroeconomic variables. However, borrowing constraints and the Tobin tax are more successful than constraints on stock positions at improving welfare because they substantially reduce speculative trading without impairing excessively risk-sharing trades.
    Keywords: Tobin tax, borrowing constraints, short-sale constraints, stock market volatility, di erences of opinion.
    JEL: G01 G12 G18 E44
    Date: 2016
  94. By: Ken Urai (Graduate School of Economics, Osaka University); Hiromi Murakami (Graduate School of Economics, Osaka University)
    Abstract: To characterize money in a static economic model, it is known to be important to consider the agent- commodity double-in nity settings, i.e., the overlapping-generations framework. There does not seem to exist any papers, however, treating the axiomatic characterization problems for such monetary Walras allocations under the social choice and/or mechanism design settings. We show that the monetary Walras allocation for the economy with double in nities is characterized by weak Pareto- optimality, individual rationality, local independence or the monotonicity conditions of social choice correspondence among the allocation mechanisms with messages under the category theoretic approach in Sonnenschein (1974). We utilize Sonnenschein's market extension axiom for swamped economies that is closely related to the replica stability axiom of Thomson (1988). We can see how these conditions characterize the price-money message mechanism universally among a wide class of mechanisms, and efficiently in the sense that it has the minimal message spaces (price-money dictionary theorems). Moreover, by using the category theoretic framework, we can obtain the up-to-isomorphism uniqueness for such a dictionary object (isomorphism theorems).
    Keywords: Resource Allocation Mechanism, Social Choice Correspondence, Overlapping-Generations Economy, Monetary Walras Allocation, Local Independence, Monotonicity, Informational Efficiency, Universal Mapping Property
    JEL: C60 D50 D51 D71 E00
    Date: 2016–04
  95. By: Georgios Bampinas (Department of Economics, University of Macedonia, Greece); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece; The Rimini Centre for Economic Analysis, Italy)
    Abstract: This paper examines whether individual stocks can act as inflation hedgers. We focus on longer investment horizons and construct in- and out-of-sample portfolios based on the long-run relationship (cointegration) of stock prices with respect to consumer prices. Empirical evidence suggests that investors are better off by holding a portfolio of stocks with higher long-run betas as part of asset selection and allocation strategy. Stocks that outperform inflation tend to be drawn from the Energy and Industrial sectors. Finally, we observe that the companies average inflation hedging ability declined steadily over the past ten years, while the number of firms that hedge inflation has decreased considerably after the recent downturn of the US economy.
    Date: 2016–04
  96. By: Gerunov, Anton
    Abstract: With the growing ability of organizations in the public and private sector to collect large volumes of real-time data, the mounting pile of information presents specific challenges for storage, processing, and analysis. Many organizations do need data analysis for the purposes of planning and logistics. Likewise, governments and regulators will need analysis to support policy-making, implementation and controlling. All this leads to the importance of being able to generate large scale analytics under (sometimes severe) resource constraints. This paper investigates a possible solution – automating analytics with a special focus on forecasting time series. Such approach has the benefit of being able to produce scalable forecasting of thousands of variables with relatively high accuracy for a short period of time and few resources. We first review the literature on time series forecasting with a particular focus on the M, M-2, and M-3 forecasting competition and outline a few major conclusions supported across different empirical studies. The paper then proceeds to explore the typical structure of a time-series variables using Bulgarian GDP growth and show how the ARIMA modeling with a seasonal component can be used to fit economic data of this class. We also review some major approaches to automating forecasting and outline the benefits of selecting the optimal model from a large set of ARIMA alternatives using an information criterion. A possible approach to fit an automated forecasting algorithm on four crucial economic time series from the Bulgarian economy is demonstrated. We use data on GDP growth, inflation, unemployment, and interest rates and fit a large number of possible models. The best ones are selected by taking recourse to the Akaike Information Criterion. The optimal ARIMA models are studied and commented. Forecast accuracy metrics are presented and a few major conclusions and possible model applications are outlined. The paper concludes with directions for further research.
    Keywords: Automated analytics, forecasting, time series, ARIMA, business forecasting
    JEL: C22 C53 E37
    Date: 2016–04
  97. By: fatih ayhan (University of Selcuk)
    Abstract: In this research, the relationship between real exchange rate volatility and foreign direct investment (FDI) is examined in theoretically and empirically by covering 1998Q1-2015Q4 period for Turkey. In the empirical modelling, FDI is explained with economic growth, exchange volatility and trade openness parallel with the existing literature. Moreover exchange rate volatility variable is computed by employing GARCH type model. The Bound Test approach which is proposed by Peseran et al. (2001) is employed in order to investigate the cointegration relationship between the variables. After we found cointegration, we analysed long and short term coefficients by using ARDL model. According to model’s results, growth and openness has positive and statistically significant effect on FDI, while volatility has negative effect on FDI as expected. However coefficient of volatility is statistically insignificant on FDI. Because of volatility coefficient is not statistically significiant, we can conclude that foreign investors take into consideration sustainable growth and openness for investing in Turkey instead of exchange rate volatility.
