nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒06‒09
76 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy By Gornemann, Nils; Kuester, Keith; Nakajima, Makoto
  2. Basel III and responding to the recent Financial Crisis: progress made by the Basel Committee in relation to the need for increased bank capital and increased quality of loss absorbing capital By Ojo, Marianne
  3. Quantitative easing, negative interest rates and money creation. What central banks can and cannot do? By Mariusz Kapuscinski; Dorota Scibisz
  4. Does economic growth really depend on the magnitude of debt? A threshold model approach By Osińska, Magdalena; Kufel, Tadeusz; Blazejowski, Marcin; Kufel, Pawel
  5. An adaptive approach to forecasting three key macroeconomic variables for transitional China By Niu, Linlin; Xu, Xiu; Chen, Ying
  6. Wishful Bias in Predicting Us Recessions: Indirect Evidence By Sergey V. Smirnov; Daria A. Avdeeva
  7. Inequality and the New Deal By Christian A. Belabed
  8. Physical and Human Capital over the Business Cycle By Accolley, Delali
  9. A large Bayesian vector autoregression model for Russia By Deryugina, Elena; Ponomarenko, Alexey
  10. A narrative approach to a fiscal DSGE model By Drautzburg, Thorsten
  11. Does one size fit all at all times? The role of country specificities and state dependencies in predicting banking crises By Stijn Ferrari; Mara Pirovano
  12. Fiscal Policy Matters A New DSGE Model for Slovakia By Zuzana Mucka
  13. Firm Entry and Macroeconomic Dynamics: A State-level Analysis By Gourio, Francois; Messer, Todd; Siemer, Michael
  14. What Are the Macroeconomic Effects of High-Frequency Uncertainty Shocks By Laurent Ferrara; Pierre Guérin
  15. Updating the euro area Phillips curve: the slope has increased By Oinonen, Sami; Paloviita, Maritta
  16. Macroeconomic Dynamics Near the ZLB : A Tale of Two Countries By Schorfheide, Frank; Cuba-Borda, Pablo; Aruoba, S. Boragan
  17. Macroeconomic consequences of the real-financial nexus: Imbalances and spillovers between China and the U.S. By Pang, Ke; Siklos, Pierre L.
  18. Fiscal Consolidation Under Imperfect Credibility By Lemoine, Matthieu; Lindé, Jesper
  19. Creative Destruction and Uncertainty By Sedlacek, Petr
  20. Why are Inventory-Sales Ratios at U.S. Auto Dealerships so High? By Dunn, Wendy E.; Vine, Daniel J.
  21. Para Politikası Belirsizliği Altında Aktarım Mekanizması: Türkiye Örneği By Bulut, Mustafa; Karasoy, Hatice Gökçe
  22. A monetary policy rule for Russia, or is it rules? By Korhonen, Iikka; Nuutilainen, Riikka
  23. Monetary policies to counter the zero interest rate: an overview of research By Honkapohja, Seppo
  24. Household Borrowing and the Possibility of “Consumption- Driven, Profit-Led Growth†By Mark Setterfield; Yun K. Kim
  25. Portugal; Third Post-Program Discussions-Press Release; Staff Report; and Statement by the Executive Director for Portugal By International Monetary Fund. African Dept.
  26. The Impact of Commodity Price Movements on the New Zealand Economy By Günes Kamber; Gabriela Nodari; Benjamin Wong
  27. Analysis of tax effects on consolidated household/government debts of a nation in a monetary union under classical dichotomy By Kim, Minseong
  28. Leading indicators of systemic banking crises: Finland in a panel of EU countries By Lainà, Patrizio; Nyholm, Juho; Sarlin, Peter
  29. Political Budget Cycles: Manipulation from Leaders or Manipulation from Researchers? Evidence from a Meta-Regression Analysis By Antoine CAZALS; Pierre MANDON
  30. Time-varying Volatility, Financial Intermediation and Monetary Policy By S. Eickmeier; N. Metiu; Esteban Prieto
  31. Networks and the macroeconomy: an empirical exploration By Acemoglu, Daron; Akcigit, Ufuk; Kerr, William R.
  32. Toward robust early-warning models: A horse race, ensembles and model uncertainty By Holopainen, Markus; Sarlin, Peter
  33. Structural Trends and Cycles in a DSGE Model for Brazil By Silvio Michael de Azevedo Costa
  34. Common faith or parting ways? A time varying parameters factor analysis of euro-area inflation By Delle Monache,; Ivan Petrella; Fabrizio Venditti
  35. Italy’s Spending Maze Runner – An analysis of the structure and evolution of public expenditure in Italy By Dimitri Lorenzani; Vito Ernesto Reitano
  36. Nowcasting and short-term forecasting of Russian GDP with a dynamic factor model By Porshakov, Alexey; Deryugina, Elena; Ponomarenko, Alexey; Sinyakov, Andrey
  37. Saving Wall Street or main street By Haavio, Markus; Ripatti, Antti; Takalo, Tuomas
  38. The Deep Historical Roots of Macroeconomic Volatility By Sam Hak Kan Tang; Charles Ka Yui Leung
  39. The net stable funding ratio requirement when money is endogenous By Kauko, Karlo
  40. The long-term macroeconomic effects of lower migration to the UK By Katerina Lisenkova; Miguel Sanchez-Martinez
  41. Household saving rates in the EU: Why do they differ so much? By Michael H. Stierle; Stijn Rocher (Ministry of Finance, Belgium)
  43. Monetary facts revisited By Pavel Gertler; Boris Hofmann
  44. Shifts in euro area Beveridge curves and their determinants By Bonthuis, Boele; Jarvis, Valerie; Vanhala, Juuso
  45. How do Experts Forecast Sovereign Spreads? By Jacopo Cimadomo; Peter Claeys; Marcos Poplawski-Ribeiro
  46. Spillovers from Japan’s Unconventional Monetary Policy to Emerging Asia; a Global VAR approach By Giovanni Ganelli; Nour Tawk
