nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒05‒28
97 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary policy and volatility in the sterling money market By Osborne, Matthew
  2. Targeting Constant Money Growth at the Zero Lower Bound By Michael T. Belongia; Peter N. Ireland
  3. How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output By Kyle Herkenhoff; Gordon Phillips; Ethan Cohen-Cole
  4. From the “Great Inflation” to the “Great Moderation” in Peru: A Time Varying Structural Vector Autoregressions Analysis By Castillo, Paul; Montoya, Jimena; Quineche, Ricardo
  5. Too-Big-to-Fail before the Fed By Gorton, Gary; Tallman, Ellis W.
  6. The Great Escape? A Quantitative Evaluation of the Fed’s Liquidity Facilities By Marco Del Negro; Gauti Eggertsson; Andrea Ferrero; Nobuhiro Kiyotaki
  7. Autonomous government expenditure growth, deficits, debt and distribution in a neo-Kaleckian growth model By Hein, Eckhard
  8. Reforming in a difficult macroeconomic context: A review of the issues and recent literature By Aida Caldera Sánchez; Alain de Serres; Naomitsu Yashiro
  9. Why has the cyclicality of productivity changed? What does it mean? By Fernald, John G.; Wang, J. Christina
  10. How to escape a liquidity trap with interest rate rules By Duarte, Fernando M.
  11. The Role of Money in Explaining Business Cycles for a Developing Economy: The Case of Pakistan By Shahzad Ahmad; Farooq Pasha; Muhammad Rehman
  12. Cost channel, interest rate pass-through and optimal monetary policy under zero lower bound By Siddhartha Chattopadhyay; Taniya Ghosh
  13. Financing Channel and Monetary Policy: Evidence from Islamic Banking in Indonesia By Zulkhibri, Muhamed; Sukmana, Raditya
  14. Nonlinearities, Smoothing and Countercyclical Monetary Policy By Jackson, Laura E.; Owyang, Michael T.; Soques, Daniel
  15. Optimal Inflation Rate in a Life-Cycle Economy By Takemasa Oda
  16. Aspects of Stickiness in Understanding Inflation By Kim, Minseong
  17. The Japanese macroeconomic mystery By W Max Corden; Sisira Jayasuriya
  18. Informal Labour Markets in Pakistan By Muhammad Ali Choudhary; Saima Naeem; Gylfi Zoega
  19. Macroeconomic policy in DGSE and agent based models redux : new developments and challenges ahead By G. Fagiolo; A. Roventini
  20. A New Index of Uncertainty Based on Internet Searches: A Friend or Foe of Other Indicators? By M. E. Bontempi; R. Golinelli; M. Squadrani
  21. Profili di illegittimità costituzionale della c.d. "Unione bancaria" e del bail-in nel quadro della moneta unica By Luciano Barra Caracciolo
  22. Policy implications of learning from more accurate Central Bank Forecasts By Paul Hubert
  23. On Monetary Policy, Unemployment, and Economic Growth By Rosas-Martinez, Victor H.
  24. Real Output and Oil Price Uncertainty: Evidence from an Oil Producing Country By Njindan Iyke, Bernard
  25. Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice? By Paul Davidson
  26. The Postwar Conquest of the Home Ownership Dream By Chambers, Matthew; Garriga, Carlos; Schlagenhauf, Don E.
  27. Macroeconomic implications of mortgage loans requirements: An agent based approach By Bulent Ozel; Reynold Christian Nathanael; Marco Raberto; Andrea Teglio; Silvano Cincotti
  28. The Great Recession in the Shadow of the Great Depression: A Review Essay on “Hall of Mirrors: The Great Depression, The Great Recession and the Uses and Misuses Of History” By Lee E. Ohanian
  29. Interlinkages between Household and Corporate Debt in Advanced Economies By Jean-Charles Bricongne; Aurora Maria Mordonu
  30. "Going Forward from B to A? Proposals for the Eurozone Crisis" By Massimo Amato; Luca Fantacci; Dimitri B. Papadimitriou; Gennaro Zezza
  31. From bond yield to macroeconomic instability: The effect of negative interest rates By Maria Cristina Recchioni; Gabriele Tedeschi
  32. Challenges for Central Banks´ Macro Models By Lindé, Jesper; Smets, Frank; Wouters, Rafael
  33. Money demand in the Arab Republic of Egypt : a vector equilibrium correction model By Rostom,Ahmed Mohamed Tawfick
  34. Bank Exposures and Sovereign Stress Transmission By Altavilla, Carlo; Pagano, Marco; Simonelli, Saverio
  35. The steady-state growth conditions of neoclassical growth model and Uzawa theorem revisited By Li, Defu; Huang, Jiuli
  36. Diagnostic Expectations and Credit Cycles By Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
  37. 中国政府消费支出对经济波动的传导机理分析 By Xu, Kun; Xu, Wenli
  38. Money Demand in India By Basutkar, Tirupati
  39. Regional Financial Integration in East Asia against the Backdrop of Recent European Experiences By Ulrich Volz
  40. Interpreting Recent Quasi-Experimental Evidence on the Effects of Unemployment Benefit Extensions By Marcus Hagedorn; Iourii Manovskii; Kurt Mitman
  41. What determines the direction of technological progress? By Li, Defu; Bental, Benjamin
  42. Interpreting Recent Quasi-Experimental Evidence on the Effects of Unemployment Benefit Extensions By Hagedorn, Marcus; Manovskii, Iourii; Mitman, Kurt
  43. An assessment of the relative quality of the Output Gap estimates produced by the EU's Production Function Methodology By K. Mc Morrow; W. Roeger; V. Vandermeulen; K. Havik
  44. Pareto-Improving Redistribution of Wealth - The Case of the NLSY 1979 Cohort By Klaus Wälde
  45. Identifying the exchange-rate balance sheet effect over firms By César Carrera
  46. A Nowcasting Model for Canada: Do U.S. Variables Matter? By Bragoli, Daniela; Modugno, Michele
  47. The Legacy Debt and the Joint Path of Public Deficit and Debt in the Euro Area By Alberto Caruso, Université Libre de Bruxelles; Lucrezia Reichlin, London Business School and CEPR; Giovanni Ricco, University of Warwick
  48. Rent extraction by capitalists By Markus Brueckner
  49. Labor Supply in the Past, Present, and Future: a Balanced-Growth Perspective By Timo Boppart; Per Krusell
  50. Money and Velocity During Financial Crises: From the Great Depression to the Great Recession By Richard G. Anderson; Michael Bordo; John V. Duca
  51. The rise of the added worker effect By Mankart, Jochen; Oikonomou, Rigas
  52. GEEM: a policy model for assessing climate-energy reforms in Italy By Barbara Annicchiarico; Susan Battles; Fabio Di Dio; Pierfrancesco Molina; Pietro Zoppoli
  53. The Strategic Determination of the Supply of Liquid Assets By Geromichalos, Athanasios; Herrenbrueck, Lucas
  54. The Main Vectors of Cross-Border Development in the CIS Industrial and Economic Space: Convergence, Potential, Cross-Country Gaps By Shyam Upadhyaya; Liudmila Kitrar; Georgy Vladimirovich Ostapkovich; Tamara Lipkind
  55. The Role of the Largest Companies and Their Value Chains in the Economy By Ali-Yrkkö, Jyrki; Seppälä, Timo; Mattila, Juri
  56. Weaknesses of 'wage-led growth' By Skott, Peter
  57. Deficit Policy within the Framework of the Stability and Growth Pact - Empirical Results and Lessons for the Fiscal Compact By Afflatet, Nicolas
  58. Exploring the economy's progress and outlook: remarks at the Greater Concord Chamber of Commerce, Concord, New Hampshire, May 12, 2016 By Rosengren, Eric S.
  59. Deposit Insurance: Theories and Facts By Charles W. Calomiris; Matthew Jaremski
  60. Why fiscal regimes matter for fiscal sustainability analysis : an application to France By Jérôme Creel
  61. Foreign Exchange Intervention under Policy Uncertainty By Gustavo Adler; Ruy Lama; Juan Pablo Medina Guzman
  62. Recent Inflation Developments and Challenges for Research and Monetary Policymaking : The 47th Konstanz Seminar on Monetary Theory and Monetary Policy, Insel Reichenau, Germany 5-12-2016 By Mester, Loretta J.
  63. Mitigating the Deadly Embrace in Financial Cycles; Countercyclical Buffers and Loan-to-Value Limits By Jaromir Benes; Douglas Laxton; Joannes Mongardini
  64. Perspectives on risks: both economic and cyber: remarks at the Federal Reserve Bank of Boston's 2016 Cybersecurity Conference, April 4, 2016 By Rosengren, Eric S.
  65. New Zealand's experience with changing its inflation target and the impact on inflation expectations By Michelle Lewis; Dr John McDermott
  66. Monetary Policy, Bank Bailouts and the Sovereign-Bank Risk Nexus in the Euro Area By Marcel Fratzscher, DIW Berlin, Humboldt-University Berlin and CEPR; Malte Rieth, DIW Berlin
  67. Ignorance is bliss: Should a pension reform be announced? By Fedotenkov, Igor
  68. Forecasting with Neural Networks Models. By Francis Bismans; Igor N. Litvine
  69. Optimal time-consistent government debt maturity By Debortoli, Davide; Nunes, Ricardo; Yared, Pierre
  70. Monetary Union and Fiscal and Macroeconomic Governance By Marek Dabrowski
  71. Large Depreciations: Recent Experience in Historical Perspective By José De Gregorio
  72. Inflation and Bubbles in the Japanese Condominium Market By Nagayasu, Jun
  73. Central Bank Transparency and Cross-border Banking By Stefan Eichler; Helge Littke; Lena Tonzer
  74. Market timing and performance attribution in the ECB reserve management framework By Francesco Potente; Antonio Scalia
  75. Socio-economic effects of an earthquake:does sub-regional counterfactual sampling matter in estimates? An empirical test on the 2012 Emilia-Romagna earthquake By Margherita Russo; Francesco Pagliacci
  76. Solomon Islands; 2016 Article IV Consultation and Fifth and Sixth Reviews Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Solomon Islands By International Monetary Fund. Asia and Pacific Dept
  77. Common trends in the US state-level crime.What do panel data say? By Mauro Costantini; Iris Meco; Antonio Paradiso
  78. Firms’ Dynamics and Business Cycle: New Disaggregated Data By Lorenza Rossi; Emilio Zanetti Chini
  79. Botswana; 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Botswana By International Monetary Fund. African Dept.
  80. Firing Costs, Misallocation, and Aggregate Productivity By Jose-Maria Da-Rocha; Marina Mendes Tavares; Diego Restuccia
  81. Tax Revenue Elasticities Corrected for Policy Changes in the EU By Gilles Mourre; Savina Princen
  83. Let’s talk about the weather: the impact of climate change on central banks By Batten,, Sandra; Sowerbutts, Rhiannon; Tanaka, Misa
  84. Financial De-Dollarization; A Global Perspective and the Peruvian Experience By Luis Catão; Marco Terrones
  85. Luigi Pasinetti and the Political Economy of Growth and Distribution By Joseph Halevi
  86. The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom By De Marco, Filippo; Wieladek, Tomasz
  87. Asset bubbles and efficiency in a generalized two-sector model By Stefano Bosi; Cuong Le Van; Ngoc-Sang Pham
  88. Accounting in central banks By Bholat, David; Darbyshire, Robin
  89. Reverse speculative attacks: A comment By Alberto Martin
  90. Estimation and filtering of nonlinear MS-DSGE models By Sergey Ivashchenko
  91. Slow Normalization or No Normalization? : a presentation at 35th Annual Economic Forecast Project, Santa Barbara County Summit, Santa Barbara, Calif. May 5, 2016. By Bullard, James B.
  92. Measuring Interest Rate Risk in the Life Insurance Sector: The U.S. and the U.K. By Hartley, Daniel; Paulson, Anna L.; Rosen, Richard J.