    Keywords: Exchange Rate Volatility, Domestic Investment, ARDL Model
    JEL: E44 F31 F21
  98. By: Mario Forni; Marc Hallin; Marco Lippi; Paolo Zaffaroni
    Abstract: Factor models, all particular cases of the Generalized Dynamic Factor Model (GDFM) introduced in Forni, Hallin, Lippi and Reichlin (2000), have become extremely popular in the theory and practice of large panels of time series data. The asymptotic properties (consistency and rates) of the corresponding estimators have been studied in Forni, Hallin, Lippi and Reichlin (2004). Those estimators, however, rely on Brillinger’s dynamic principal components, and thus involve two-sided filters, which leads to rather poor forecasting performances. No such problem arises with estimators based on standard (static) principal components, which have been dominant in this literature. On the other hand, the consistency of those static estimators requires the assumption that the space spanned by the factors has finite dimension, which severely restricts the generality afforded by the GDFM. This paper derives the asymptotic properties of a semiparametric estimator of the loadings and common shocks based on one-sided filters recently proposed by Forni, Hallin, Lippi and Zaffaroni (2015). Consistency and exact rates of convergence are obtained for this estimator, under a general class of GDFMs that does not require a finite-dimensional factor space. A Monte Carlo experiment and an empirical exercise on US macroeconomic data corroborate those theoretical results and demonstrate the excellent performance of those estimators in out-of-sample forecasting
    Keywords: High-dimensional time series. Generalized dynamic factor models. Vector processes with singular spectral density. One-sided representations of dynamic factor models. Consistency and rates
    JEL: C0 C01 E0
    Date: 2015–09
  99. By: Mackowiak, Bartosz Adam; Matejka, Filip; Wiederholt, Mirko
    Abstract: Dynamic rational inattention problems used to be difficult to solve. This paper provides simple, analytical results for dynamic rational inattention problems. We start from the benchmark rational inattention problem. An agent tracks a variable of interest that follows a Gaussian process. The agent chooses how to pay attention to this variable. The agent aims to minimize, say, the mean squared error subject to a constraint on information flow, as in Sims (2003). We prove that if the variable of interest follows an ARMA(p,q) process, the optimal signal is about a linear combination of {X(t),...,X(t-p+1)} and {e(t),... e(t-q+1)}, where X(t) denotes the variable of interest and e(t) denotes its period t innovation. The optimal signal weights can be computed from a simple extension of the Kalman filter: the usual Kalman filter equations in combination with first-order conditions for the optimal signal weights. We provide several analytical results regarding those signal weights. We also prove the equivalence of several different formulations of the information flow constraint. We conclude with general equilibrium applications from Macroeconomics.
    Keywords: Kalman filter; Macroeconomics; rational inattention
    JEL: C61 D83 E30
    Date: 2016–04
  100. By: Anthony J Venables; Samuel Wills
    Abstract: The paper explores strategies for managing revenue from natural resources, focusing on the balance between domestic and foreign asset accumulation. It suggests that domestic asset accumulation is the priority in developing countries, while there are three motives for accumulating foreign assets; inter-generational transfer, temporary ‘parking’ of funds, and stabilisation. The paper argues that the first of these is inappropriate for low income countries. The second is required if it is difficult to absorb extra spending in the domestic economy and takes time to build up domestic investment. The third is important, and depends on the extent to which the economy has other ways of adjusting to shocks.
    Keywords: resource curse, managing windfalls, fiscal rules, volatillity, absorptive capacity, Dutch disease, public investment
    JEL: E60 F34 F35 F43 H21 H63 O11 Q33
    Date: 2016
  101. By: Mario Forni; Luca Gambetti; Luca Sala
    Abstract: A shock of interest can be recovered, either exactly or with a good approximation, by means of standard VAR techniques even when the structural MA representation is non- invertible or non-fundamental. We propose a measure of how informative a VAR model is for a specific shock of interest. We show how to use such a measure for the validation of shocks' transmission mechanism of DSGE models through VARs. In an application, we validate a theory of news shocks. The theory does remarkably well for all variables, but understates the long-run effects of technology news on TFP.