  47. The Strategic Determination of the Supply of Liquid Assets By Athanasios Geromichalos; Lucas Herrenbrueck
  48. Is China fudging its figures? Evidence from trading partner data By Fernald, John; Hsu, Eric; Spiegel, Mark M.
  49. Innovation and competition in Internet and mobile banking: an industrial organization perspective By Mariotto, Carlotta; Verdier, Marianne
  50. Economic concentration and finance: Evidence from Russian regions By Hattendorff, Christian
  51. Reserve requirements and the bank lending channel in China By Fungáčová, Zuzana; Nuutilainen, Riikka; Weill, Laurent
  52. No Man Is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics By Mattia Guerini; Mauro Napoletano; Andrea Roventini
  53. Pacific Economic Monitor (December 2015) By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  54. A European Disease? Non-tradable inflation and real interest rate divergence By Sophie Piton
  55. The impact of gender equality policies on economic growth By Jinyoung Kim; Jong-Wha Lee; Kwanho Shin
  56. ETLAnow: A Model for Forecasting with Big Data – Forecasting Unemployment with Google Searches in Europe By Tuhkuri, Joonas
  57. Costa Rica; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Costa Rica By International Monetary Fund
  58. Interest Rate Rules, Exchange Market Pressure, and Successful Exchange Rate Management By Franc Klaassen; Kostas Mavromatis
  59. Convergența instituțională a României cu Uniunea Europeană By Georgescu, George
  60. Estimates of Fundamental Equilibrium Exchange Rates, May 2016 By William R. Cline
  61. On the Nexus of Monetary Policy and Financial Stability: Is the Financial System More Resilient? By Patricia Palhau Mora; Michael Januska
  62. Network Search: Climbing the Job Ladder Faster By Arbex, Marcelo; O'Dea, Dennis; Wiczer, David
  63. PMI Thresholds for GDP Growth By Kilinc, Zubeyir; Yucel, Eray
  64. Household Risk Management By Adriano A. Rampini; S. Viswanathan
  65. Forecasting Inflation with the Hybrid New Keynesian Phillips Curve: A Compact-Scale Global VAR Approach By Carlos Medel
  66. The net worth trap: investment and output dynamics in the presence of financing constraints By Isohätälä, Jukka; Milne, Alistair; Robertson, Donald
  67. The impact of disasters on inflation By Miles Parker
  68. Determinants of Central Bank Independence: a Random Forest Approach By Maddalena Cavicchioli; Angeliki Papana; Ariadni Papana Dagiasis; Barbara Pistoresi
  69. Job Displacement Risk and Severance Pay By Giulio Fella; Marco Cozzi
  70. Incomplete markets and derivative assets By François Le Grand; Xavier Ragot
  71. A Marx 'crises' model: The reproduction schemes revisited By Marco Veronese Passarella
  72. The International Impact of Financial Shocks: A Global VAR and Connectedness Measures Approach By Donal Smith
  73. Optimal public information dissemination: Introducing multiplier effects into a generalized beauty contest By Hüning, Hendrik; Meub, Lukas
  74. A Model of Safe Asset Determination By Zhiguo He; Arvind Krishnamurthy; Konstantin Milbradt
  75. A Model for a Regulatory Impact Analysis System in Tajikistan By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  76. How To Spend It? Capital Accumulation in a Changing World By Gosselin, Pierre; Lotz, Aïleen; Wambst, Marc

  1. By: Gornemann, Nils; Kuester, Keith; Nakajima, Makoto
    Abstract: We build a New Keynesian business-cycle model with rich household heterogeneity. A central feature is that matching frictions render labor-market risk countercyclical and endogenous to monetary policy. Our main result is that a majority of households prefer substantial stabilization of unemployment even if this means deviations from price stability. A monetary policy focused on unemployment stabilization helps \Main Street" by providing consumption insurance. It hurts \Wall Street" by reducing precautionary saving and, thus, asset prices. On the aggregate level, household heterogeneity changes the transmission of monetary policy to consumption, but hardly to GDP. Central to this result is allowing for self-insurance and aggregate investment.
    Keywords: Monetary Policy ; Unemployment ; Search and Matching ; Heterogeneous Agents ; General Equilibrium
    JEL: E12 E21 E24 E32 E52 J64
    Date: 2016–05
  2. By: Ojo, Marianne
    Abstract: Developments since the introduction of the 1988 Basel Capital Accord have resulted in growing realisation that new forms of risks have emerged and that previously existing and managed forms require further redress. The revised Capital Accord, Basel II, evolved to a form of meta regulation – a type of regulation which involves the risk management of internal risks within firms. The 1988 Basel Accord was adopted as a means of achieving two primary objectives: Firstly, “…to help strengthen the soundness and stability of the international banking system – this being facilitated where international banking organisations were encouraged to supplement their capital positions; and secondly, to mitigate competitive inequalities.” As well as briefly outlining various efforts and measures which have been undertaken and adopted by several bodies in response to the recent Financial Crisis, this paper considers why efforts aimed at developing a new framework, namely, Basel III, have been undertaken and global developments which have promulgated the need for such a framework. Further, it attempts to evaluate the strengths and flaws inherent in the present and future regulatory frameworks by drawing a comparison between Basel II and the enhanced framework which will eventually be referred to as Basel III.
    Keywords: capital; cyclicality; buffers; risk; regulation; internal controls; equity; liquidity; losses; forward looking provisions; silent participations; Basel III
    JEL: E0 K2 E32 E58 E44 G01
    Date: 2016–04–21
  3. By: Mariusz Kapuscinski (Warsaw School of Economics, Narodowy Bank Polski); Dorota Scibisz (Warsaw School of Economics)
    Abstract: Since the Great Recession some central banks have introduced measures such as quantitative easing (QE) and negative interest rates which seem unconventional in terms of the pre-crisis monetary policy consensus. Some economists and policymakers expect these actions to affect the money supply, both directly and indirectly. The paper confronts these statements with some institutional constraints on money creation to examine whether the claimed influence on money supply is possible. Some types of QE could affect the money supply, however it should not be perceived as an incentive for commercial banks to increase lending. When it comes to the negative policy rates, the effect on banks’ lending might actually be quite the opposite to the expected growth. These discrepancies result from certain inaccurate beliefs about money creation. Some adjustments provide a more realistic view of possible consequences of unconventional monetary policies and may contribute to the better implementation of monetary policy at the zero-lower bound.
    Keywords: quantitative easing; negative interest rates; money creation; monetary transmission
    JEL: E51 E52 E58
    Date: 2016–05
  4. By: Osińska, Magdalena; Kufel, Tadeusz; Blazejowski, Marcin; Kufel, Pawel
    Abstract: In recent economic literature it has been emphasized that across both advanced countries and emerging markets, high levels of debt-to-gross domestic product (GDP) ratio (90% and above) are associated with notably lower growth outcomes. On the other hand, much lower levels of external debt-to-GDP ratio (60% and below) are associated with adverse outcomes for emerging market growth. These findings have been broadly cited and used in practice. On the other hand, there is an opposite evidence, such that the initial level of debt-to-GDP ratio has no impact on economic growth rate. Taking both viewpoints into account, we propose to employ a time series-based nonlinear mechanism in the threshold autoregression form in order to examine the possible relationship between economic growth rate and its potential determinants included the mentioned debt-to GDP indicator. The originality of the study is that it employs threshold variables instead of exogenous variables and time-series data instead of panel data to reveal the economic instruments that have determined the business cycle in European countries for the last 2 decades -starting from 1995. The purpose of the study is to check the mechanism of growth (measured in terms of GDP growth rate and industrial production growth rate) depending on several important macroeconomic variables, such as public debt, rate of inflation, interest rate, and rate of unemployment with the level of growth itself serving as the threshold variable. We propose an efficient methodology for seeking the best specification of threshold autoregression model in terms of both goodness of fit and parsimony of parametrization. The data (quarterly and monthly) applied in the research cover the time period from the beginning of 1995 to the end of 2013. Such a long period is interesting because it allows investigation of the mechanism of growth under two different economic policy models. We identify that the exogenous monetary mechanism played an important role in diagnosing the phases of business cycle in most European economies which is in line with liberal economic policy dominating in the observed period. The initial level of debt-to-GDP ratio as its increase within the recession period was of no value for the economic growth pattern.
    Keywords: threshold models, economic growth, public debt, economic policy, 2007—2009 recession
    JEL: C24 C87 E32
    Date: 2016
  5. By: Niu, Linlin; Xu, Xiu; Chen, Ying
    Abstract: We propose the use of a local autoregressive (LAR) model for adaptive estimation and forecasting of three of China’s key macroeconomic variables: GDP growth, inflation and the 7-day interbank lending rate. The approach takes into account possible structural changes in the data-generating process to select a local homogeneous interval for model estimation, and is particularly well-suited to a transition economy experiencing ongoing shifts in policy and structural adjustment. Our results indicate that the proposed method outperforms alternative models and forecast methods, especially for forecast horizons of 3 to 12 months. Our 1-quarter ahead adaptive forecasts even match the performance of the well-known CMRC Langrun survey forecast. The selected homogeneous intervals indicate gradual changes in growth of industrial production driven by constant evolution of the real economy in China, as well as abrupt changes in interestrate and inflation dynamics that capture monetary policy shifts.