  93. Leisure and housing consumption after retirement: New evidence on the life-cycle hypothesis By Schreiber, Sven; Beblo, Miriam
  94. Effective Macroprudential Policy; Cross-Sector Substitution from Price and Quantity Measures By Janko Cizel; Jon Frost; Aerdt G. F. J. Houben; Peter Wierts
  95. Anti-poverty Income Transfers in the U.S.: A Framework for the Evaluation of Policy Reforms By Salvador Ortigueira; Nawid Siassi
  96. A Functional Approach to Test Trending Volatility By Hernández del Valle Gerardo; Juárez-Torres Miriam; Guerrero Santiago
  97. Fractionality and co-fractionality between Government Bond yields By Håvard Hungnes

  1. By: Osborne, Matthew (Bank of England)
    Abstract: Money market volatility may disrupt the transmission mechanism of monetary policy as well as increase uncertainty for market participants. This paper assesses the impact of reforms to the Bank of England’s operating framework over the last two decades. These reforms have been successful in reducing overnight volatility. A new framework in 2006 which introduced reserves averaging and voluntary reserve targets was associated with lower volatility of overnight rates. Further reductions in volatility were associated with interim reforms and communications prior to the launch of this new framework. The injection of excess reserves under the floor system introduced in 2009 has been associated with a further reduction in volatility. Despite these encouraging findings, further analysis shows that the volatility of overnight rates had little effect on the volatility of longer-term rates except in the pre-2006 ‘zero reserves’ period and no effect at all on three-month Libor rates, which are the key benchmark for many derivatives and bank loans. Since longer-term rates are more important than overnight rates for the transmission of monetary policy to the real economy, the results provide limited support for prioritising the reduction of volatility in the design of central banks’ operating frameworks. The results also suggest that additional communication regarding likely future monetary policy decisions is associated with lower volatility of term rates.
    Keywords: Money market; monetary policy; interest rates; Bank of England
    JEL: E43 E44 E52 E58 G21
    Date: 2016–04–08
  2. By: Michael T. Belongia (University of Mississippi); Peter N. Ireland (Boston College)
    Abstract: Unconventional policy actions, including quantitative easing and forward guidance, taken by the Federal Reserve during and since the financial crisis and Great Recession of 2007-2009, have been widely interpreted as attempts to influence long-term interest rates after the federal funds rate hit its zero lower bound. Alternatively, similar actions could have been directed at stabilizing the growth rate of a monetary aggregate, so as to maintain a more consistent level of policy accommodation in the face of severe disruptions to the financial sector and the economy at large. This paper bridges the gap between these two views, by developing a structural vector autoregression that uses information contained in both interest rates and a Divisia monetary aggregate to infer the stance of Federal Reserve policy and to gauge its effects on aggregate output and prices. Counterfactual simulations from the SVAR suggest that targeting money growth at the zero lower bound would not only have been feasible, but would also have supported a stronger and more rapid economic recovery since 2010.
    Keywords: Constant money growth rate rules, Divisia monetary aggregates, Quantitative easing, Structural vector autoregressions, Zero lower bound
    JEL: E31 E32 E37 E41 E43 E47 E51 E52 E65
    Date: 2016–05–25
  3. By: Kyle Herkenhoff; Gordon Phillips; Ethan Cohen-Cole
    Abstract: We empirically and theoretically examine how consumer credit access affects displaced workers. Empirically, we link administrative employment histories to credit reports. We show that an increase in credit limits worth 10% of prior annual earnings allows individuals to take .15 to 3 weeks longer to find a job. Conditional on finding a job, they earn more and work at more productive firms. We develop a labor sorting model with credit to provide structural estimates of the impact of credit on employment outcomes, which we find are similar to our empirical estimates. We use the model to understand the impact of consumer credit on the macroeconomy. We find that if credit limits tighten during a downturn, employment recovers quicker, but output and productivity remain depressed. This is because when limits tighten, low-asset, low-productivity job losers cannot self-insure. Therefore, they search less thoroughly and take more accessible jobs at less productive firms.
    JEL: E13 E2 E24 E32 J01 J21 J24 J31 J6 J63 J64 J65
    Date: 2016–05
  4. By: Castillo, Paul (Banco Central de Reserva del Perú); Montoya, Jimena (Banco Central de Reserva del Perú); Quineche, Ricardo (Banco Central de Reserva del Perú)
    Abstract: Over the last 30 years, the Peruvian economy has shown a dramatic decrease in the volatility of its macroeconomic aggregates. Following Primiceri (2005), Benati (2008) and Galí and Gambetti (2009), a Bayesian structural vector autoregression with time-varying parameters and variance covariance matrix of the innovations is used to analyse the underlying causes of Peruvian "Great Moderation". The Peruvian economy is modelled using real GDP growth, inflation and the rate of growth of M1 (money base). Our main results show: (1) Monetary policy has contributed significantly to the "Great Moderation" by reducing the volatility of its non-systematic component and by changing its reaction function to demand and supply shocks; (2) Structural reforms also contributed to reduce the responsiveness of GDP and inflation to demand and supply shocks; (3) During the period of high volatility, supply and policy shocks were the most important determinants of macroeconomic instability.
    Keywords: time varying coe¢ cients, multivariate stochastic volatility, Gibbs sampling, systematic monetary policy, monetary policy shocks, identi cation
    JEL: C15 C22 E23 E24 E31 E32 E47 E52 E58
    Date: 2016–04
  5. By: Gorton, Gary (Yale School of Management); Tallman, Ellis W. (Federal Reserve Bank of Cleveland)
    Abstract: “Too-big-to-fail” is consistent with policies followed by private bank clearing houses during financial crises in the U.S. National Banking Era prior to the existence of the Federal Reserve System. Private bank clearing houses provided emergency lending to member banks during financial crises. This behavior strongly suggests that “too-big-to-fail” is not the problem causing modern crises. Rather, it is a reasonable response to the threat posed to large banks by the vulnerability of short-term debt to runs.
    Keywords: Financial crisis; bank runs; banking panic; clearing house; bank-specific information; currency premium;
    JEL: E02 E32 E42 E52 E58
    Date: 2016–05–06
  6. By: Marco Del Negro; Gauti Eggertsson; Andrea Ferrero; Nobuhiro Kiyotaki
    Abstract: We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities and ask: Can a shock to the liquidity of private paper lead to a collapse in short-term nominal interest rates and a recession like the one associated with the 2008 U.S. financial crisis? Once the nominal interest rate reaches the zero bound, what are the effects of interventions in which the government provides liquidity in exchange for illiquid private paper? We find that the effects of the liquidity shock can be large, and show some numerical examples in which the liquidity facilities prevented a repeat of the Great Depression in 2008-2009.
    JEL: E44 E58
    Date: 2016–05
  7. By: Hein, Eckhard
    Abstract: This paper is linked to some recent attempts at including a non-capacity creating autonomous expenditure category as the driver and determinant of growth into Kaleckian distribution and growth models. Whereas previous contributions have focussed on taming Harrodian instability, generated by the deviation of the goods market equilibrium rate of capacity utilisation from a normal or target rate of utilisation, we rather focus on the so far neglected issues of deficit, debt and distribution dynamics in such models. For this purpose we treat the growth of government expenditures on goods and services, financed by credit creation, as the exogenous growth rate driving the system. We examine the medium-run convergence of the system towards such a growth rate, analyse the related long-run debt dynamics and deal with stability and income distribution issues. Finally we touch upon the economic and, in particular, fiscal policy implications of our model results.
    Keywords: government deficits and debt,public expenditure growth,Kaleckian distribution and growth model
    JEL: E11 E12 E25 E62
    Date: 2016
  8. By: Aida Caldera Sánchez; Alain de Serres; Naomitsu Yashiro
    Abstract: This paper reviews the main issues related to the short-term impact of structural reforms in different macroeconomic contexts and takes stock of existing theoretical and empirical studies. Taking reforms introduced in “normal” times as a benchmark, it reviews the available evidence on the impact of reforms that are implemented in “bad” times - i.e. in the presence of a sizeable negative output gap and persistently weak demand - as well as under different assumptions regarding the availability or effectiveness of macroeconomic policies in supporting the reforms. In doing so the paper focuses on the key channels through which different reforms influence short-term activity via the main components of demand and discusses how these channels operate under different macro conditions. Overall, the evidence suggests that in a context of weak demand, structural reform strategies will have significantly better chances of being successful if they put more weight on measures that in addition to stimulate employment or productivity in the medium term can best support demand in the short term. La mise en oeuvre de réformes structurelles en conjoncture défavorable : Une revue des enjeux et de la litérature récente Cette étude passe en revue les principales questions concernant l’impact à court terme des réformes structurelles introduites en conjonctures différentes et fait état de la litérature théorique et empirique récente sur le sujet. Prenant le cas des réformes introduites en conjoncture « normale » comme base de référence, les effets des réformes mises en oeuvre dans une conjoncture caractérisée par une demande anémique, un important déficit de production par rapport au potentiel ainsi qu’en présence de fortes contraintes sur les politiques macro-économiques sont ensuite passés en revue. L’étude met l’accent plus particulièrement sur les principaux mécanismes par lesquels les réformes affectent les principales composantes de la demande agrégée et discute dans quelle mesure ces mécanismes opèrent différemment selon le contexte macro-économique. Dans l’ensemble, les résultats des principales études passées en revue indique qu’en conjoncture défavorable, les stratégies de réformes doivent privilégier les mesures qui en plus de stimuler l’emploi et la productivité à moyen terme sont le plus susceptible de soutenir la demande à court terme.
    Keywords: structural reforms, reform sequencing, zero-lower bounds, reform packaging, stratégie de réformes, séquençage des réformes, réforme structurelle
    JEL: E21 E22 E23 E61 E65
    Date: 2016–05–03
  9. By: Fernald, John G. (Federal Reserve Bank of San Francisco); Wang, J. Christina (Federal Reserve Bank of Boston)
    Abstract: U.S. labor and total factor productivity have historically been procyclical—rising in booms and falling in recessions. After the mid-1980s, however, TFP became much less procyclical with respect to hours while labor productivity turned strongly countercyclical. We find that the key empirical “fact” driving these changes is reduced variation in factor utilization—conceptually, the workweek of capital and labor effort. We discuss a range of theories that seek to explain the changes in productivity’s cyclicality. Increased flexibility, changes in the structure of the economy, and shifts in relative variances of technology and “demand” shocks appear to play key roles.
    JEL: E22 E23 E32 O47
    Date: 2016–04–01
  10. By: Duarte, Fernando M. (Federal Reserve Bank of New York)
    Abstract: I give necessary and sufficient conditions under which interest-rate feedback rules eliminate aggregate instability by inducing a globally unique optimal equilibrium in a canonical New Keynesian economy with a binding zero lower bound. I consider a central bank that initially keeps interest rates pegged at zero for a length of time that depends on the state of the economy and then switches to a standard Taylor rule. There are two crucial principles to achieving global uniqueness. In response to deepening deflationary expectations, the central bank must, first, sufficiently extend the initial period of zero interest rates and, afterward, follow a Taylor rule that does not obey the Taylor principle. I obtain all results assuming a passive or Ricardian fiscal policy stance, so that it is monetary policy alone that eliminates undesired equilibria. The interest rate rules that I consider do not require central banks to undergo any significant institutional change and do not rely on the Neo-Fisherian mechanism of inducing an increase in inflation by first increasing interest rates.
    Keywords: zero lower bound (ZLB); liquidity trap; New Keynesian model; indeterminacy; monetary policy; Taylor rule; Taylor principle; interest rate rule; forward guidance
    JEL: E43 E52 E58
    Date: 2016–05–01
  11. By: Shahzad Ahmad (State Bank of Pakistan); Farooq Pasha (State Bank of Pakistan); Muhammad Rehman (State Bank of Pakistan)
    Abstract: This paper theoretically evaluates the role of money and monetary policy in propagating business cycle fluctuations of Pakistan’s economy. We introduce the role of money via money in utility (MIU) and cash in advance constraint (CIA) in simple closed economy DSGE models and analyze monetary policy through a money growth rule as well as Taylor type interest rate rule. We establish the theoretical and empirical linkages between nominal and real variables of Pakistan’s economy for post financial liberalization era. We find that the cash base economy models under money growth rule matches the data relatively better compared to cashless economy with Taylor rule.
    Keywords: General Equilibrium Models, Modeling and Simulations, Monetary Policy
    JEL: D58 E27 E52
    Date: 2016–04
  12. By: Siddhartha Chattopadhyay (Indian Institute of Technology, Kharagpur); Taniya Ghosh (Indira Gandhi Institute of Development Research)
    Abstract: Cost channel introduces trade-off between inflation rate and output gap. Unlike the canonical New Keynesian DSGE model, optimal monetary policy cannot set both inflation rate and output gap simultaneously to zero under a demand shock. Using a perfect foresight New Keynesian model with cost channel, this paper analyzes the optimal discretionary monetary policy under Zero Lower Bound (ZLB) for varying degree of interest rate pass-through. We find (i) exit date from ZLB becomes endogenous due to the trade-off between output gap and inflation introduced by the cost channel; (ii) presence of cost channel delays the exit from ZLB compared to models without cost channel; and (iii) exit date rises monotonically with the magnitude of demand shock and degree of interest rate pass-through.