    Keywords: invertibility, non-fundamentalness, news shocks, DSGE model validation, structural VAR
    JEL: C32 E32
    Date: 2016–04
  102. By: Kitao, Sagiri; Ljungqvist, Lars; Sargent, Thomas J
    Abstract: To understand trans-Atlantic employment experiences since World War II, we build an overlapping generations model with two types of workers (high school and college graduates) whose different skill acquisition technologies affect their career decisions. Search frictions affect short-run employment outcomes. The model focuses on labor supply responses near beginnings and ends of lives and on whether unemployment and early retirements are financed by personal savings or public benefit programs. Higher minimum wages in Europe explain why youth unemployment has risen more there than in the U.S. Turbulence, in the form of higher risks of human capital depreciation after involuntary job destructions, causes long-term unemployment in Europe, mostly among older workers, but leaves U.S. unemployment unaffected. The losses of skill interact with workers' subsequent decisions to invest in human capital in ways that generate the age-dependent increases in autocovariances of income shocks observed by Moffitt and Gottschalk (1995).
    Keywords: benefits; employment protection; Europe; minimum wage; U.S.; Unemployment
    JEL: E24 J21 J64
    Date: 2016–05
  103. By: Lilit Popoyan
    Abstract: After the destructive impact of the global financial crisis of 2008, many believe that pre-crisis financial market regulation did not take the "big picture" of the system suffciently into account and, subsequently, financial supervision mainly "missed the forest for the trees". As a result, the need for macroprudential aspects of regulation emerged, which has recently become the focal point of many policy debates. This has also led to intense discussion on the contours of monetary policy after the post-crisis "new normal". Here, I review recent progress in empirical and theoretical research on the effectiveness of macroprudential tools, as well as the current state of the debate, in order to extract common policy conclusions. The work highlights that, despite the achievements in the literature, the current experience and knowledge of how macroprudential instruments work, their calibration, and the mechanisms through which they interact with each other and with monetary policy are rather limited and conflicting. Moreover, I critically survey and note the current challenges faced by macroprudential regulation in creating stable, yet effcient financial systems. At the same time, I emphasize the importance of accepting that many risks may remain, requiring that we proceed prudently and develop better plans for future crises.
    Keywords: macroprudential policy; Basel III regulation; capital adequacy ratio; counter-cyclical capital buffer; leverage requirement; systemic risk; crisis management; financial stability
    Date: 2016–05–16
  104. By: Mustafa Göktuğ Kaya (Tax Inspectors Association); Perihan Hazel Kaya (Selcuk University)
    Abstract: The country, where the individuals and institutions benefit from public services paying less taxes outside the country, is called tax haven countries.These countries is used as part of economic activities and they are preferred as the center of financial affairs so the phenomenon of interstate competition become a current issue. International tax competition is a tax policy which implementing that economic activity that occurred in another country to take his own country putting a lower tax rate.When taken out the country known as a tax haven it is said that this countries are too small and some of them’ name and location in the map are unknown.The purpose of the study is to find out the relationship between of tax competition and tax haven in the World and Turkey. In this direction, firstly on the conceptual framework tax competition and tax havens issues will be discussed. Secondly, the effects of the relationship between tax competition and tax havens on fiscal policy will be examined. Finally, studies conducted on the fight against tax competition and tax havens in the World and Turkey will be examined.
    Keywords: Tax Competition, Tax Haven, Fiscal Policy, Turkey, Tax Haven Countries
    JEL: B22 E00
  105. By: International Monetary Fund. African Dept.
    Abstract: The Nigerian economy is facing substantial challenges. Low oil prices, a lengthy period of policy uncertainty, and ongoing security concerns, have produced: a widening fiscal gap with salary arrears at state and local governments; a weaker external current account and the introduction of exchange restrictions as international reserves declined; lower financial sector resilience; and sharply slower growth. These shocks have compounded an already challenging development environment—inadequate infrastructure, high unemployment (9.9 percent) and a high poverty rate (above 50 percent in the northern states).
    Keywords: Article IV consultation reports;Oil prices;Economic growth;Fiscal policy;Debt sustainability;Fiscal reforms;Women;Monetary policy;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Nigeria;
    Date: 2016–04–08
  106. By: Michael E. Waugh; B. Ravikumar
    Abstract: In this paper we derive a new measure of openness—the trade potential index—that quantifies the potential gains from trade as a simple function of data. Using a standard multicountry trade model, we measure openness by a country’s potential welfare gain from moving to a world with frictionless trade. In this model, a country’s trade potential depends on only the trade elasticity and two observable statistics: the country’s home trade share and its income level. Quantitatively, poor countries have greater potential gains from trade relative to rich countries, while their welfare costs of autarky are similar. This leads us to infer that rich countries are more open to trade. Our trade potential index correlates strongly with estimates of trade costs, while both the welfare cost of autarky and the volume of trade exhibit correlate weakly with trade costs. Thus, our measure of openness is informative about the underlying trade frictions.