    Keywords: Chinese economy, local parametric models, forecasting
    JEL: E43 E47
    Date: 2015–04–10
  6. By: Sergey V. Smirnov (National Research University Higher School of Economics); Daria A. Avdeeva (National Research University Higher School of Economics)
    Abstract: There is evidence in the economic literature that professional forecasters are unsuccessful in predicting recessions, but the reasons for these failures are still not clear. Meanwhile, this phenomenon has been little studied on the basis of quarterly estimates for various target horizons. We analysed quarterly consensus forecasts of real GDP growth rates and probabilities of recession taken from the Survey of Professional Forecasters (SPF) conducted by PhilFed and established several stylized facts including: “alarm signals” usually appear only after cyclical peaks; consensus forecasts of recessions for distant target horizons (more than two quarters) have never met except several quarters after the second oil shock; as a rule, pre-recession probabilities of recessions are much less than 50%; the expected durations of recession are less than actual ones; the Mincer-Zarnowitz test with a dummy for recessions reveals that SPF give biased forecasts of real GDP growth rates for almost all target horizons; experts regularly overestimate growth rates during recessions; adding a dummy for recessions significantly increases adjusted R2s; consensus forecasts clearly signal a recession only after a black swan; the majority of experts avoid predicting declines in real GDP before a recession; depth of contraction is even more underestimated for quarters after black swans. None of these stylized facts proves the unwillingness of professional forecasters to predict recessions (especially prolonged ones) in a direct way. However, in our view, together they constitute indirect evidence for the existence of a wishful bias against predicting recessions. If this bias exists, customers of SPF forecasts should take this into account in their decision-making processes.
    Keywords: Recession, Forecasting, Wishful Bias, the Survey of Professional Forecasters.
    JEL: E32 E37
    Date: 2016
  7. By: Christian A. Belabed
    Abstract: There is a large body of literature analyzing the onset of the Great Depression or the factors influencing economic recovery in the 1930s, especially the New Deal. The role of income inequality before and during the Great Depression, however, has almost never been discussed thoroughly. This paper attempts to answer two questions. Firstly, was inequality perceived as a problem by the Roosevelt administration? Secondly, did the New Deal incorporate these concerns such that economic policy design did take seriously the problem of inequality? Using official documents such as transcripts of Roosevelt's inaugural speeches, fireside chats and press conferences, this paper finds that top-end inequality was not recognized as a major political topic. Restoring the purchasing power of workers and farmers, however, appears to have been a political goal of the administration. The impact of New Deal policies on top-end income inequality or the wage share, however, can only be considered as modest. Only World War II and the long-term legislation of the New Deal may be considered successful in reducing top income and wealth shares and raising the wage share.
    Keywords: Inequality, income and wealth distribution, new deal, Roosevelt, Great Depression
    JEL: D31 D33 E02 E21 E25 G01 N12 N22 N32 N62
    Date: 2016
  8. By: Accolley, Delali
    Abstract: The available disaggregated capital data are across industries. What one needs inter alia when calibrating multi-sector neoclassical growth models, are not industries’ capital endowments but the ones used in producing commodities, particularly consumption and investment goods. To fill this gap, following the existing literature on capital measurement and input-output analysis, we have sequentially produced these estimates for the US economy over the period 1998-2007. We have then used our estimates to calibrate and solve numerically a three-sector optimal growth model of physical and human capital accumulation. Using the right capital shares and stocks has improved the ability of the three-sector model to explain business cycle fluctuations.
    Keywords: Capital measurement, Macroeconomics, Business Cycles
    JEL: E01 E10 E32 E37
    Date: 2016–04–24
  9. By: Deryugina, Elena; Ponomarenko, Alexey
    Abstract: We apply an econometric approach developed specifically to address the ‘curse of dimensionality’ in Russian data and estimate a Bayesian vector autoregression model comprising 14 major domestic real, price and monetary macroeconomic indicators as well as external sector variables. We conduct several types of exercise to validate our model: impulse response analysis, recursive forecasting and counter factual simulation. Our results demonstrate that the employed methodology is highly appropriate for economic modelling in Russia. We also show that post-crisis real sector developments in Russia could be accurately forecast if conditioned on the oil price and EU GDP (but not if conditioned on the oil price alone). Publication keywords: Bayesian vector autoregression, forecasting, Russia
    JEL: E32 E44 E47 C32
    Date: 2014–12–04
  10. By: Drautzburg, Thorsten (Federal Reserve Bank of Philadelphia)
    Abstract: This version: March 28, 2016 First version: February 2014 {{p}} Structural DSGE models are used both for analyzing policy and the sources of business cycles. Conclusions based on full structural models are, however, potentially affected by misspecification. A competing method is to use partially identified VARs based on narrative shocks. This paper asks whether both approaches agree. First, I show that, theoretically, the narrative VAR approach is valid in a class of DSGE models with Taylor-type policy rules. Second, I quantify whether the two approaches also agree empirically, that is, whether DSGE model restrictions on the VARs and the narrative variables are supported by the data. To that end, I first adapt the existing methods for shock identification with external instruments for Bayesian VARs in the SUR framework. I also extend the DSGE-VAR framework to incorporate these instruments. Based on a standard DSGE model with fiscal rules, my results indicate that the DSGE model identification is at odds with the narrative information as measured by the marginal likelihood. I trace this discrepancy to differences both in impulse responses and identified historical shocks.
    Keywords: Fiscal policy; Monetary policy; DSGE model; Bayesian estimation; Narrative shocks; Bayesian VAR
    JEL: C32 E32 E52 E62
    Date: 2016–03–28
  11. By: Stijn Ferrari; Mara Pirovano (Prudential Policy and Financial Stability, National Bank of Belgium)
    Abstract: Given the indisputable cost of policy inaction in the run-up to banking crises as well as the negative side effects of unwarranted policy activation, policymakers would strongly benefit from earlywarning thresholds that more accurately predict crises and produce fewer false alarms. This paper presents a novel yet intuitive methodology to compute country-specific and state-dependent thresholds for early-warning indicators of banking crises. Our results for a selection of early-warning indicators for banking crises in 14 EU countries show that the benefits of applying the conditional moments approach can be substantial. The methodology provides more robust signals and improves the early-warning performance at the country-specific level, by accounting for country idiosyncrasies and state dependencies, which play an important role in national supervisory authorities’ macroprudential surveillance.
    Keywords: Banking crises, Early warning systems, Country-specific thresholds, State-dependent thresholds
    JEL: C40 E44 E47 E61 G21
    Date: 2016–05
  12. By: Zuzana Mucka (Council for Budget Responsibility)
    Abstract: The paper sets out a multiple-trend DSGE model designed, calibrated and estimated to match key stylized facts about the Slovak economy. The model includes a detailed fiscal policy block that allows a thorough analysis of fiscal policy measures and evaluate country’s fiscal policy credibility using interest rate spreads. The estimated model is firstly employed to identify the structural economic shocks that drive the economy and determine the sources of the forecast uncertainty. The empirical analysis emphasizes the importance of the foreign shocks on domestic GDP, trade and employment growth and high influence of productivity shocks on inflation and labour market dynamics. Next, using the model we study the response of the economy to a technology shock and to a foreign demand shock under alternative fiscal adjustment scenarios. We find that a well-designed programme involving increases in transfers as well as tax cuts can stabilize the economy in the short run and improve longer-term growth prospects following a shock with adverse fiscal implications. We analyse the consequences of fiscal policy shocks in and away from the steady state of the model. The exercise yields implied fiscal multipliers that are in line with standard literature. Raising capital and labour tax especially is particularly bad for the real economy, mainly in the long run. On the other hand, cutting subsidies and unproductive government consumption are the least harmful way of reducing spending, while reduction in the public wage bill and public investment has negative implications on household consumption and wealth.