    Keywords: New-Keynesian Model, Inflation Target, Liquidity Trap
    JEL: E63 E52 E58
    Date: 2016–05
  13. By: Zulkhibri, Muhamed (The Islamic Research and Teaching Institute (IRTI)); Sukmana, Raditya (The Islamic Research and Teaching Institute (IRTI))
    Abstract: Using Indonesia Islamic banks data from 2003 to 2014, this paper employs panel regression methodology by investigating the responses of Islamic banks to changes in financing rate and monetary policy may differ, depending on their characteristics. The results suggest that the financing rate has negative impact on Islamic bank financing, while bank-specific characteristics have positive influence on Islamic bank financing. The degree of size and capital have greater impact than liquidity on Islamic bank financing. On the other hand, changes in monetary policy is insignificant on bank financing, which implies that the transmission of monetary policy through the Islamic segment of the banking sector is weak. Furthermore, the weak impact of monetary policy on bank financing can be explained by the dramatic expansion of Islamic banks during this sample period, which contributed to substantial increase in deposit growth and high liquidity position.
    Keywords: Islamic Banks; Financing Rate; Financing Channels; Monetary Policy; Panel Regression
    JEL: E44 E52
    Date: 2016–03–01
  14. By: Jackson, Laura E. (Bentley University); Owyang, Michael T. (Federal Reserve Bank of St. Louis); Soques, Daniel (University of North Carolina, Wilmington.)
    Abstract: Empirical analysis of the Fed’s monetary policy behavior suggests that the Fed smooths interest rates— that is, the Fed moves the federal funds rate target in several small steps instead of one large step with the same magnitude. We evaluate the effect of countercyclical policy by estimating a Vector Autoregression (VAR) with regime switching. Because the size of the policy shock is important in our model, we can evaluate the effect of smoothing the interest rate on the path of macro variables. Our model also allows for variation in transition probabilities across regimes, depending on the level of output growth. Thus, changes in the stance of monetary policy affect the macroeconomic variables in a nonlinear way, both directly and indirectly through the state of the economy. We also incorporate a factor summarizing overall sentiment into the VAR to determine if sentiment changes substantially around turning points and whether they are indeed important to understanding the effects of policy.
    Keywords: Time-varying transition probabilities; Markov-switching; monetary policy
    JEL: C24 E32
    Date: 2016–05–11
  15. By: Takemasa Oda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper investigates long-run effects of inflation and deflation in a monetary life-cycle model that incorporates both capital stock and elastic labor supply as production factors. The model also introduces the zero lower bound on the nominal interest rate. The findings of this paper are twofold. First, in contrast to a result obtained from most neoclassical monetary models with an infinitely lived representative agent, the Friedman rule is not optimal and mild inflation can be desirable in this model. The Tobin effect on capital stock is encouraged by redistribution among households and therefore dominates distortionary effects of the inflation tax on labor supply and consumption. Importantly, the optimal rate of inflation depends on how inflation tax revenues are rebated to households. Second, there is a remarkable asymmetry in terms of welfare costs between inflation and deflation. For a lower rate of inflation than the rate that makes the nominal interest rate just zero, the Tobin effect works strongly in a deflationary direction because households are willing to hold more money, thus depressing aggregate output and social welfare significantly. This result reinforces the validity of pursuing mild inflation to evade the risk of hitting the zero lower bound.
    Keywords: Friedman rule, Zero lower bound, Tobin effect, Inflation tax, Redistribution
    JEL: E31 E58 O42
    Date: 2016–04
  16. By: Kim, Minseong
    Abstract: This paper examines the question of how conventional understanding of inflation relates to stickiness. Several results that often go unnoticed are re-examined.
    Keywords: theory of price level; theory of inflation; stickiness; New Keynesian; uniqueness; explosive path; stability
    JEL: E12 E13 E31 E52
    Date: 2016–04–30
  17. By: W Max Corden; Sisira Jayasuriya
    Abstract: This paper examines Japan’s two decades of so-called ‘stagnation’ since the rapid the collapse of the bubble economy in the early 1990s brought the long period of rapid post-war economic growth to an abrupt halt. Successive governments have experimented with varying policy measures to restore growth without much success, though Keynesian fiscal measures have helped avoid high unemployment. A series of policy mistakes and demographic shifts that foreshadowed an aging and shrinking population led to a loss of confidence in the country’s long term economic prospects and hampered recovery. A major cause of continuing stagnation has been a sharp decline in private corporate investment to the point where it became a net saver. Surprising for a country with no regulatory barriers to cross border capital mobility, the bulk of Japanese savings have gone into government bonds yielding progressively lower returns despite better foreign options. This extreme ‘home bias’ has enabled governments to run debt financed fiscal deficits for a long period but now public debt has exploded to well over twice GDP, threatening fiscal sustainability. Direct government measures to channel investments overseas through a Sovereign Wealth Fund can not only boost Japan’s longer term income but also provide an immediate stimulus by depreciating its exchange rate. A fundamental lesson from the Japanese experience is that, to avoid a public debt sustainability problem, long term fiscal stimulus measures should make productive investments that enable subsequent debt repayments.
    Keywords: fiscal sustainability, bond market crisis, home bias, sovereign wealth fund
    JEL: E12 E21 E62
    Date: 2016
  18. By: Muhammad Ali Choudhary (State Bank of Pakistan); Saima Naeem (State Bank of Pakistan); Gylfi Zoega (University of London,)
    Abstract: This paper describes the results of a survey of informal-sector firms in Pakistan. Firms belong to the informal sector mainly because of scarce financial resources. There are significant differences in the level of wages and the flexibility of wages with the informal sector having both lower wages and greater flexibility than the formal sector. While minimum wages are less binding in the informal sector, a sort of indexation of wages to inflation is more common. In spite of these differences the reasons for not cutting wages in a recession are similar between the two sectors.
    Keywords: Informal sector, wage setting, wage rigidity.
    JEL: E24 E26 J31 J46
    Date: 2016–04
  19. By: G. Fagiolo (Scuola Superiore Sant'Anna); A. Roventini (Scuola Superiore Sant'Anna & OFCE Sciences Po)
    Abstract: The Great Recession seems to be a natural experiment for economic analysis, in that it has shown the inadequacy of the predominant theoretical framework | the New Neoclassical Synthesis (NNS) | grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research avenue should escape the strong theoretical requirements of NNS models (e.g., equilibrium, rationality, representative agent, etc.) and consider the economy as a complex evolving system, i.e. as an ecology populated by heterogeneous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This is indeed the methodological core of agent-based computational economics (ACE), which is presented in this paper. We also discuss how ACE has been applied to policy analysis issues, and we provide a survey of macroeconomic policy applications (fiscal and monetary policy, bank regulation, labor market structural reforms and climate change interventions). Finally, we conclude by discussing the methodological status of ACE, as well as the problems it raises.
    Keywords: Economic policy, New neoclassical synthesis, new keynesian models, DSGE models, Agent-based computational economics, agent based models, complexity theory, Great recession, Crisis.
    JEL: B41 B50 E32 E52
    Date: 2016–04
  20. By: M. E. Bontempi; R. Golinelli; M. Squadrani
    Abstract: The preliminary evidence in the literature suggests that changes in uncertainty have a role in shaping the U.S. economic cycle. But what is effectively measured by the different available indicators of uncertainty still remains an "uncertain" issue. This paper has two aims: (i) to introduce a new uncertainty indicator (GT) based on Internet searches; and (ii) to compare the main features and the macroeconomic effects of alternative measures of uncertainty, including our own. Results suggest that GT shocks embody timely information about people's perception of uncertainty and, in some cases, earlier than other indexes. Furthermore, the effect of uncertainty shocks on output is more influenced by parameter breaks due to insample events than by model specification. The consequence is that an all-comprehensive indicator able to weight different sources of uncertainty is preferable.
    JEL: D80 E32 E27 E37 C32
    Date: 2016–03
  21. By: Luciano Barra Caracciolo (Consiglio di Stato)
    Abstract: 1. Introduzione al tema; 2. Il quadro normativo europeo in materia di risparmio e di sua promozione e tutela; 3. La disciplina costituzionale del risparmio in termini letterali e sistematici; 4. Lo schema economico e ideologico trasposto nella disciplina dell’unione bancaria; 5. Gli effetti di sistema della “apparente” unione bancaria sulla stessa titolarità del potere di creazione della moneta; 6. Quadro generale della contrarietà della moneta unica alla Costituzione, sotto il profilo della tutela del risparmio e dei saldi della contabilità nazionale (prescindendo dall’applicazione dell’unione bancaria); 7. Conclusioni sulla illegittimità costituzionale della disciplina dell’unione bancaria nel quadro istituzionale della moneta unica; 8. Il valore sintomatico della illegittimità costituzionale del sistema di assicurazione “privato” dei depositi bancari.
    Keywords: European law, Banking union, Constitution, Savings, Bail-in, Statutory law, Sovereignty.
    JEL: G28 K10 K33 E21 E02 E50 F36 F50
    Date: 2016–05
  22. By: Paul Hubert (OFCE)
    Abstract: How might central bank communication of its internal forecasts assist the conduct of monetary policy? The literature has shown that heterogeneous expectations may have destabilizing effects on aggregate dynamics. This paper analyzes through adaptive learning the policy implications of central bank influence of private forecasts stemming from more accurate central bank forecasts. In this case, the central bank must only respect the Taylor principle to ensure macroeconomic stability, in contrast to the situation where private agents are learning from less accurate central bank forecasts.
    Keywords: Adaptive Learning; Taylor Principle; Monetary Policy
    JEL: E5 D8
    Date: 2015–03
  23. By: Rosas-Martinez, Victor H.
    Abstract: Recognizing the possible relation between investments, economic growth and unemployment, and how there is not an established impact of an unlikely productive project failure on the secondly mentioned variables, we address such relation and asses theoretically the effect of different instruments of monetary policy on the mentioned macroeconomic indicators. To do this we modify two models of economic growth by considering the role of entrepreneurs, risk takers, and a monetary authority which is the average agent of the economy that is assumed to be aware of how the inflation can damage equally the individuals' life style, independently of their particular levels of income, finding that the impact of the monetary instruments depends on the behavior of the population.
    Keywords: Monetary Authority; Endogenous expansive policy; Inflation; Unemployment; Economic Growth
    JEL: E2 E5 O3 O4
    Date: 2016–01–19
  24. By: Njindan Iyke, Bernard
    Abstract: Sudden changes in oil prices have been a major concern for countries – oil producing and non-oil producing countries alike. Due to this, we assessed the effects of such an uncertainty on the real output of Nigeria, an oil producing country, during the period 1980:1 to 2014:4. We achieved this objective by using a bivariate GARCH-in-mean VAR model that allows for an uncertainty measure. We then quantified the responses of real output to positive and negative real oil price shocks. Using the conditional standard deviation of the forecast revision of the growth in the composite refiners’ acquisition cost of crude oil deflated by US GDP deflator as our measure of oil price uncertainty, we found that uncertainty about oil prices exerted negative and significant impact on the real output of Nigeria. In addition, real output responded to positive and negative shocks to real oil prices symmetrically.
    Keywords: Oil Price Uncertainty, Real Output, GARH-in-mean VAR, Nigeria
    JEL: C32 E23 E3 E32
    Date: 2016–01–01
  25. By: Paul Davidson (University of Tennessee.)
    Abstract: This paper provides critical comments on the Peter Temin - David Vines promotion of the basic Swan Diagram as (1) a policy tool to encourage any individual debtor nation experiencing balance of payment deficits to reduce its exchange rate in order to expand exports and reduce imports and (2) the Swan Diagram as a simple model for understanding Keynes's General Theory for an Open Economy. This paper explains that the Swan Diagram is completely incompatible with Keynes's analysis. Instead Keynes advocated that the onus should be placed on creditor nations to correct international payments imbalances and thereby promote economic expansion internationally. Keynes warned against any deficit nation adopting a policy that tries to achieve a balance in its international payments by following any policy designed to reduce imports and increase exports. Such a policy sends a contractionary force onto the international economy and tends to injure all trading partners.
    Keywords: Swan Diagram, balance of payments, fiscal policy, neoclassical Synthesis Keynesianism, Post Keynesianism.
    JEL: B3 E12 E42 E61 F33 F41
  26. By: Chambers, Matthew (Towson University); Garriga, Carlos (Federal Reserve Bank of St. Louis); Schlagenhauf, Don E. (Federal Reserve Bank of St. Louis)
    Abstract: Post-World War II witnessed the largest housing boom in recent history. This paper develops a quantitative equilibrium model of tenure choice to analyze the key determinants in the co-movement between home-ownership and house prices over the period 1940-1960. The parameterized model matches key features and is capable of accounting for the observed housing boom. The key driver in understanding this boom is an asymmetric productivity change that favors the goods sector relative to the construction sector. Other factors such as demographics, income risk, and government policy are important determinants of the homeownership rate but have small effect on house prices.