    JEL: E1 F11 F40
    Date: 2016–04
  107. By: Mattia Guerini (Institute of Economics, Scuola Superiore Sant'Anna, Pisa, Italy); Alessio Moneta (Institute of Economics, Scuola Superiore Sant'Anna, Pisa, Italy)
    Abstract: This paper proposes a new method to empirically validate simulation models that generate artificial time series data comparable with real-world data. The approach is based on comparing structures of vector autoregression models that are estimated from both artificial and real-world data by means of causal search algorithms. This relatively simple procedure is able to tackle both the problem of confronting theoretical simulation models with the data and the problem of comparing different models in terms of their empirical reliability. The paper also provides an application of the validation procedure to the Dosi et al. (2015) macro-model.
    Keywords: Models validation; Agent-Based models; Causality; Structural Vector Autoregressions
    JEL: C32 C52 E37
  108. By: Xu, Kun; Guan, Zhihua; Xu, Wenli
    Abstract: Knowledge, equipped by labors and technologies, has significant spatial spillover effects on spurring economic growth. This paper by utilizing super-efficiency DEA model evaluates relative efficiency of fiscal expenditure of 31 local governments from 2007 to 2013, and, by employing GSM model, testifies if there is any kind of spatial effect as well as their type. Super-efficiency DEA results show that: fiscal spending of local governments are generally efficient; fiscal efficiency in western China and boundary provinces are higher, that in eastern China and coast provinces are relatively ineffective yet; there exists distinct effect of regional agglomeration. And GSM model manifests that: fiscal efficiency of local governments is without spatial spillover effect; its velocity in 2007 and 2008 is with the positive effect, while it disappears from 2009 to 2013.
    Keywords: Fiscal Efficiency; Economic Growth; Spatial Spillover Effect; General Spatial Model
    JEL: C1 E0 H0
    Date: 2015–12
  109. By: Troy Matheson; Joana Pereira
    Abstract: We find historical fiscal multipliers for Brazil around 0.5, larger than what existing literature typically identifies for the average emerging market. However, spending and public credit multipliers seem to have dropped to near zero since the global financial crisis, as the estimate for the whole sample period (1999-2014) is about ½ of that for precrisis years. By contrast, revenue multipliers have remained broadly stable. We conclude that fiscal consolidations based on expenditure and public credit retrenchment are likely to entail a modest drag on growth in the near term.
    Keywords: Fiscal policy;Brazil;Fiscal stimulus and multipliers;Economic growth;Fiscal consolidation;Government expenditures;Revenues;Econometric models;Fiscal policy, fiscal multipliers, public credit
    Date: 2016–03–25
  110. By: Rafael Portillo; Luis-Felipe Zanna; Stephen A. O'Connell; Richard Peck
    Abstract: We introduce subsistence requirements in food consumption into a simple new-Keynesian model with flexible food and sticky non-food prices. We study how the endogenous structural transformation that results from subsistence affects the dynamics of the economy, the design of monetary policy, and the properties of inflation at different levels of development. A calibrated version of the model encompasses both rich and poor countries and broadly replicates the properties of inflation across the development spectrum, including the dominant role played by changes in the relative price of food in poor countries. We derive a welfare-based loss function for the monetary authority and show that optimal policy calls for complete (in some cases nearcomplete) stabilization of sticky-price non-food inflation, despite the presence of a foodsubsistence threshold. Subsistence amplifies the welfare losses of policy mistakes, however, raising the stakes for monetary policy at earlier stages of development.
    Keywords: Consumption;Low-income developing countries;Food prices;Sticky prices;Inflation;Stabilization measures;Welfare;Econometric models;Structural Transformation, Monetary Policy, Inflation, Subsistence.
    Date: 2016–03–17
  111. By: Bernardo Batiz-Lazo; Gustavo A. Del Angel
    Abstract: In this paper we discuss the genesis and early international expansion of the bank issued credit card. Empirical evidence documents the limits of a single firm building a proprietary network, because success came to a constellation of participants that combined three characteristics namely a critical mass of both retail customers and retail merchants; the capacity to adopt and implement new technological solutions; and the ability to forge resilient collaboration across national borders. This evidence provides further support to the importance of collaboration in retail financial services as means to appropriate network externalities. We also argue that initial conditions for this industry had greater implications for long-term success than has been acknowledged by other conceptual and empirical studies (in particular the literature around two-sided markets, which has focused attention on the determinants of the interchange fee).
    Keywords: Credit card, payments, cashless, two sided markets, payment tolls, Bank of America, Barclays, Banamex, Bancomer, Banco de Bilbao, British banks, Mexican banks, Spanish banks
    JEL: E51 L5 N1 N2 N8
    Date: 2016–03

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