    Keywords: dynamic stochastic general equilibrium model, simulations, fiscal rules, fiscal multipliers, fiscal consolidation
    JEL: E32 C61 C63 D58 E62 H63 H5
    Date: 2016–04
  13. By: Gourio, Francois; Messer, Todd; Siemer, Michael
    Abstract: Using an annual panel of US states over the period 1982-2014, we estimate the response of macroeconomic variables to a shock to the number of new firms (startups). We find that these shocks have significant effects that persist for many years on real GDP, productivity, and population. This result is consistent with simple models of firm dynamics where a “missing generation” of firms affects productivity persistently.
    Keywords: Productivity ; Business dynamics ; Employment ; Firm entry ; Missing generation ; New business formation
    JEL: E24 E32 L25 L26
    Date: 2016–02
  14. By: Laurent Ferrara; Pierre Guérin
    Abstract: This paper evaluates the effects of high-frequency uncertainty shocks on a set of low-frequency macroeconomic variables that are representative of the U.S. economy. Rather than estimating models at the same common low-frequency, we use recently developed econometric models, which allows us to deal with data of different sampling frequencies. We find that credit and labor market variables react the most to uncertainty shocks in that they exhibit a prolonged negative response to such shocks. When examining detailed investment sub-categories, our estimates suggest that the most irreversible investment projects are the most affected by uncertainty shocks. We also find that the responses of macroeconomic variables to uncertainty shocks are relatively similar across single- and mixed-frequency data models, suggesting that the temporal aggregation bias is not acute in this context.
    Keywords: Business fluctuations and cycles, Econometric and statistical methods
    JEL: E32 E44 C32
    Date: 2016
  15. By: Oinonen, Sami; Paloviita, Maritta
    Abstract: This paper examines recent changes in the cyclicality of euro area inflation. We estimate time-varying parameters for the hybrid New Keynesian Phillips curve using three alternative proxies for the output gap. Our analysis, which is based on the state-space method with Kalman filtering techniques, suggests that the slope of the euro area Phillips curve has become steeper since 2012. Thus, the current low level of inflation and persistently negative output gap increase the risk that euro area inflation will stay below the monetary policy target for an extended period. Keywords: inflation, Phillips curve, cycle
    JEL: E31 E52 E32
    Date: 2014–12–16
  16. By: Schorfheide, Frank; Cuba-Borda, Pablo; Aruoba, S. Boragan
    Abstract: We compute a sunspot equilibrium in an estimated small-scale New Keynesian model with a zero lower bound (ZLB) constraint on nominal interest rates and a full set of stochastic fundamental shocks. In this equilibrium a sunspot shock can move the economy from a regime in which inflation is close to the central bank's target to a regime in which the central bank misses its target, inflation rates are negative, and interest rates are close to zero with high probability. A nonlinear filter is used to examine whether the U.S. in the aftermath of the Great Recession and Japan in the late 1990s transitioned to a deflation regime. The results are somewhat sensitive to the model specification, but on balance, the answer is affirmative for Japan and negative for the U.S.
    Keywords: Deflation ; DSGE Models ; Japan ; Multiple Equilibria ; Nonlinear Filtering ; Nonlinear Solution Methods ; Sunspots ; U.S. ; ZLB
    JEL: C5 E4 E5
    Date: 2016–05
  17. By: Pang, Ke; Siklos, Pierre L.
    Abstract: ​Relying on quarterly data since 1998 we estimate, for China and the U.S., small scale econometric models that economize on the number of variables employed and yet are rich enough to provide useful insights about spillover effects between the two countries under different maintained assumptions about the exogeneity of the macroeconomic relationship between them. We conclude that inflation in China responds to credit shocks. Indeed, the monetary transmission mechanism in China resembles that of the US even if the channels through which monetary policy affects their respective economies differ. We also find that the monetary policy stance of the PBOC was helpful in mitigating the impact of the global financial crisis of 2008-9. Finally, spillovers from the US to China are significant and originate from both through the real and financial sectors of the US economy. Publication keywords: spillovers, monetary policy in China, dynamic factor models, credit
    JEL: E58 E52 C32
    Date: 2015–01–18
  18. By: Lemoine, Matthieu (Unit of forecasting and macroeconomic studies); Lindé, Jesper (Research Department, Central Bank of Sweden)
    Abstract: This paper examines the effects of expenditure-based fiscal consolidation when credibility as to whether the cuts will be long-lasting is imperfect. We contrast the impact limited credibility has when the consolidating country has the means to tailor mon- etary policy to its own needs, with the impact when the country is a small member of a currency union with a negligible effect on interest rates and on nominal exchange rates of the currency union. We find two key results. First, in the case of an independ- ent monetary policy, the adverse impact of limited credibility is relatively small, and consolidation can be expected to reduce government debt at a relatively low output cost given that monetary policy provides more accommodation than it would under perfect credibility. Second, the lack of monetary accommodation under currency union membership implies that the output cost may be significantly larger, and that progress in reducing government debt in the short and medium term may be limited under imperfect credibility.
    Keywords: Monetary and Fiscal Policy; Front-Loaded vs. Gradual Consolidation; DSGE Model; Sticky Prices and Wages; Currency Union
    JEL: E32 F41
    Date: 2016–05–01
  19. By: Sedlacek, Petr
    Abstract: Recessions are times of high uncertainty. But does uncertainty cause downturns or vice versa? This paper argues that counter-cyclical fluctuations in uncertainty are, to a large extent, a natural result of creative destruction. I show analytically how aggregate growth and firm-level uncertainty are linked when firms gradually adopt a leading technology: expansions of the technological frontier widen the dispersion of firm-level productivity shocks, a benchmark measure of uncertainty. In a model of endogenous firm dynamics a technological expansion spurs a creative destruction process generating a temporary downturn and rendering uncertainty counter-cyclical. These predictions are confirmed in U.S. data showing that creative destruction accounts for 20 to 40 percent of overall variation in firm-level uncertainty.
    Keywords: Business Cycles; creative destruction; uncertainty
    JEL: D22 D80 E32
    Date: 2016–05
  20. By: Dunn, Wendy E.; Vine, Daniel J.
    Abstract: Motor vehicle dealerships in the United States tend to hold inventories equivalent to around 65 days’ worth of sales, a relatively high level that has been nearly unchanged for 50 years. Despite playing a prominent role in the volatility of U.S. business cycles, very little is known about why the auto industry targets inventory stocks at such a high level. We use a panel of inventory and sales data from 41 vehicle brands over 30 years and the solutions to two well-known inventory planning problems to show that vehicle inventories appear to be related to (1) the size of dealership franchise networks, which tend to be large; (2) product variety, which tends to be high; and (3) the volatility of new vehicle sales, which also tends to be high. We show that differences across brands in these variables explain a good bit of the cross-section dispersion in brand inventory-sales ratios. Offsetting changes in these factors over time also help explain why the industry’s overall inventory-sales ratio has been quite flat for many decades. More recently, the net increase observed in the inventory-sales ratio in the past couple of years is in contrast to fit of the model, which might suggest that some of that increase could reverse in the coming years.