    Keywords: Housing finance; first-time buyers; life-cycle
    JEL: E2 E6
    Date: 2016–04–12
  27. By: Bulent Ozel (Department of Economics, Universidad Jaume I, Castellón, Spain); Reynold Christian Nathanael (DIME-CINEF, Università di Genova, Italy); Marco Raberto (DIME-CINEF, Università di Genova, Italy); Andrea Teglio (Department of Economics, Universidad Jaume I, Castellón, Spain); Silvano Cincotti (DIME-CINEF, Università di Genova, Italy)
    Abstract: This paper presents an enhancement of the Eurace agent-based model by designing a housing market with a related mortgage lending device. The presence of the housing market has some important macroeconomic implications, mainly given by the additional amount of endogenous money injected into the economy through the new mortgage device. This additional money generally helps to increase and stabilize aggregated demand, thus improving the main economic indicators. However, if the mortgage lending regulation is relaxed too much, by raising the debt-service-to-income ratio (DSTI), then the additional supply of mortgages doesn’t increase the macroeconomic performance any more, and undermines the stability of the economic system. Following some recent discussion, a stock control regulation that targets households net wealth (a stock), instead of income (a flow), is designed and analyzed. Results show that stock control regulation can be effectively combined with DSTI in order to increase the stability of the housing market and of the whole economy. Moreover, stock control regulation exhibits the interesting property to directly affect mortgage distribution among households.
    Keywords: Computational Techniques, Simulation Modeling, Business Fluctuations, Cycles, Money Supply, Credit, Money Multipliers
    JEL: C63 E32 E51
    Date: 2016
  28. By: Lee E. Ohanian
    Abstract: This essay reviews Barry Eichengreen's recent book that compares the Great Depression and the Great Recession. Eichengreen focuses on deficient aggregate demand as the key reason for why both downturns were so deep and why they lasted so long. I assess the book's arguments regarding the causes and consequences of these episodes from a neoclassical perspective. I provide an alternative framework for analyzing these episodes, and argue that a key difference between the 1930s and today reflects the factors that continued to depress both economies after their respective troughs. The post-Depression economy featured rapid productivity growth, whereas today's economy is plagued by low productivity growth. I discuss how the post-Great Depression economy recovered to trend quickly once policies that depressed competition were removed. I also argue that returning today's economy to trend may be considerably more challenging.
    JEL: E13 E6 N0
    Date: 2016–05
  29. By: Jean-Charles Bricongne; Aurora Maria Mordonu
    Abstract: This article contributes to the debate on deleveraging in the non-financial private sector. It proposes a framework to assess the interconnectedness of deleveraging in the household sector and in the nonfinancial corporations sector. In doing so, several factors are controlled for: inflation, interest rates, labour intensity and also the influence of the general government debt (neo-ricardian effects). Panel regressions are performed on a set of OECD countries, between 1981 and 2013, to cover several crisis episodes, including the latest one. Instrumental regressions are used, with different instruments. Findings show robust results of mutual and positive influence between households and non-financial corporations' debts developments. It is also found that, in cases where the labour share of GDP is higher, deleveraging by non-financial corporations will take a heavier toll on deleveraging by households. This can be explained by an enhanced functioning of the income channel: corporations squeeze the wage bill in order to restore their profitability. Conversely, among other channels, household deleveraging affects their propensity to consume, which in turn affects corporations profitability that become more incited to deleverage.
    JEL: E21 E51 G32
    Date: 2015–10
  30. By: Massimo Amato; Luca Fantacci; Dimitri B. Papadimitriou; Gennaro Zezza
    Abstract: After reviewing the main determinants of the current eurozone crisis, this paper discusses the feasibility of introducing fiscal currencies as a way to restore fiscal space in peripheral countries, like Greece, that have so far adopted austerity measures in order to abide by their commitments to eurozone institutions and the International Monetary Fund. We show that the introduction of fiscal currencies would speed up the recovery, without violating the rules of eurozone treaties. At the same time, these processes could help transition the euro from its current status as the single currency to the status of "common clearing currency," along the lines proposed by John Maynard Keynes at Bretton Woods as a system of international monetary payments. Eurozone countries could therefore move from "Plan B," aimed at addressing member-state domestic problems, to a "Plan A" for a better European monetary system.
    Keywords: Euro; Fiscal Currencies; Austerity; Current Account Imbalances; Clearing Union
    JEL: E02 E12 E42 F45
    Date: 2016–05
  31. By: Maria Cristina Recchioni (Department of Managment, Università Politecnica delle Marche, Ancona, Italy); Gabriele Tedeschi (Department of Economics, Universidad Jaume I, Castellón, Spain)
    Abstract: We present a hybrid Heston model with a local stochastic volatility to describe government bond yield dynamics. The model is analytically tractable and, therefore, can be efficiently estimated using the maximum likelihood approach. Twofold is the model contribution. First, it captures changes in the yield volatility and predict future yield values of Germany, French, Italy and Spain. The result is an early-warning indicator which anticipates phases of instability characterizing the time series investigated. Then, the model describes convergence/divergence phenomena among European government bond yields and explores the countries' reactions to a common monetary policy described through the EONIA interbank rate.
    Keywords: Stochastic volatility model, Kolmogorov backward equation, maximum likelihood function, government bond yield forecasting
    JEL: C13 C32 G12 G17 E58
    Date: 2016
  32. By: Lindé, Jesper (Research Department, Central Bank of Sweden); Smets, Frank (ECB, KU Leuven and CEPR); Wouters, Rafael (National Bank of Belgium and CEPR)
    Abstract: In this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has difficulty explaining both the depth and the slow recovery of the Great Recession. In order to better account for these observations, the paper analyses three extensions of the benchmark model. First, we estimate the model allowing explicitly for the zero lower bound constraint on nominal interest rates. Second, we introduce time-variation in the volatility of the exogenous disturbances to account for the non-Gaussian nature of some of the shocks. Third and finally, we extend the model with a financial accelerator and allow for time-variation in the endogenous propagation of financial shocks. All three extensions require that we go beyond the linear Gaussian assumptions that are standard in most policy models. We conclude that these extensions go some way in accounting for features of the Great Recession and its aftermath, but they do not suffice to address some of the major policy challenges associated with the use of non-standard monetary policy and macroprudential policies.
    Keywords: Monetary policy; DSGE; and VAR models; Regime-Switching; Zero Lower Bound; Financial Frictions; Great Recession; Macroprudential policy; Open economy
    JEL: E52 E58
    Date: 2016–05–01
  33. By: Rostom,Ahmed Mohamed Tawfick
    Abstract: Money demand is critical for defining monetary policy options and is not driven necessarily by developed country standards of transaction demand, speculation motive, and opportunity costs grounded by fully functioning financial markets. However, market imperfections in less developed economies can also play a critical role in the dynamics of demand for money. This paper estimates a vector equilibrium correction model to investigate the nature of short-term and long-term interactions for money demand in the Arab Republic of Egypt. The paper concludes that real money demand in Egypt during (1958-2013) is stable and can be considered confidently by monetary authorities to adjust for long-term growth in the real economy. The rate of devaluation of the official exchange rate and inflation have a serious effect on the public's trust in the national currency in the long term. Money is not neutral for long-term portfolio decisions, because of the increase in real income in the economy that couples with an uptrend in monetization as the ratio of money stock over output also uptrends. The paper also provides quantitative evidence that the devaluation within the parallel market is negatively related to the change in demand for real money balances in the short term. Economic agents hold more domestic currency if the official exchange rate slides, and arbitrage opportunities are sought in the parallel market.
    Keywords: Currencies and Exchange Rates,Debt Markets,Economic Theory&Research,Emerging Markets,Fiscal&Monetary Policy
    Date: 2016–05–18
  34. By: Altavilla, Carlo; Pagano, Marco; Simonelli, Saverio
    Abstract: Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the causes and effects of banks' sovereign exposures during and after the euro crisis. First, in the vulnerable countries, the publicly owned, recently bailed out and less strongly capitalized banks reacted to sovereign stress by increasing their domestic sovereign holdings more than other banks, suggesting that their choices were affected both by moral suasion and by yield-seeking. Second, their exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. And this amplification of the impact on lending cannot be ascribed to spurious correlation or reverse causality.
    Keywords: credit risk; diabolic loop; euro debt crisis.; lending; sovereign exposures; sovereign risk
    JEL: E44 F3 G01 G21 H63
    Date: 2016–05
  35. By: Li, Defu; Huang, Jiuli
    Abstract: Based on a neoclassical growth model including adjustment costs of investment, this paper proves that the essential condition for neoclassical model to have steady-state growth path is that the sum of change rate of the marginal efficiency of capital accumulation (MECA) and the rate of capital-augmenting technical change (CATC) be zero. We further confirm that Uzawa(1961)’s steady-state growth theorem that says the steady-state technical change of neoclassical growth model should exclusively be Harrod neutral, holds only if the marginal efficiency of capital accumulation is constant, which in turn implies that the capital supply should be infinitely elastic. Uzawa’s theorem has been misleading the development of growth theorem by not explicitly specifying this prerequisite, and thus should be revisited.
    Keywords: Neoclassical Growth Model; Uzawa’s Theorem; Direction of Technical Change; Adjustment Cost
    JEL: E13 O30 O41
    Date: 2016–05–21
  36. By: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
    Abstract: We present a model of credit cycles arising from diagnostic expectations – a belief formation mechanism based on Kahneman and Tversky’s (1972) representativeness heuristic. In this formulation, when forming their beliefs agents overweight future outcomes that have become more likely in light of incoming data. The model reconciles extrapolation and neglect of risk in a unified framework. Diagnostic expectations are forward looking, and as such are immune to the Lucas critique and nest rational expectations as a special case. In our model of credit cycles, credit spreads are excessively volatile, over-react to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility.
    JEL: E03 E17 E32 G01 G02
    Date: 2016–05
  37. By: Xu, Kun; Xu, Wenli
    Abstract: 受“三期叠加”影响,中国经济“新常态”调整可能陷入“突然停顿”或“回归均值”或“ 走走停停”困境,因此稳定经济增长已成为调控中国经济最紧迫任务。本文从理论层面,详 细分析了政府消费性支出影响经济波动的税收债务机制以及非需求性机制,揭示其作用机制 与内在机理。基于这一机理,利用中国1978年至2014年宏观经济数据,应用分位数 回归方法,分析了政府消费性支出波动对经济波动影响途径的差异,结果表明:(1)需求 波动具有顺周期特征且是产出波动的根本原因;(2)政府消费波动不是引起产出波动的原 因;(3)我国传导政府消费波动的税收-债务机制、税率机制和财政支出制度机制失效。 因此本文建议政府制定稳定政策时应当以需求管理为主,且必须首先理顺财政政策传导机制 ,保证各机制有效运行。
    Keywords: 政府消费性支出;私人投资;挤入效应;经济波动
    JEL: C1 C6 E1 E3 H5
    Date: 2015–11
  38. By: Basutkar, Tirupati
    Abstract: There exist many approaches, both at theoretical and empirical levels, to compute money demand function. This paper attempts to derive a money demand function for Indian economy over the period 2004-2014.
    Keywords: Money Demand Function, Narrow Money, Broad Money, Indian Economy
    JEL: E52 E58
    Date: 2016–04
  39. By: Ulrich Volz (Department of Economics, SOAS, University of London, UK)
    Abstract: This paper discusses recent trends in regional financial integration in East Asia and current efforts of the Association of Southeast Asian Nations (ASEAN) member countries to foster regional financial integration against the backdrop of three decades of experience with financial integration in Europe. It reviews the two major crisis episodes of the recent European financial history to illustrate the risks associated with comprehensive capital account liberalisation and financial integration without commensurate supervisory structures. The paper highlights the importance of targeted macroprudential policies and the development of an adequate region-wide regulatory and supervisory framework to reduce the risks associated with regional ñ and hence international ñ financial integration.