    Keywords: Inventories ; Motor Vehicles
    JEL: E22 E32
    Date: 2016–05
  21. By: Bulut, Mustafa; Karasoy, Hatice Gökçe
    Abstract: This study analyzes the transmission of monetary policy decisions to financial markets under varying levels of monetary policy uncertainty. We conducted an event study for the period June 2010-January 2015. The uncertainty regarding to monetary policy is measured by the disagreement of expectations in the CBRT Survey of Expectations. Empirical findings indicate that the effectiveness of monetary transmission mechanism is highly affected by policy uncertainty. For example, a positive policy surprise leads to an appreciation of Turkish lira against US dollar under low levels of uncertainty, whereas Turkish lira depreciates when uncertainty is high. Furthermore, an increase in the main policy rate flattens the yield curve for all uncertainty levels. On the other hand, this pattern is more pronounced while uncertainty is low and contrary to expectations, long term rates decreases after a positive policy surprise. During the periods when uncertainty regarding monetary policy is low, positive policy surprise decreases long term rates via anchoring inflation expectations.
    Keywords: Monetary Policy, Financial Markets, Uncertainty, Event Study.
    JEL: D80 E58 G14
    Date: 2016–05–09
  22. By: Korhonen, Iikka; Nuutilainen, Riikka
    Keywords: monetary policy rule, Taylor rule, McCallum rule, Russia, inflation
    JEL: E31 E43 E52 P33
    Date: 2016–02–10
  23. By: Honkapohja, Seppo
    Abstract: ​Many central banks have lowered their interest rates close to zero in response to the crisis since 2008. In standard monetary models the zero lower bound (ZLB) constraint implies the existence of a second steady state in addition to the inflation-targeting steady state. Large scale asset purchases (APP) have been used as a tool for easing of monetary policy in the ZLB regime. I provide a theoretical discussion of these issues using a stylized general equilibrium model in a global nonlinear setting. I also review briefly the empirical literature about effects of APP’s.
    Keywords: adaptive learning, monetary policy, inflation targeting, zero interest rate lower bound
    JEL: E63 E52 E58
    Date: 2015–08–20
  24. By: Mark Setterfield (New School For Social Research); Yun K. Kim (University of Massachusetts, Boston)
    Abstract: We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers’ consumption behavior, under different assumptions about how debt is serviced. Our results demonstrate that borrowing and emulation transform the relationship between distribution and growth, giving rise to the possibility of a “consumption-driven, profit-led†growth regime (Kapeller and Schütz, 2015) and what we call the “paradox of inequality.†A key conclusion is that the wage-or -profit led characteristics of the growth process, rather than being invariant, can be altered by social constructs such as borrowing and consumption norms that change over time.
    Keywords: Borrowing, saving, emulation, debt servicing, wage-led growth, profit-led growth
    JEL: E12 E44 O41
  25. By: International Monetary Fund. African Dept.
    Abstract: Highly accommodative macroeconomic conditions have generated only modest growth in the presence of remaining structural impediments. In 2015, low interest rates, a weak euro, and low oil prices remained largely in place, allowing growth to reach 1.5 percent. However, the consumption-driven recovery is losing momentum as the savings rate reaches historic lows, the rapid decline in the unemployment rate comes to an end, and improvements in high-frequency indicators taper off. GDP is projected to expand by 1.4 percent this year and moderate to 1.2 percent over the medium term.
    Keywords: Portugal;Europe;debt, monetary fund, market, inflation, oil prices
    Date: 2016–04–01
  26. By: Günes Kamber; Gabriela Nodari; Benjamin Wong (Reserve Bank of New Zealand)
    Abstract: We estimate the macroeconomic effects of changes in commodity prices on the New Zealand economy. Our analysis suggests that an increase in commodity prices has similar characteristics to demand driven macroeconomic fluctuations. GDP expenditure subcomponents such as consumption and investment tend to rise in response to higher commodity prices. Business investment appears to respond more than consumption, highlighting its importance in the transmission of a commodity price movements. In line with higher demand pressures, non-tradable inflation is estimated to increase persistently. We find that the real exchange rate appreciates, and tradable inflation decreases accordingly. Possibly due to the divergent patterns of tradable and non-tradable inflation, the interest rate does not respond to higher commodity prices in the very short-run but is estimated to increase over longer horizons.
    Date: 2016–05
  27. By: Kim, Minseong
    Abstract: Unlike many analysis of tax effects on consolidated household/government debts in a monetary union, this paper builds up analysis from a consolidated budget constraint, instead of starting from a model. By a monetary union, it is assumed that all nations in the union share same currency. Also, if taxes are assumed to be in real values, or if one assumes that government targets real value of taxes $T/P$, then it is also possible to produce the size of fiscal multiplier on real value of consolidated debts, if relaxed version of classical dichotomy - that agents' decisions are only affected by real variables - is assumed. This paper argues that size is $db/dt_r = -1$ where $t_r$ is real value of taxes or ``real taxes'' and $b = B/(PR)$ where $B = -D$ with $D$ nominal debt, $P$ price and $R-1$ nominal interest rate , or in terms of real debts, $dd/dt_r = 1$.
    Keywords: fiscal multiplier; tax multiplier; debt analysis; monetary union; household debts; international macroeconomics
    JEL: E13 E62 F19 F41 F45 H30 H60
    Date: 2016–04–28
  28. By: Lainà, Patrizio; Nyholm, Juho; Sarlin, Peter
    Abstract: This paper investigates leading indicators of systemic banking crises in a panel of 11 EU countries, with a particular focus on Finland. We use quarterly data from 1980Q1 to 2013Q2, in order to create a large number of macro-financial indicators, as well as their various transformations. We make use of univariate signal extraction and multivariate logit analysis to assess what factors lead the occurrence of a crisis and with what horizon the indicators lead a crisis. We find that loans-to-deposits and house price growth are the best leading indicators. Growth rates and trend deviations of loan stock variables also yield useful signals of impending crises. While the optimal lead horizon is three years, indicators generally perform well with lead times ranging from one to four years. We also tap into unique long time-series of the Finnish economy to perform historical explorations into macro-financial vulnerabilities.
    JEL: E44 F30 G01 G15 C43
    Date: 2014–06–16
  29. By: Antoine CAZALS; Pierre MANDON
    Abstract: Despite a long history of research on political budget cycles, their existence and magnitude are still in question. By conducting a systematic analysis of the existing literature we intend to clarify the debate. Based on data collected from over 1; 700 regressions and 57 studies, our meta-analysis suggests that leaders do manipulate fiscal tools in order to be re-elected but to an extent that is significantly exaggerated by scholars. However, we show the incumbents' strategy differs depending on which tools they leverage. Finally, we discuss in further details how authors' methodological choices and country institutions affect political budget cycles.
    Keywords: Political cycles ; Budget manipulation ; Meta-analysis
    JEL: H0 E62 D78 D72 C82
    Date: 2016–05
  30. By: S. Eickmeier; N. Metiu; Esteban Prieto
    Abstract: We document that expansionary monetary policy shocks are less effective at stimulating output and investment in periods of high volatility compared to periods of low volatility, using a regime-switching vector autoregression. Exogenous policy changes are identified by adapting an external instruments approach to the non-linear model. The lower effectiveness of monetary policy can be linked to weaker responses of credit costs, suggesting a financial accelerator mechanism that is weaker in high volatility periods.
    Keywords: monetary policy, credit spread, non-linearity, intermediary leverage,
    JEL: C32 E44 E52
    Date: 2016–05
  31. By: Acemoglu, Daron; Akcigit, Ufuk; Kerr, William R.
    Abstract: The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input-supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patenting). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various di¤erent types of shocks through economic networks and industry interlinkages could have first-order implications for the macroeconomy.
    Keywords: economic fluctuations, geographic collocation, input-output linkages, networks, propagation, shocks
    JEL: E32
    Date: 2015–12–09
  32. By: Holopainen, Markus; Sarlin, Peter
    Abstract: This paper presents first steps toward robust early-warning models. We conduct a horse race of conventional statistical methods and more recent machine learning methods. As early-warning models based upon one approach are oftentimes built in isolation of other methods, the exercise is of high relevance for assessing the relative performance of a wide variety of methods. Further, we test various ensemble approaches to aggregating the information products of the built early-warning models, providing a more robust basis for measuring country-level vulnerabilities. Finally, we provide approaches to estimating model uncertainty in early-warning exercises, particularly model performance uncertainty and model output uncertainty. The approaches put forward in this paper are shown with Europe as a playground.
    Keywords: financial stability, early-warning models, horse race, ensembles, model uncertainty
    JEL: E44 F30 G01 G15 C43
    Date: 2015–03–04
  33. By: Silvio Michael de Azevedo Costa
    Abstract: This paper builds and estimates a structural growth model with micro-founded specifications of trends and cycles to allow a consistent multivariate filtering of key macroeconomic variables. Emerging countries like Brazil show expressive trend dynamics that can blur the vectors determining real business cycles, but most models cannot consider this additional complexity, and so they usually throw out meaningful dynamics of scarce data. Our basic DSGE model cares for the raw data dynamics and aims to disentangle endogenously trends and cycles and unveil the underlying growth vectors. Thereby, historical interpretation and forecasts can hold internal consistency, which improves storytelling and calls for an in-depth forecasting. We report model evaluation summaries to support fully integrated models as a highly valuable tool for applied macro exercises and policy advising. Yet, we present an application for the measurement of potential output and the output gap
    Date: 2016–05
  34. By: Delle Monache, (Bank of Italy); Ivan Petrella (Department of Economics, Mathematics & Statistics, Birkbeck; Bank of England); Fabrizio Venditti (Bank of Italy)
    Abstract: We analyze the interaction among the common and country specific components for the inflation rates in twelve euro area countries through a factor model with time varying parameters. The variation of the model parameters is driven by the score of the predictive likelihood, so that, conditionally on past data, the model is Gaussian and the likelihood function can be evaluated using the Kalman filter. The empirical analysis uncovers significant variation over time in the model parameters. We find that, over an extended time period, inflation persistence has fallen over time and the importance of common shocks has increased relatively to the idiosyncratic disturbances. According to the model, the fall in inflation observed since the sovereign debt crisis, is broadly a common phenomenon, since no significant cross country inflation differentials have emerged. Stressed countries, however, have been hit by unusually large shocks.
    Keywords: inflation, time-varying parameters, score driven models, state space models, dynamics factor models.
    JEL: E31 C22 C51 C53
    Date: 2015–07
  35. By: Dimitri Lorenzani; Vito Ernesto Reitano
    Abstract: This paper explores the composition and developments of public expenditure in Italy and compares them with other big Member States. On the basis of this analysis, it draws several possible policy implications. Based on the latest available data by economic classification and function, Italy’s public expenditure appears to be increasingly biased towards the elderly, while growth-enhancing spending has been markedly restrained during the crisis. Debt-servicing costs absorb significantly higher resources than in the rest of the euro area, so that Italy’s public expenditure remains above the euro area average as a share of potential GDP despite slightly lower primary expenditure. Overall, the paper suggests that it may be difficult in the future to contain Italy’s primary expenditure solely by relying on spending cuts, while leaving the current perimeter of State action unchanged. A systematic and rigorously implemented spending review would be needed to increase the efficiency of public expenditure and make its composition more growth-friendly, in order to support ongoing structural reform efforts and boost the country's potential growth. Finally, positive spending review measures enacted so far in Italy, such as the so-called “Fornero reform” to reduce the much higher-than-average pension expenditure and ensure its sustainability in the long run, should be fully implemented also with the objective of increasing labour market participation and the adequacy of future entitlements.
    JEL: E61 E62 E63 H50 H60 H72
    Date: 2015–12
  36. By: Porshakov, Alexey; Deryugina, Elena; Ponomarenko, Alexey; Sinyakov, Andrey
    Abstract: Real-time assessment of quarterly GDP growth rates is crucial for evaluation of economy’s current perspectives given the fact that respective data is normally subject to substantial publication delays by national statistical agencies. Large information sets of real-time indicators which could be used to approximate GDP growth rates in the quarter of interest are in practice characterized by unbalanced data, mixed frequencies, systematic data revisions, as well as a more general curse of dimensionality problem. The latter issues could, however, be practically resolved by means of dynamic factor modeling that has recently been recognized as a helpful tool to evaluate current economic conditions by means of higher frequency indicators. Our major results show that the performance of dynamic factor models in predicting Russian GDP dynamics appears to be superior as compared to other common alternative specifications. At the same time, we empirically show that the arrival of new data seems to consistently improve DFM’s predictive accuracy throughout sequential nowcast vintages. We also introduce the analysis of nowcast evolution resulting from the gradual expansion of the dataset of explanatory variables, as well as the framework for estimating contributions of different blocks of predictors into now-casts of Russian GDP.
    Keywords: GDP nowcast, dynamic factor models, principal components, Kalman filter, nowcast evolution
    JEL: C53 C82 E17
    Date: 2015–05–28
  37. By: Haavio, Markus; Ripatti, Antti; Takalo, Tuomas
    Abstract: ​We build a dynamic stochastic general equilibrium model, where the balance sheets of both banks and non-financial firms play a role in macro-financial linkages. We show that in equilibrium bank capital tends to be scarce, compared with firm capital. We study public funding of banks and firms in times of crisis. Government capital injections can be useful as a shock cushion, but they distort incentives. Small capital injections benefit banks more than firms but the relative benefit is declining in the injection size. Government should first recapitalize banks, and if resources are large enough, lend to firms too.
    Keywords: financial frictions, bank capitalization, public funding of non-financial firms
    JEL: E44 G21 G28 G38
    Date: 2016–05–10
  38. By: Sam Hak Kan Tang; Charles Ka Yui Leung
    Abstract: We present cross-country evidence that a country’s macroeconomic volatility, measured either by the standard deviation of output growth or the occurrence of trend-growth breaks, is significantly affected by the country’s historical variables. In particular, countries with longer histories of state-level political institutions experience less macroeconomic volatility in post-war periods. Robustness checks reveal that the effect of this historical variable on volatility remains significant and substantial after controlling for a host of structural variables investigated in previous studies. We also find that the state history variable is more important in countries with a higher level of macroeconomic volatility.