    Keywords: Regional financial integration, East Asia, financial stability
    JEL: E44 F36
  40. By: Marcus Hagedorn; Iourii Manovskii; Kurt Mitman
    Abstract: We critically review recent methodological and empirical contributions aiming to provide a comprehensive assessment of the effects of unemployment benefit extensions on the labor market and attempt to reconcile their apparently disparate findings. We describe two key challenges facing these studies - the endogeneity of benefit durations to labor market conditions and isolating true effects of actual policies from agents' responses to expectations of future policy changes. Marinescu (2015) employs a methodology that does not attempt to address these challenges. A more innovative approach in Coglianese (2015) and Chodorow-Reich and Karabarbounis (2016) attempts to overcome these challenges by exploiting a sampling error in unemployment rates as an exogenous variation. Unfortunately, we find that this approach falls prey to the very problems it aims to overcome and it appears unlikely that the fundamental bias at the core of this approach can be overcome. We find more promising the approach based on unexpected policy changes as in the recent contributions by Johnston and Mas (2015) and Hagedorn, Manovskii and Mitman (2015). This approach by design addresses the problem of benefit endogeneity. It does not, however, fully address the effects of expectations and generally yields a lower bound on the actual effects of policies.
    JEL: E24 J64 J65
    Date: 2016–05
  41. By: Li, Defu; Bental, Benjamin
    Abstract: What are the key determinants of the direction of technological progress is of central importance for many problems in macroeconomics. In the existing literature, the changing relative production factor prices as suggested by Hicks (1932) and the relative market sizes as indicated by Acemoglu (2002) are considered as the two major determinants. However, by allowing for adjustment costs in factor accumulation processes to expand Acemoglu’s (2003) model, this paper argues that, at least in the steady-state equilibrium, the direction of technological progress may be due to neither of them, but to the relative size of material factor price elasticities, and is biased towards the factor with the relatively smaller elasticity. In addition, contrary to the Uzawa(1961) steady-state theorem, this paper demonstrates that along a steady-state equilibrium path, technological progress can simultaneously include labor- and capital-augmenting elements alongside with unchanged factor income shares. Furthermore, this paper identifies more general conditions for the existence of a steady-state equilibrium of which Uzawa’s theorem obtains as a special case. Based on these results, the paper argues that technological progress may have not included labor-augmentation during the preindustrial era because labor supply was infinitely elastic with respect to wages, and no capital-augmentation after the industrial revolution because of the high capital supply elasticity with respect to the interest rate.
    Keywords: steady-state, direction of technical change, Uzawa’s steady-state theorem, price elasiticities, factor income shares, adjustment cost
    JEL: E13 O11 O33 Q01
    Date: 2016–05–12
  42. By: Hagedorn, Marcus; Manovskii, Iourii; Mitman, Kurt
    Abstract: We critically review recent methodological and empirical contributions aiming to provide a comprehensive assessment of the effects of unemployment benefit extensions on the labor market and attempt to reconcile their apparently disparate findings. We describe two key challenges facing these studies - the endogeneity of benefit durations to labor market conditions and isolating true effects of actual policies from agents' responses to expectations of future policy changes. Marinescu (2015) employs a methodology that does not attempt to address these challenges. A more innovative approach in Coglianese (2015) and Chodorow-Reich and Karabarbounis (2016) attempts to overcome these challenges by exploiting a sampling error in unemployment rates as an exogenous variation. Unfortunately, we find that this approach falls prey to the very problems it aims to overcome and it appears unlikely that the fundamental bias at the core of this approach can be overcome. We find more promising the approach based on unexpected policy changes as in the recent contributions by Johnston and Mas (2015) and Hagedorn, Manovskii and Mitman (2015). This approach by design addresses the problem of benefit endogeneity. It does not, however, fully address the effects of expectations and generally yields a lower bound on the actual effects of policies.
    Keywords: Unemployment; Unemployment insurance
    JEL: E24 J63 J64 J65
    Date: 2016–05
  43. By: K. Mc Morrow; W. Roeger; V. Vandermeulen; K. Havik
    Abstract: This paper assesses the performance of the EU’s production function (PF) methodology for estimating output gaps since its introduction in the EU's policy surveillance procedures in 2002. It looks at how the methodology has performed relative to the method used up until 2002 (i.e. the Hodrick Prescott filter), with respect to its ability to track the euro area's business cycle. It also compares the PF method with the equivalent OECD and IMF methodologies in terms of its stability, real-time reliability and financial crisis performance. The analysis shows that the EU's PF method has performed better than the HP filter and the equivalent OECD & IMF methods. The results consequently strongly support the 2002 ECOFIN Council decision to adopt the PF method as the EU's ‘commonly agreed’ reference method. Nevertheless, whilst the PF method has clearly done well in relative terms since it was first introduced, the analysis also recognises the absolute size of the output gap errors made by all of the methods in the pre-crisis period. These errors underline the importance of continuing to improve the EU’s commonly agreed methodology, with a particular focus on attenuating procyclicality risks in the upswing phase of the business cycle.
    JEL: C10 E60 O10
    Date: 2015–12
  44. By: Klaus Wälde (Johannes Gutenberg-University Mainz)
    Abstract: We quantify a model of idiosyncratic labour income and idiosyncratic interest rates to perfectly match the evolution of the wealth distribution of the NLSY 79 cohort from 1986 to 2008. Given a simple and plausible labour income process with a posi- tive growth rate of labour income, the crucial feature is an ex-ante heterogeneity in interest rate distributions and an interest rate that ?uctuates between two values. One value lies below and one above the threshold level that implies a stationary long-run wealth distribution. We propose an "investment insurance" which, if im- plemented in 1986, would have reduced wealth inequality of the NLSY 79 cohort in 2008 by 23%. It would also have increased ex-ante welfare and would even have increased average wealth in 2008 by 38%. The economic rationale behind this sur- prising ?nding that everybody becomes richer through an inequality-reducing policy intervention is explained.
    Keywords: dynamics of wealth distributions, NLSY 1979 cohort, capital income risk, redistribution, insurance, Fokker-Planck equations
    JEL: C02 D31 E21
    Date: 2016–04–26
  45. By: César Carrera (Banco Central de Reserva del Perú)
    Abstract: I use firm-level data on investment and evaluate the balance sheet effect of changes in the exchange rate. The fact that a depreciation not only generates an expansion (for a small open economy that exports raw materials) but also has the potential of recession (in a dollarized economy in which most firms’ liabilities are in foreign currency) brings up the question on what the final effect of a depreciation over either investment or production is. Following Bleakley and Cowan (2008), I evaluate if this channel is operating. My estimations indicates that this effect tends to disappear when terms of trade are considered, result that is robust to different specifications.
    Keywords: Balance sheet effect, exchange rate, investment
    JEL: E22 F41 G31
    Date: 2016–04
  46. By: Bragoli, Daniela; Modugno, Michele
    Abstract: We propose a dynamic factor model for nowcasting the growth rate of quarterly real Canadian gross domestic product. We show that the proposed model produces more accurate nowcasts than those produced by institutional forecasters, like the Bank of Canada, the The Organisation for Economic Co-operation and Development (OECD), and the survey collected by Bloomberg, which reflects the median forecast of market participants. We show that including U.S. data in a nowcasting model for Canada dramatically improves its predictive accuracy, mainly because of the absence of timely production data for Canada. Moreover, Statistics Canada produces a monthly real GDP measure along with the quarterly one, and we show how to modify the state space representation of our model to properly link the monthly GDP with its quarterly counterpart.
    Keywords: Nowcasting ; Updating ; Dynamic Factor Model
    JEL: C33 C53 E37
    Date: 2016–04
  47. By: Alberto Caruso, Université Libre de Bruxelles; Lucrezia Reichlin, London Business School and CEPR; Giovanni Ricco, University of Warwick
    Abstract: This paper studies the joint dynamics of public debt and public deficit in the euro area for the period 1981-2013 and computes projections up to 2020. We show that, since 2009, public debt and public deficit have been negatively related. On the basis of a counter-factual simulation that conditions on past correlations with a large number of macroeconomic indicators and the observed GDP path since 2008 we find that the negative relation is anomalous with respect to previous historical experience. In contrast, private savings and private debt since 2008 have behaved in line with past experience. We define and estimate the “legacy debt” of the 2008 crisis and show that, if GDP and inflation will behave according to the International Monetary Fund (IMF) projection, by 2020 it will still account for 15% of total public debt.
    JEL: H63 E21
    Date: 2015–09
  48. By: Markus Brueckner
    Abstract: Rent extraction by capitalists is present if the capital income share exceeds the capital output elasticity. Based on a sample of 111 countries during the period 1970-2010, this paper provides estimates of the capital output elasticity and compares these to countries' capital income shares. Three findings arise: (i) for the average country in the sample, the capital income share significantly exceeds the capital output elasticity; (ii) the difference between the capital income share and the capital output elasticity has increased since the 1980s; (iii) in democracies the capital income share is not significantly different from the capital output elasticity.
    Keywords: Capital output elasticity, capital income share, rent extraction.
    JEL: E0 O4
    Date: 2016–05
  49. By: Timo Boppart; Per Krusell
    Abstract: What explains how much people work? Going back in time, a main fact to address is the steady reduction in hours worked. The long-run data, for the U.S. as well as for other countries, show a striking pattern whereby hours worked fall steadily by a little below a half of a percent per year, accumulating to about a halving of labor supply over 150 years. In this paper, we argue that a stable utility function defined over consumption and leisure can account for this fact, jointly with the movements in the other macroeconomic aggregates, thus allowing us to view falling hours as part of a macroeconomy displaying balanced growth. The key feature of the utility function is an income effect (of higher wages) that slightly outweighs the substitution effect on hours. We also show that our proposed preference class is the only one consistent with the stated facts. The class can be viewed as an enlargement of the well-known “balanced-growth preferences” that dominate the macroeconomic literature and that demand constant (as opposed to falling) hours in the long run. The postwar U.S. experience, over which hours have shown no net decrease and which is the main argument for the use of “balanced-growth preferences”, is thus a striking exception more than a representative feature of modern economies.
    JEL: E21 J22 O11 O40
    Date: 2016–05
  50. By: Richard G. Anderson; Michael Bordo; John V. Duca
    Abstract: This study offers a single, consistent model that tracks the velocity of broad money (M2) since 1929, including the Great Depression, the global financial crisis, and the Great Recession. The model emphasizes the roles of changes in uncertainty and risk premia, financial innovation, and major banking regulations. Our findings suggest an enhanced role of a broad, liquid money aggregate as a policy guide during crises and their unwinding. Following crises, policymakers face the challenge of not only unwinding their balance sheet so as to prevent excess reserves from fueling a surge in M2, but also countering a fall in the demand for money as risk premia return to normal amid velocity shifts stemming from relevant financial reforms.
    Keywords: money demand, financial crises, monetary policy, liquidity, financial innovation
    JEL: E41 E50 G11
    Date: 2016–05
  51. By: Mankart, Jochen; Oikonomou, Rigas
    Abstract: We document that the added worker effect (AWE) has increased over the last three decades. We develop a search model with two earner households and we illustrate that the increase in the AWE from the 1980s to the 2000s can be explained through i) the narrowing of the gender pay gap, ii) changes in the frictions in the labor market and iii) changes in the labor force participation costs of married women.
    Keywords: Heterogeneous Agents,Family Self Insurance,Dual Earner,Unemployment,Labor Market Search
    JEL: E24 J12 J64
    Date: 2016
  52. By: Barbara Annicchiarico; Susan Battles; Fabio Di Dio; Pierfrancesco Molina; Pietro Zoppoli
    Abstract: We build up a large scale, New Keynesian dynamic general equilibrium model embodying a cap on pollutant emissions, an electricity sector and fuel consumption to analyse climate-energy policies for the Italian economy. We consider several applications to illustrate how emission mitigation policies are likely to affect the economy. Our results show that a major trade-off may emerge between environmental quality and economic activity. However, we show how this potential trade-off can be effectively overcome by recycling the revenues from the sales of emission permits. Also,we find that the presence of an emission cap may significantly limit the expansionary effects of fiscal interventions as well as of policies aimed at fostering competition and productivity. Finally, a negative shock on gas and oil prices has a positive effect on the level of economic activity but is also found to increase investment in renewable sources.
    Keywords: Environmental policy, GHG emissions, dynamic general equilibrium model, simulation analysis, Italy
    JEL: E27 E60 Q40 Q58
    Date: 2016–05
  53. By: Geromichalos, Athanasios; Herrenbrueck, Lucas
    Abstract: We study how the strategic interaction of liquid-asset suppliers depends on the financial market conditions that determine asset liquidity. In our model, two asset suppliers try to profit from the liquidity services their assets confer. Asset liquidity is indirect in the sense that assets can be sold for money in over-the-counter (OTC) secondary markets. These secondary markets are segmented and customers will be drawn to the market where they expect to find the best terms. Understanding this, asset-suppliers play a differentiated Cournot game, where product differentiation here stems from differences in OTC microstructure. We find that small differences in OTC microstructure can induce very large differences in the relative liquidity of two assets. Asset demand curves can slope upward for even modest degrees of increasing returns in the matching technology. And if one asset supplier has an exogenous advantage over another, the favored agent may want to strategically increase asset supply for the purpose of driving competitors out of the secondary market altogether.