    Date: 2016–04
  39. By: Kauko, Karlo
    Abstract: The NSFR regulation reduces banks’ liquidity risks by encouraging the use of deposit funding. Deposit money is created by lending, but the requirement restricts possibilities to grant loans. This contradiction may be destabilising if there is a substantial foreign debt. Keywords: net stable funding ratio; endogenous money; liquidity regulation
    JEL: E51 G21 G28
    Date: 2015–01–26
  40. By: Katerina Lisenkova; Miguel Sanchez-Martinez
    Abstract: This paper looks at the possible scenarios of migration policy should the UK leave the EU. The paper uses an OLG model which brings together labour market, fiscal and other macroeconomic effects in one framework. It also adds a dynamic perspective, differentiates between natives and different categories of immigrants and captures age and qualification compositional effects. The paper compares the two migration scenarios: Leave and Remain. By 2065, in the Leave scenario, aggregate GDP and GDP per person are 9% and 1% respectively lower compared to Remain scenario. Reduced migration after leaving the EU has a negative impact on the public finances, because of higher dependency ratio. This requires an increase in taxation of about £400 per person (2014 pounds) in 2065. The results are sensitive to the assumptions that change productivity of the labour force and dependency ratio.
    Date: 2016–05
  41. By: Michael H. Stierle; Stijn Rocher (Ministry of Finance, Belgium)
    Abstract: This paper investigates factors which may help explain the persistent differences in household saving rate across the EU, which in 2013 ranged from –10% of household income in Romania to +16% in Germany. Factors explaining changes over time or forecasting of household savings fall out of the scope of this paper. First, we argue that caution is needed when comparing household saving rates across countries. Institutional differences and data reliability are likely to hinder the international comparability of saving rates. Second, we discuss various determinants of household saving behaviour. We find that traditional explanatory variables like income levels, age dependency and uncertainty can explain more than half of the cross section variance in saving rates. However, large unobserved country fixed effects (e.g. because of institutional differences and measurement error) appear to be present.
    JEL: E21 C23 H55
    Date: 2015–09
    Date: 2016
  43. By: Pavel Gertler; Boris Hofmann
    Abstract: This paper uses a cross-country database covering 46 economies over the post-war period to revisit two key monetary facts: (i) the long-run link between money growth and inflation and (ii) the link between credit growth and financial crises. The analysis reveals that the former has weakened over time, while the latter has become stronger. Moreover, the money-inflation nexus has been stronger in emerging market economies than in advanced economies, while it is the other way round for the link between credit growth and financial crises. These results suggest that there is an inverse relationship between the two monetary facts. The money-inflation link is weaker in regimes characterised by low inflation and highly liberalised financial systems, while the reverse holds true for the credit-crisis nexus.
    Keywords: quantity theory, credit growth, financial crises
    Date: 2016–06
  44. By: Bonthuis, Boele; Jarvis, Valerie; Vanhala, Juuso
    Abstract: This paper analyses euro area Beveridge curves at the euro area aggregate and country level over the past 25 years. Using an autoregressive distributed lag model we find a significant outward shift in the euro area Beveridge curve since the onset of the crisis, but considerable heterogeneity at country level. We test for factors underlying these developments using the local projections method of Jordà (2005). Skill mismatch, high shares of workers in the construction sector, as well as high pre-crisis financial slack and home ownership rates appear strong determinants of outward shifts in Beveridge curves in response to a negative shock. Higher female participation rates mitigate these effects. Keywords: Beveridge curve, crisis, mismatch, unemployment, labour shortages, vacancies
    JEL: J62 J63 E24 E32
    Date: 2015–02–03
  45. By: Jacopo Cimadomo; Peter Claeys; Marcos Poplawski-Ribeiro
    Abstract: This paper assesses how forecasting experts form their expectations about future government bond spreads. Using monthly survey forecasts for France, Italy and the United Kingdom between January 1993 and October 2014, we test whether respondents consider the expected evolution of the fiscal balance—and other economic fundamentals—to be significant drivers of the expected bond yield differential over a benchmark German 10-year bond. Our main result is that a projected improvement of the fiscal outlook significantly reduces expected sovereign spreads. This suggests that credible fiscal plans affect market experts’ expectations and reduce the pressure on sovereign bond markets. In addition, we show that expected fundamentals generally play a more important role in explaining forecasted spreads compared to realized spreads.
    Date: 2016–05–20
  46. By: Giovanni Ganelli; Nour Tawk
    Abstract: We use a Global VAR model to study spillovers from the Bank of Japan’s quantitative and qualitative easing (QQE) on emerging Asia.1 Our main result is that, despite an appreciation of their currencies vis-Ã -vis the yen, the impact on emerging Asia’s GDP tended to be positive and significant. Our results suggest that the positive effect of QQE on expectations, by improving confidence, more than offset any negative exchange rate spillover due to expenditure switching from domestic demand to Japanese goods. They also suggest that spillovers from QQE might have worked mainly through the impact of expectations and improved confidence, captured by increases in equity prices, rather than through balance sheet adjustments which might have been captured by movements in the monetary base.
    Date: 2016–05–20
  47. By: Athanasios Geromichalos; Lucas Herrenbrueck (Department of Economics, University of California Davis)
    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 evenmodest 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: 2016–05–25
  48. By: Fernald, John; Hsu, Eric; Spiegel, Mark M.
    Abstract: How reliable are China’s GDP and other data? We address this question by using trading partner exports to China as an independent measure of its economic activity from 2000–2014. We find that the information content of Chinese GDP improves markedly after 2008.We also consider a number of plausible, non-GDP indicators of economic activity that have been identified as alternative Chinese output measures. We find that activity factors based on the first principal component of sets of indicators are substantially more informative than GDP alone. The index that best matches activity in-sample uses four indicators: electricity, rail freight, an index of raw materials supply, and retail sales. Adding GDP to this group only modestly improves in-sample performance. Moreover, out of sample, a single activity factor without GDP proves the most reliable measure of economic activity.
    Keywords: China, GDP, principal components, structural break, forecasting
    JEL: C53 C82 E20 F17
    Date: 2015–10–15
  49. By: Mariotto, Carlotta; Verdier, Marianne
    Abstract: Over the recent years, the development of Internet banking and mobile banking has had a considerable impact on competition in the retail banking industry. In some countries, the regulatory framework has been adapted to allow non-banks to operate in retail payments and compete with banks for deposits. Several platforms or large retailers have started to offer innovative financial products to their customers. In this paper, we survey the issues related to innovation and competition in Internet banking and mobile banking and discuss some perspectives for future research.
    Keywords: bank competition, bank regulation, non-banks, payment systems, Internet banking, mobile banking, platform markets
    JEL: E42 G21 L96
    Date: 2015–11–25
  50. By: Hattendorff, Christian
    Abstract: ​The paper investigates the relationship between economic concentration and level of financial development to illuminate the linkage of real economy structure and financial markets. Using data from 81 Russian regions for the period 2005–2011, empirical evidence is offered to show that poor diversification weakens credit. Geographical variables are used as instruments of concentration in accounting for endogeneity. This work supports previous findings at the national level that policymakers seeking to promote economic development should place stronger emphasis on output diversification.
    Keywords: economic concentration, diversification, financial development, Russia
    JEL: E51 O11 R11
    Date: 2015–05–18
  51. By: Fungáčová, Zuzana; Nuutilainen, Riikka; Weill, Laurent
    Abstract: This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004–2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy.
    Keywords: Chinese banks, bank lending channel, bank ownership
    JEL: E52 G21 P52
    Date: 2015–09–21
  52. By: Mattia Guerini; Mauro Napoletano; Andrea Roventini
    Abstract: We develop an agent-based model in which heterogeneous firms and households interact in labor and good markets according to centralized or decentralized search and matching protocols. As the model has a deterministic backbone and a full-employment equilibrium, it can be directly compared to Dynamic Stochastic General Equilibrium (DSGE) models. We study the effects of negative productivity shocks by way of impulse-response functions (IRF). Simulation results show that when search and matching are centralized, the economy is always able to return to the full employment equilibrium and IRFs are similar to those generated by DSGE models. However, when search and matching are local, coordination failures emerge and the economy persistently deviates from full employment. Moreover, agents display persistent heterogeneity. Our results suggest that macroeconomic models should explicitly account for agents' heterogeneity and direct interactions.