    Keywords: monetary-search models, liquidity, OTC markets, endogenous asset supply
    JEL: E31 E43 E52 G12
    Date: 2016–05–18
  54. By: Shyam Upadhyaya (UNIDO); Liudmila Kitrar (National Research University Higher School of Economics); Georgy Vladimirovich Ostapkovich (National Research University Higher School of Economics); Tamara Lipkind (National Research University Higher School of Economics)
    Abstract: The main goal of the study is to identify the scope and trends in the manufacturing development of Russia and other countries of the Commonwealth of Independent States (CIS) in the context of integration effectiveness, industrial policies quality and competitiveness growth. Under current unfavorable conditions – the fall in world oil prices, devaluation of national currencies, and reduction of business activity due to uncertainty of future strategies – the essential issue is whether the favorable integration possibilities of the past periods of intensive rise in 2005-2008 and 2010-2012 in the national economies development in the CIS region to build competitive potential for reindustrialization were fully realized. The analyzed period 2005-2014 is presented by the authors as a reference period of economic dynamics, covering for Russia and the CIS countries a full business cycle from the beginning of one deep recession (2008-2009) until another recession (2014).The research object is manufacturing sectors in Russia and other CIS countries. The study results show that in the analyzed period, large-scale industrialization has not occurred in these countries, largely due to the lack of the national economies structural transformations. The impressive manufacturing growth in a number of smaller CIS countries has not led to those countries’ participation in the highly competitive international processes. By the end of the analyzed period, the need for diversification of the national economies and exports and implementation of balanced economic policies only intensified. These policies should support both structural reforms and demand and be aimed to increase productivity, eliminate barriers of the manufacturing development and enable foreign markets access.
    Keywords: industrialization, manufacturing, structural changes, industrial potential, export potential
    JEL: E32 L16 O14 O25 O47 O57
    Date: 2016
  55. By: Ali-Yrkkö, Jyrki; Seppälä, Timo; Mattila, Juri
    Abstract: This report analyzes the role of the largest companies in the Finnish economy. According to the results, the ten largest companies in terms of their value added together produce 7,6 % of the Finnish GDP. In addition, these companies generate notable multiplicative effects in the economy. According to the findings, the productivity and the growth rates of the ten largest companies clearly surpass the economy average. In this study, it was also analyzed what kinds of macroeconomic effects will generated by Metsä Fibre’s investment into their new bioproduct factory in Äänekoski, Finland. The calculations were conducted for the construction phase and the production phase individually. According to these analyses, the construction phase alone will generate a positive impact on employment reaching thousands of man-years. However, the true significance of the investment will only become evident in the production phase, since not all investments of equal scale produce similar macroeconomic effects. Besides the characteristics of the examined industries, the size of these effects also depends on which countries acquisitions are made from.
    Keywords: Large, largest, companies, firms, GDP, productivity, gross domestic product, concentration, multiplier effect, investment, pulp, Äänekoski, group, granular, concentration
    JEL: F23 L25 E22 M21 L11
    Date: 2016–05–18
  56. By: Skott, Peter (Department of Economics, University of Massachusetts, Amherst)
    Abstract: The emphasis in post-Keynesian macroeconomics on wage-versus profit-led growth may not have been helpful. The profit share is not an exogenous variable, and the correlations between the profit share and economic growth can be positive for some exogenous shocks but negative for others. The terminology, second, suggests a unidirectional causality from distribution to aggregate demand while in fact distribution can itself be directly affected by shifts in aggregate demand. The reduced form correlations,third, depend on interactions with the labor market, and a focus on the goods market can be misleading. If, fourth, empirical estimates are taken at face value, the support for wage-led conclusions is much weaker than suggested by the literature. A focus on the growth-benefits of a reduction in inequality, finally, makes for an impoverished policy discussion.
    Keywords: investment, saving, income distribution, Lucas critique, Marglin-Bhaduri model
    JEL: E2 O41
    Date: 2016
  57. By: Afflatet, Nicolas (Helmut Schmidt University, Hamburg)
    Abstract: This paper examines the question whether joining EMU or the breach of the Stability and Growth Pact in 2003 had an impact on the deficit policy of member states. The empirical analysis gives no hint for an alteration of deficit policy after having joined EMU or after having breached the Pact in 2003. These results can be explained with the fact that the Pact was undermined from its beginning and only had a limited disciplining effect henceforth. Otherwise the breakout of the ongoing debt crisis would not have been possible. These results advocate a sanctioning mechanism which cannot be influenced on a political level.
    Keywords: Stability and Growth Pact; Fiscal Rules; Deficits; Fiscal Policy
    JEL: E62 H62
    Date: 2016–05–18
  58. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Boston Fed President Eric Rosengren said it will be appropriate to continue the gradual normalization of interest rates if incoming economic data continue to be consistent with improvement in labor markets and inflation getting closer to the Federal Reserve's 2 percent target. He was speaking to the Greater Concord Chamber of Commerce, in New Hampshire.
    Date: 2016–05–12
  59. By: Charles W. Calomiris; Matthew Jaremski
    Abstract: Economic theories posit that bank liability insurance is designed as serving the public interest by mitigating systemic risk in the banking system through liquidity risk reduction. Political theories see liability insurance as serving the private interests of banks, bank borrowers, and depositors, potentially at the expense of the public interest. Empirical evidence – both historical and contemporary – supports the private-interest approach as liability insurance generally has been associated with increases, rather than decreases, in systemic risk. Exceptions to this rule are rare, and reflect design features that prevent moral hazard and adverse selection. Prudential regulation of insured banks has generally not been a very effective tool in limiting the systemic risk increases associated with liability insurance. This likely reflects purposeful failures in regulation; if liability insurance is motivated by private interests, then there would be little point to removing the subsidies it creates through strict regulation. That same logic explains why more effective policies for addressing systemic risk are not employed in place of liability insurance. The politics of liability insurance also should not be construed narrowly to encompass only the vested interests of bankers. Indeed, in many countries, it has been installed as a pass-through subsidy targeted to particular classes of bank borrowers.
    JEL: E44 G21 G28
    Date: 2016–05
  60. By: Jérôme Creel (OFCE)
    Abstract: This paper introduces a Regime-Switching Model-Based Sustainability test allowing for periodic (or local) violations of Bohn (1998, QJE)’s sustainability condition. We assume a Markov-switching fiscal policy rule whose parameters stochastically switch between sustainable and unsustainable regimes. We demonstrate that long-run fiscal sustainability not only depends on regime-specific feedback coefficients of the fiscal policy rule but also on the average durations of fiscal regimes. Evidence on French data suggests that the No-Ponzi game condition weakly holds in the long run, when accounting for regime switches. Accounting for a potential fiscal limit, we test whether estimated Markov-switching fiscal policy rule fulfills a debt-stabilizing condition depending on two measures of the interest rate on public debt. With the average apparent rate, fiscal data rejects the null hypothesis of an explosive public debt-to-GDP ratio. Still, we are unable to reject it using the average market rate, thus suggesting unstable dynamics of the public debt-to-GDP ratio.
    Keywords: Fiscal rules; Fiscal regimes; Public debt sustainability; Time varying parameters; Markov switching models
    JEL: E6 H6
    Date: 2016–05
  61. By: Gustavo Adler; Ruy Lama; Juan Pablo Medina Guzman
    Abstract: We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization.
    Keywords: Foreign exchange;Central banks and their policies;Foreign Exchange Intervention, Monetary Policy, Learning, inflation, central bank, exchange, currency, Open Economy Macroeconomics,
    Date: 2016–03–17
  62. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: It seems clear to me that if there is one topic that would benefit from better understanding the interplay of theory and policy, it is inflation. For a monetary policymaker, price stability is the Holy Grail — price stability is the one thing that monetary policy can ensure over the longer run, and monetary policy is the only tool that can ensure price stability over the longer run. The benefits of price stability for the economy are clear.2 Stable prices mean businesses and households don’t have to spend time trying to protect the purchasing power of their money; they can make long-term plans and commitments without having to deal with the uncertainty about the value of their money. When the price level is stable, any price changes reflect changes in the supplies of certain goods or services relative to others and this information is helpful to businesses and consumers when they have to allocate their scarce resources. Price stability also promotes other goals like financial stability and confidence in the economy, thereby supporting growth and maximum employment, the other part of the Federal Reserve’s dual mandate.
    Keywords: monetary policy; inflation; prices;
    Date: 2016–05–12
  63. By: Jaromir Benes; Douglas Laxton; Joannes Mongardini
    Abstract: This paper presents a new version of MAPMOD (Mark II) to study the effectiveness of macroprudential regulations. We extend the original model by explicitly modeling the housing market. We show how household demand for housing, house prices, and bank mortgages are intertwined in what we call a deadly embrace. Without macroprudential policies, this deadly embrace naturally leads to housing boom and bust cycles, which can be very costly for the economy, as shown by the Global Financial Crisis of 2008-09.
    Keywords: Business cycles;Credit demand;Credit booms;Household credit;Housing prices;Mortgages;Systemic risk;Macroprudential Policy;Risk management;lending booms, credit crunch, financial crisis, financial cycle, housing market, countercyclical buffers, loan-to-value limits, macroprudential policies
    Date: 2016–04–08
  64. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Commenting on the economy, Boston Fed President Eric Rosengren said that financial market expectations of only a very slow removal of monetary policy accommodation could, in his view, prove unduly pessimistic.
    Date: 2016–04–04
  65. By: Michelle Lewis; Dr John McDermott (Reserve Bank of New Zealand)
    Abstract: We document the experience of the Reserve Bank of New Zealand in changing its inflation target, particularly the effects on inflation expectations. Firstly, the Reserve Bank of New Zealand's DSGE model is used to highlight expectation-formation in the transmission following a change in the inflation target. Secondly, a Nelson-Siegel model is used to combine a number of inflation expectation surveys into a continuous curve where expectations can be plotted as a function of the forecast horizon. Using estimates of long-run inflation expectations derived from the Nelson-Siegel model, we find that numerical changes in the inflation target result in an immediate change in inflation expectations.
    Date: 2016–07
  66. By: Marcel Fratzscher, DIW Berlin, Humboldt-University Berlin and CEPR; Malte Rieth, DIW Berlin
    Abstract: The paper analyses the empirical relationship between bank risk and sovereign credit risk in the euro area. Using structural VAR with daily financial markets data for 2003-13, the analysis confirms twoway causality between shocks to sovereign risk and bank risk, with the former being overall more important in explaining bank risk, than vice versa. The paper focuses specifically on the impact of non-standard monetary policy measures by the European Central Bank and on the effects of bank bailout policies by national governments. Testing specific hypotheses formulated in the literature, we find that bank bailout policies have reduced credit risk in the banking sector, but partly at the expense of raising the credit risk of sovereigns. By contrast, monetary policy was in most, but not all cases effective in lowering credit risk among both sovereigns and banks. Finally, we find spillover effects in particular from sovereigns in the euro area periphery to the core countries.
    JEL: E52 G10 E60
    Date: 2015–09
  67. By: Fedotenkov, Igor
    Abstract: This paper studies whether a pension reform, namely a switch from a pay-as-you-go (PAYG) to a more-funded scheme should be announced. We show that such an announcement increases savings, leading to a decline in interest rates. Smaller returns to savings lead to higher losses for the first transitional generation, which suffers from the reform the most. On the other hand, higher savings by the first transitional generation lead to faster capital accumulation, which benefits younger generations. We argue that if a government cares about the agents with the most to lose, it may more beneficial not to announce such a reform.
    Keywords: Pension reform, announcement, savings, interest rate
    JEL: E13 E21 H55
    Date: 2016–05–01
  68. By: Francis Bismans; Igor N. Litvine
    Abstract: This paper deals with so-called feedforward neural network model which we consider from a statistical and econometric viewpoint. It was shown how this model can be estimated by maximum likelihood. Finally, we apply the ANN methodology to model demand for electricity in South Africa. The comparison of forecasts based on a linear and ANN model respectively shows the usefulness of the latter.
    Keywords: Artificial neural networks (ANN), electricity consumption, forecasting, linear and non-linear models, recessions.
    JEL: C45 C53 E17 E27 Q43 Q47
    Date: 2016
  69. By: Debortoli, Davide (Universitat Pompeu Fabra); Nunes, Ricardo (Federal Reserve Bank of Boston); Yared, Pierre (Columbia University)
    Abstract: The current literature on a government's optimal debt maturity structure contends that by purchasing short-term assets and selling long-term debt, it is possible to fully insulate the economy against fiscal shocks. The required short and long positions are large relative to GDP and constant. The market value of debt adjusts automatically and the constant debt positions and fluctuating bond prices insulate against potential shocks. However, achieving the goal of averting future shocks depends on the government perfectly committing to the future fiscal policy, for without this sustained commitment, the large debt positions required to insure against future spending shocks are extremely expensive to service; moreover, the government faces a tradeoff between using the debt maturity structure to service its debt obligations and using it to protect against economic shocks. As the authors point out, in practice a government chooses tax, spending, and debt levels sequentially in each period, taking into account its outstanding debt portfolio and anticipating the behavior of future governments. The paper develops an alternative model of optimal debt maturity that solves the problem of a government's lack of commitment.
    Keywords: public debt; optimal taxation; fiscal policy
    JEL: E62 H21 H63
    Date: 2016–05–17
  70. By: Marek Dabrowski
    Abstract: This paper analyses three questions related to the EU/EMU integration infrastructure: (i) interrelation between monetary and fiscal integration; (ii) interrelation between monetary integration and closer coordination of macroeconomic policies and (iii) fiscal discipline vs. fiscal solidarity. On the first issue, we suggest that rationale of further fiscal and political integration should be guided by the costbenefit analysis based on the theory of fiscal federalism rather than OCA theory. On the second issue, we express conceptual and practical doubts regarding the way in which the Macroeconomic Imbalance Procedure has been designed and operated. On the third issue, we believe returning to the market discipline (based on credible danger of sovereign default) supplemented by clear and consistently enforced fiscal rules will have a key importance for long-term sustainability of a monetary union in Europe and avoiding dysfunctional fiscal federalism.
    JEL: F32 F33 F42 F45 H62 H63 H77 H81
    Date: 2015–09
  71. By: José De Gregorio (Peterson Institute for International Economics)
    Abstract: Data for a large sample of countries dating back to the early 1970s reveal that the large depreciations against the dollar that are occurring in many countries are not unprecedented in magnitude or duration. The pass-through to inflation from exchange rate depreciation has been slightly more muted than in previous occasions, but it is not out of line with experience since the mid-1990s. The current account adjustment has been more limited than in the past, possibly suggesting that the period of weak currencies may be prolonged.
    Keywords: Current account adjustment, depreciation, exchange rate pass-through, inflation
    JEL: E31 F31 F32 F41
    Date: 2016–05
  72. By: Nagayasu, Jun
    Abstract: In this paper, we investigate the dynamics of condominium prices by using recent national and regional data for Japan. First, using left- and right-tailed integration methods to circumvent deficiencies in existing approaches, we propose two definitions of bubbles and show that the condominium market has experienced neither mild nor explosive bubbles since 2008. The perception of bubbles can be influenced by the variables chosen to represent economic fundamentals; however, the standard model specification suggests no bubbles during that period. Second, consistent with this finding, we point to several economic fundamentals including Chinese money that can explain the long-term trend in condominium prices. Third, we find that, among the explanatory variables considered, transaction volume, particularly the volume of purchases by companies, is relevant in explaining condominium price inflation.
    Keywords: Real estate market, condominium prices, market bubble, unit root, cointegration, Japan
    JEL: C5 R1 R3
    Date: 2016–04–01
  73. By: Stefan Eichler; Helge Littke; Lena Tonzer
    Abstract: We analyze the effect of central bank transparency on cross-border bank activities. Based on a panel gravity model for cross-border bank claims for 21 home and 47 destination countries from 1998 to 2010, we find strong empirical evidence that a rise in central bank transparency in the destination country, on average, increases cross-border claims. Using interaction models, we find that the positive effect of central bank transparency on cross-border claims is only significant if the central bank is politically independent. Central bank transparency and credibility are thus considered complements by banks investing abroad.
    Keywords: central bank transparency, cross-border banking, gravity model
    JEL: E58 F30 G15
    Date: 2016–05
  74. By: Francesco Potente (Bank of Italy); Antonio Scalia (Bank of Italy)
    Abstract: We study the performance of a group of foreign exchange reserve managers that are responsible for investing the ECB’s official reserves in US dollars, for a value of around $43 billion, using a new dataset which includes detailed portfolio holdings from 2006 to 2010. The ECB reserve managers display a positive ability at security selection overall. Two portfolio managers show market timing ability after adjusting for the non-linearity of the benchmark returns. For one portfolio manager, market timing ability is significantly related to the efficient use of public information. To pin down market timing, we develop a performance attribution model which identifies the contribution of the key portfolio managers’ strategies (duration, curve, and spread). We find that, among the active layers, the spread contribution seems the most significant; curve and duration bets, with some exceptions, have generally provided little value added. Our analysis supports the view that portfolio managers adopt diversified investment styles. This may explain the non-negligible result of the aggregate reserve portfolio, averaging 10 basis points on an annual basis, net of transaction costs. The more diversified the investment styles are, the more likely it is that portfolio managers make independent bets, which in turn may positively affect the risk-adjusted return of the aggregate portfolio.
    Keywords: foreign exchange reserve management, bond portfolios
    JEL: E58 G11 G15
    Date: 2016–04
  75. By: Margherita Russo; Francesco Pagliacci
    Abstract: Estimates of macroeconomic effects of natural disaster have a long tradition in economic literature (Albala-Bertrand, 1993a; 1993b; Tol and Leek, 1999; Chang and Okuyama, 2004; Benson and Clay, 2004; Strömberg, 2007; UNISDR, 2009; Cuaresma, 2009; Cavallo and Noy, 2009; Cavallo et al., 2010; The United Nations and The World Bank, 2010). After the seminal contribution of Abadie et al. (2010) in identifying synthetic control groups, with DuPont and Noy (2015) a new strand has been opened in estimating long term effects of natural disaster at a sub-regional scale, at which the Japan case provides plenty of significant economic variables. Although the same methodology has been applied in estimating the impact of earthquakes in Italy (Barone et al. 2013; Barone and Mocetti, 2014), the analysis has been limited to the regional scale. In our paper, due to a lack in long-term time series data at municipality level, this paper cannot adopt the methodology suggested by Abadie et al. (2010). Nevertheless, it provides a test bed for assessing the relevance of a sub-regional counterfactual evaluation of a natural disaster's impact. By taking the 2012 Emilia-Romagna earthquake as a case study, we propose a comprehensive framework to answer some critical questions arising in such analysis. Firstly, we address the problem of identifying the proper boundaries of the area affected by an earthquake. Secondly, through a cluster analysis we show the importance of intra area differences in terms of their socio-economic features. Thirdly, counterfactual analysis is assessed by adopting a pre- and post-earthquake difference-in-difference comparison of average data in clusters within and outside the affected area. Moreover, three frames to apply propensity score matching at municipality level are also adopted, by taking the control group of municipalities (outside the affected area): (a) within the same cluster, (b) within the same region, (c) in the whole country. The four variables considered in the counterfactual analysis are: total population; foreigner population; total employment in manufacturing local units; employment in small and medium-sized manufacturing local units (0 to 49 employees). All the counterfactual tests largely show a similar result: socio-economic effects are heterogeneous across the affected area, where some clusters of municipalities perform better, in terms of increase of population and employment after the earthquake, against some others. This result sharply contrasts with the average results we observe by comparing the whole affected area with the non-affected one or with the entire region.
    Keywords: cluster analysis, counterfactual analysis, Emilia-Romagna, earthquake
    JEL: C38 R11 R58
    Date: 2016–04
  76. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: Solomon Islands is a small island state, a low-income country that is severely affected by external shocks, including commodity price declines, natural disasters, and climate change.
    Keywords: Asia and Pacific;Solomon Islands;debt, natural disasters, monetary fund, reserves, cash balance
    Date: 2016–03–23
  77. By: Mauro Costantini; Iris Meco (Department of Economics and Finance, Brunel University London); Antonio Paradiso (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper aims to investigate the long-run relationship between crime, inequality, unemployment and deterrence using state-level data for the US over the period 1978- 2013. The novelty of the paper is to use non-stationary panels with factor structures. The results show that: i) a simple crime model well fits the long run relationship; ii) income inequality and unemployment have a positive impact on crime, whereas deterrence displays a negative sign; iii) the effect of income inequality on crime is large in magnitude; iv) property crime is generally highly sensitive to deterrence measures based upon police activities.
    Keywords: Crime, deterrence, inequality, unemployment, panel cointegration, cross- section dependence
    JEL: C33 E20 K40
    Date: 2016
  78. By: Lorenza Rossi (Department of Economics and Management, University of Pavia); Emilio Zanetti Chini (Department of Economics and Management, University of Pavia)
    Abstract: We provide stylized facts on firms dynamics by disaggregating U.S. yearly data from 1977 to 2013. To this aim, we use a new unobserved component-based method, encompassing several classical regression-based techniques currently in use. The new time series of Entry and Exit of firms at establishment level are feasible proxies of Business Cycle. Exit is a leading and countercyclical indicator, while Entry is lagging and procyclical. The resulting SVAR analysis supports the recent theoretical findings of the literature on firms dynamics.
    Keywords: C10, C13, E3, E32, E37.
    Date: 2016–05
  79. By: International Monetary Fund. African Dept.
    Abstract: Botswana’s diamond endowment and its track record of good macroeconomic policy management and political stability contributed to high average economic growth and strong fiscal and balance of payments positions in recent years. Beyond these achievements, the authorities see a need to reduce unemployment, eliminate water and electricity shortages, and improve the efficiency of government operations. In addition, given the limits of the diamond and public sector-based growth model (diamond reserves could be exhausted by 2050 and inefficiencies in the public sector), a wave of reforms is called for to foster the development of the private sector, diversify the economy, and improve the skills of the labor force.
    Keywords: Article IV consultation reports;Economic conditions;Fiscal policy;Public investment;Mining sector;Diamonds;Revenue mobilization;Monetary policy;Bank supervision;Reserves adequacy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Botswana;
    Date: 2016–04–11
  80. By: Jose-Maria Da-Rocha; Marina Mendes Tavares; Diego Restuccia
    Abstract: We assess the quantitative impact of firing costs on aggregate total factor productivity (TFP) in a dynamic general-equilibrium framework where the distribution of establishment-level productivity is not invariant to the policy. We show that firing costs not only generate static misallocation, but also a worsening of the productivity distribution substantially contributing to large aggregate TFP losses. In a calibrated version of the model, firing costs equivalent to 5 years' wages imply a drop in TFP of more than 20 percent. Consistent with the existing literature on firing costs, static misallocation only generates a small drop in TFP, accounting for around 20 percent of the total loss, whereas the remaining 80 percent arises from the endogenous change in the productivity distribution.
    Keywords: firing costs, inaction, misallocation, establishments, productivity.
    JEL: O1 O4 E1 E6
    Date: 2016–05–19
  81. By: Gilles Mourre; Savina Princen
    Abstract: This paper investigates how tax revenue elasticities develop with respect to their tax base and analyses the specific impact of the business cycle. The main novelty of the paper is to use revenue data net of discretionary tax measures. The latter come from a new database, filled by Member States and managed by the European Commission (DG ECFIN). Based on an EU country panel for the period 2001-13, we estimate short-term and long-term revenue elasticities for consumption taxes, social security contributions, personal income taxes and corporate income taxes, using a wide range of specifications. The estimated revenue-to-base elasticities are broadly in line with the results found in previous research, although the robustness of the estimates varies across tax categories. Then, we add different indicators of the business cycle to test its specific influence on the short-term dynamics of revenue-to-base elasticities. This confirms the existence of a specific impact of the business cycle on short-term revenue elasticities – beyond the direct effect on the tax base – for all revenue categories, except for consumption taxes. Corporate income taxes appear to be the most cyclically-dependent tax category, followed by personal income taxes, for which estimation results turn out particularly robust.
    JEL: E32 H2 H3 H6
    Date: 2015–11
  82. By: Perihan Hazel Kaya (Selcuk University); Mustafa Göktuğ Kaya (Ministry of Finance of Turkey)
    Abstract: In recent years domestic savings rate has shown a marked decline in Turkey. Such falls are effective in the growth of savings-investment gap and so the emergence of large current account deficit. In this context, changes are made in the private pension system in order to increase household savings. The new system aims to increase the savings and sawing owners. Many developing countries, with their reforms in the social security field, put into practice the private pension system in addition to the compulsory public pension system.The purpose of this is to deal the development of the private pension system in Turkey and its contribution to savings. In this direct, firstly, the development of the private pension system in the world is being addressed and later mentioned about development in Turkey. Finally, information is given about impact to savings.
    Keywords: Private Pension System, Savings, Banking, Turkey
    JEL: E21 D10
  83. By: Batten,, Sandra (Bank of England); Sowerbutts, Rhiannon (Bank of England); Tanaka, Misa (Bank of England)
    Abstract: This paper examines the channels via which climate change and policies to mitigate it could affect a central bank’s ability to meet its monetary and financial stability objectives. We argue that two types of risks are particularly relevant for central banks. First, a weather-related natural disaster could trigger financial and macroeconomic instability if it severely damages the balance sheets of households, corporates, banks, and insurers (physical risks). Second, a sudden, unexpected tightening of carbon emission policies could lead to a disorderly re-pricing of carbon-intensive assets and a negative supply shock (transition risks). Climate-related disclosure could facilitate an orderly transition to a low-carbon economy if it helps a wide range of investors better assess their financial risk exposures.
    Keywords: Climate change; natural disasters; financial stability; monetary policy;
    JEL: E58 G21 G22 Q43 Q54
    Date: 2016–05–20
  84. By: Luis Catão; Marco Terrones
    Abstract: We re-appraise the cross-country evidence on the dollarization of financial systems in emerging market economies. Amidst striking heterogeneity of patterns across regions, we identify a broad global trend towards financial sector de-dollarization from the early 2000s to the eve of the global financial crisis of 2008–09. Since then, de-dollarization has broadly stalled or even reversed in many economies. Yet a few of them have continued to de-dollarize. This suggests that domestic factors are also important and interact with global factors. To gain insight into such an interaction, we examine the experience of Peru since the early 1990s and find that low global interest rates, low global risk-aversion, and high commodity prices have fostered de-dollarization. Domestic macro-prudential measures that raise the relative cost of domestic dollar loans and the introduction and adherence to inflation targeting have also been key.
    Keywords: Dollarization;Peru;Financial sector;Currency substitution;Emerging markets;Macroprudential Policy;Regression analysis;Dollarization, Currrency Substitution, Monetary Policy, Emerging Markets.
    Date: 2016–04–26
  85. By: Joseph Halevi (International University College of Turin)
    Abstract: Luigi Pasinetti’s work has deeply affected modern economic theory. His papers on the Cambridge Capital Controversy are world renowned. But he has made many other contributions to the economic debates of the last half century, offering not only detailed criticisms of mainstream economic theory, but also the elaboration of an alternative, more complete, and coherent framework for understanding growth and income distribution, structural change, and trade relations. He has also made notable contributions to discussions of economic policy. Pasinetti’s papers are very clearly written, but many are formidably technical and often build cumulatively on his previous work. This paper provides a careful and synthetic overview of his contributions as well as a reconstruction of Pasinetti’s philosophical approach to economics as a science meant to serve humanity.
    Keywords: Luigi Pasinetti, Capital Controversy, Piero Sraffa, Classical Economics, Vertical Integration, Theory of Value and Prices, Structural Dynamics, Trade, Growth, Crises, Maastricht Criteria.
    JEL: B31 B4 B5 C6 E1 F1
  86. By: De Marco, Filippo; Wieladek, Tomasz
    Abstract: We study the effects of bank-specific capital requirements on Small and Medium Enterprises (SMEs) in the UK from 1998 to 2006. Following a 1% increase in capital requirements, SMEs' asset growth contracts by 6.9% in the first year of a new bank-firm relationship, but the effect declines over time. We also compare the effects of capital requirements to those of monetary policy. Monetary policy only affects firms with higher credit risk and those borrowing from small banks, whereas capital requirements affect both. Capital requirement changes, instead, do not affect firms with alternative sources of finance, but monetary policy shocks do.
    Keywords: Capital requirements; Firm-level real effects; prudential and monetary policy.; relationship lending; SMEs
    JEL: E51 G21 G28
    Date: 2016–05
  87. By: Stefano Bosi (EPEE - Université d'Evry); Cuong Le Van (Centre d'Economie de la Sorbonne - Paris School of Economics, IPAG Business School); Ngoc-Sang Pham (EPEE - Université d'Evry and LEM - Université de Lille 3)
    Abstract: We consider a multi-sector infinite-horizon general equilibrium model. Asset supply is endogenous. The issues of equilibrium exisence, efficiency, and bubble emergence are addressed. We show how different assets give rise to very different rational bubbles. We also point out that efficient bubbly equilibria may exist
    Keywords: infinite horizon; general equilibrium; aggregate good bubble; capital good bubble; efficiency
    JEL: D31 D91 E22 G10
    Date: 2016–03
  88. By: Bholat, David (Bank of England); Darbyshire, Robin
    Abstract: This paper examines the important but not often discussed issue of accounting in central banks. It highlights the distinguishing factors that make the financial statements of central banks unique relative to those produced by other bodies. We begin by explaining why central banks produce financial statements. We then discuss a variety of specific topics in central bank accounting. In terms of balance sheet items, we discuss banknotes, shareholders’ equity, gold, foreign exchange and financial instruments. Our discussion of the income statement then centres on profit recognition and distribution.
    Keywords: Central bank accounting; central bank balance sheet; seigniorage; central bank capital;
    JEL: E58 G20 H83 M40 M41 M48
    Date: 2016–05–20
  89. By: Alberto Martin
    Abstract: Introduction: Imagine the case of a Central Bank that wants to peg its currency to the Euro at some predetermined exchange rate. Imagine moreover that, at this exchange rate, there is an excess demand of domestic currency by foreigners. Conventional wisdom suggests that there is no problem whatsoever for the Central Bank to achieve its objective: all it needs to do is to expand the supply of domestic currency to accommodate whatever demand there is at the chosen exchange rate. In the process of doing so, the Central Bank will expand both its assets, i.e., foreign reserves, and its liabilities, i.e., domestic currency. Since the Central Bank can issue as much domestic currency as it desires, there is in principle no limit to the size of this policy intervention. In this interesting paper, Amador, Bianchi, Bocola and Perri (henceforth ABBP) propose a model that illustrates the limits to this conventional wisdom.
    Date: 2016–04
  90. By: Sergey Ivashchenko (National Research University Higher School of Economics)
    Abstract: This article suggests and compares the properties of some nonlinear Markov-switching filters. Two of them are sigma point filters: the Markov switching central difference Kalman filter (MSCDKF) and MSCDKFA. Two of them are Gaussian assumed filters: Markov switching quadratic Kalman filter (MSQKF) and MSQKFA. A small scale financial MS-DSGE model is used for tests. MSQKF greatly outperforms other filters in terms of computational costs. It also is the first or the second best according to most tests of filtering quality (including the quality of quasi-maximum likelihood estimation with use of a filter, RMSE and LPS of unobserved variables).
    Keywords: regime switching, second-order approximation, non-linear MS-DSGE estimation, MSQKF, MSCDKF
    JEL: C13 C32 E32
    Date: 2016
  91. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: St. Louis Fed President James Bullard discussed two scenarios for future rate increases: the FOMC’s scenario and the market-based scenario. The former suggests a gradual pace of rate increases over the next several years, while the latter is much shallower – only a few increases over the forecast horizon. He cited evidence to back both views. For the FOMC scenario, he cited strong labor markets, waning international headwinds and inflation measurements that are closer to the 2 percent target. For the market-based scenario, the evidence included slow real GDP growth and low inflation expectations. Bullard spoke at the 35th UC Santa Barbara Economic Forecast Project hosted by the University of California, Santa Barbara.
    Date: 2016–05–05
  92. By: Hartley, Daniel (Federal Reserve Bank of Chicago); Paulson, Anna L. (Federal Reserve Bank of Chicago); Rosen, Richard J. (Federal Reserve Bank of Chicago)
    Abstract: We use a two factor model of life insurer stock returns to measure interest rate risk at U.S. and U.K. insurers. Our estimates show that interest rate risk among U.S. life insurers increased as interest rates decreased to historically low levels in recent years. For life insurers in the U.K., in contrast, interest rate risk remained low during this time, roughly unchanged from what it was in the period prior to the financial crisis when long-term interest rates were in their usual historical ranges. We attribute these differences to the heavier use of products that combine guarantees with options for policyholders to adjust their behavior by U.S. life insurers relative to their U.K. counterparts.
    Keywords: Insurance companies; Interest rate risk; Life insurance; Low interest rates
    JEL: E43 G22 I13
    Date: 2016–01–03
  93. By: Schreiber, Sven; Beblo, Miriam
    Abstract: We revisit the alleged retirement consumption puzzle. According to the life-cycle theory, foreseeable income reductions such as those around retirement should not affect consumption. However, we first recall that given higher leisure endowments after retirement, the theory does predict a fall of total market consumption expenditures. In order not to mistake this predicted drop for a puzzle we focus on housing consumption which can be plausibly regarded as complementary to leisure, and we control for the leisure change in our empirical specifications, using micro data for Germany (SOEP), where housing expenditures are observable as rents for the majority (60%), as well as dwelling relocations. We still find significant negative impacts of the retirement status on housing consumption, which is hard to reconcile with the life-cycle theory. For retirees we also find significant effects of the income reduction at retirement on housing. However, the effects are small in quantitative terms, given the lock-in nature of past housing decisions.
    Keywords: consumption smoothing,retirement-consumption puzzle,SOEP
    JEL: D91 E21
    Date: 2016
  94. By: Janko Cizel; Jon Frost; Aerdt G. F. J. Houben; Peter Wierts
    Abstract: Macroprudential policy is increasingly being implemented worldwide. Its effectiveness in influencing bank credit and its substitution effects beyond banking have been a key subject of discussion. Our empirical analysis confirms the expected effects of macroprudential policies on bank credit, both for advanced economies and emerging market economies. Yet we also find evidence of substitution effects towards nonbank 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.
    Date: 2016–04–21
  95. By: Salvador Ortigueira (Department of Economics, University of Miami); Nawid Siassi (Department of Economics, University of Konstanz, Universit¨atsstrasse)
    Abstract: We develop a dynamic model of labor supply, consumption, savings and marriage decisions to study the behavioral responses of low-income workers to anti-poverty income transfers in the U.S. The model is calibrated to match moments from a sample of non-college-educated workers with children drawn from the 2014 Annual Social and Economic Supplement. The categorical, asset and income eligibility criteria of the transfer programs, along with the income and payroll taxes, yield complex budget constraints and introduce a web of interactions whose effects we identify and measure. We examine the workers' behavioral responses across the model's equilibrium distribution over living arrangements, labor productivities, wealth and number of children. Then we use the model to assess the effects of three recent proposals to reform the U.S. tax-transfer system, including the "21st Century Worker Tax Cut Act" and the "Tax Reform Act of 2014". A core objective of these proposals is the mitigation of the disincentives introduced by the Earned Income Tax Credit to married mothers' labor market participation.
    Keywords: Anti-poverty income transfers, household decisions, cohabitation and marriage Publication Status: Under Review
    JEL: E21 H24 H31 J12
    Date: 2016–04–29
  96. By: Hernández del Valle Gerardo; Juárez-Torres Miriam; Guerrero Santiago
    Abstract: In this paper we extend the traditional GARCH(1,1) model by including a functional trend term in the conditional volatility of a time series. We derive the main properties of the model and apply it to all agricultural commodities in the Mexican CPI basket, as well as to the international prices of maize, wheat, pork, poultry and beef products for three different time periods that implied changes in price regulations and behavior. The proposed model seems to adequately fit the volatility process and, according to homoscedasticity tests, outperforms the ARCH(1) and GARCH(1,1) models, some of the most popular approaches used in the literature to analyze price volatility.
    Keywords: Agricultural prices; volatility; GARCH models.
    JEL: C22 C51 E31 Q18
    Date: 2016–04
  97. By: Håvard Hungnes (Statistics Norway)
    Abstract: In a co-fractional vector autoregressive (VAR) model two more parameters are estimated, compared to the traditional cointegrated VAR model. The increased number of parameters that needs to be estimated leads to identification problems; there is no unique formulation of a co-fractional system, though usually one formulation is preferred. This paper has the following contributions: (i) it discusses different kinds of identification problems in co-fractional VAR models; (ii) it proposes a specification test for higher order fractional processes; (iii) it presents an Ox program that can be used for estimating and testing co-fractional systems; and (iv) it uses the above mentioned contributions to analyse a system of Government Bonds in the US and Norway where the results indicates that the level and trend in the yield curve have a longer memory than the curvature (i.e., a linear combination of the yields of the Government Bonds that corresponds to representing the curvature of the yield curve is a co-fractional relationship).
    Keywords: Fractional cointegration
    JEL: C32 E43
    Date: 2016–04

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