    Keywords: Agent-Based Model, Local Interactions, Heterogeneous Agents, DSGE Model
    Date: 2016–05–30
  53. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Pacific Department, ADB); Asian Development Bank (ADB) (Pacific Department, ADB); Asian Development Bank (ADB)
    Abstract: The Monitor provides an update of developments in Pacifi c economies and explores topical policy issues.
    Keywords: Pacific, economics, fiscal, budget, 2015, 2016, tourism, visitors, arrivals, revenue, expenditure, event hosting, ASEAN, Cook Islands, Fiji, Kiribati, Marshall Islands, FSM, Micronesia, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, Vanuatu
    Date: 2015–11
  54. By: Sophie Piton (Paris School of Economics - Centre d'Economie de la Sorbonne)
    Abstract: This paper studies the contribution of real interest rate divergence to the dynamics of the relative price of non-tradables within Europe. Based on a model by De Gregorio et al. (1994), it shows that the real interest rate fall in the Euro Area (EA) periphery following the single currency's inception induced an increase in the relative price of non-tradable goods. using a new dataset, it documents the dynamics of the tradable and the non-tradable sectors over 1995-2013 and the expansion of the non-tradable sector in the periphery before the euro crisis. it then carries out an econometric estimation for 11 EA countries over 1995-2013 and quantifies the contribution of the pure Balassa-Samuelson effect and the impact of the interest rate on non-tradable relative prices. Diverging evolution in the interest rate impacted greatly the evolution of non-tradable relative prices within the euro area over the period. In Greece, the fall in the real interest rate over 1995-2008 could explain almost half of the non-tradable price increase relative to the EA average, while in Germany the increase in the real interest rate might have contributed up to 7% of the decrease of the non-tradable price relative to the average of the EA
    Keywords: Non-tradable prices; Balassa-Samuelson effect; Real interest rate
    JEL: F41 F45 E43
    Date: 2016–05
  55. By: Jinyoung Kim; Jong-Wha Lee; Kwanho Shin
    Abstract: This paper introduces a model of gender inequality and economic growth that focuses on the determination of women's time allocation among market production, home production, child rearing, and child education. The theoretical model is based on Agenor (2016), but differs in several important dimensions. The model is calibrated using microlevel data of Asian economies, and numerous policy experiments are conducted to investigate how various aspects of gender inequality are related to the growth performance of the economy. The analysis shows that improving gender equality can contribute significantly to economic growth by changing females' time allocation and promoting accumulation of human capital. We find that if gender inequality is completely removed, aggregate income will be about 6.6% and 14.5% higher than the benchmark economy after one and two generations respectively, while corresponding per capita income will be higher by 30.6% and 71.1% in the hypothetical gender-equality economy. This is because fertility and population decrease as women participate more in the labor market.
    Keywords: gender inequality, economic growth, overlapping generations model, labor market, human capital accumulation
    JEL: E24 E60 J13 J71
    Date: 2016–05
  56. By: Tuhkuri, Joonas
    Abstract: In this report we document the ETLAnow project. ETLAnow is a model for forecasting with big data. At the moment, it predicts the unemployment rate in the EU-28 countries using Google search data. This document is subject to updates as the ETLAnow project advances.
    Keywords: Big Data, Google, Internet, Nowcasting, Forecasting, Unemployment, Europe
    JEL: C22 C53 C55 C82 E27
    Date: 2016–05–25
  57. By: International Monetary Fund
    Abstract: Growth moderated to below trend in 2013–15. In 2015, the output gap widened notwithstanding the modest pick-up in growth to 3¾ percent. GDP is expected to return to potential over the medium-term. Inflation dove into negative territory following the sharp decline in imported oil prices, but is projected to return to the 2- 4 percent target range by end-2016. The exchange rate (XR) remained stable despite the removal of the band, and reserve accumulation resumed strongly. Risks to the outlook are tilted to the downside, notably from large fiscal deficits and high dollarization.
    Date: 2016–05–23
  58. By: Franc Klaassen (University of Amsterdam, the Netherlands); Kostas Mavromatis (University of Amsterdam, the Netherlands)
    Abstract: Central banks with an exchange rate objective set the interest rate in response to what they call ''pressure.'' Instead, existing interest rate rules rely on the exchange rate minus its target. To stay closer to actual policy, we introduce a rule that uses exchange market pressure (EMP), the tendency of the currency to depreciate. Our rule can also explain a high interest rate even if the actual exchange rate is on target, in contrast to traditional rules. A further improvement is that the coefficient for EMP depends on the interest rate effectiveness: the rate should be used less if it is more effective. This shows how policy makers should adapt their policy in case of a structural change to avoid missing their objective. Our rule can be applied to many regimes, from the float to the fixed, and to many models, such as the New Keynesian model, as we illustrate.
    Keywords: DSGE; exchange market pressure; exchange rate regime; fixed exchange rate; monetary policy; open economy Taylor rule
    JEL: E43 E52 F31 F33
    Date: 2016–04–29
  59. By: Georgescu, George
    Abstract: The recent history of mankind has shown the importance of institutions for addressing the macroeconomic balances, the market mechanisms and the improving of countries economic performances. The paper focuses on Romania’s institutional convergence with the EU Member States, revealing that, despite some progresses achieved in the pre-accession period as concerns the transposition and compliance with the European legislation, a deterioration in the institutional system functioning has been registered after joining the EU, in terms of public administration efficiency, stability of organizational structures, public procurement policies, corruption. Some of institutional deficiencies are explained by the more in-depth analysis of Romania’s credit institutions convergence with the EU banking system practicies. Significant differences in the magnitude of financial intermediation, loan-to-deposit ratio, minimum reserves requirements, borrowing costs, NPL ratio, interest rate margins, have been found. To these, dysfunctions of other institutions, as Bucharest Stock Exchange, authorities entitled to monitor and supervise competition, banking and non-bank financial market are added. In conclusion, the paper stressed that, the overall institutional picture of Romania seems rather divergent compared to the one of the EU, at least regarding the effective functioning of governance and institutions.
    Keywords: New Institutional Economy; acquis communautaire; institutional convergence; credit institutions
    JEL: E02 F15 G15 O43
    Date: 2016–02–05
  60. By: William R. Cline (Peterson Institute for International Economics)
    Abstract: The US dollar is overvalued by about 7 percent, approximately the same amount as estimated last year (May and November 2015). Divergent phases of monetary policy in the United States, on one hand, and the euro area and Japan, on the other, and a collapse in commodity prices drove the stronger dollar. After rising about 5 percent from October 2015 (the base of the November 2015 assessment) to January 2016, the real effective exchange rate of the dollar fell slightly below its October level by April 2016 (the base of the current estimates). This semiannual evaluation also finds the yen is slightly undervalued (by 3 percent) despite its recent strengthening, but there is no misalignment of the other two leading currencies, the euro and Chinese renminbi.
    Date: 2016–05
  61. By: Patricia Palhau Mora; Michael Januska
    Abstract: Monetary policy and financial stability are closely intertwined, and the resilience of the financial system carries weight in this relationship. This paper explores whether the financial system is more resilient as a result of the G20’s post-crisis agenda for financial regulatory reform. It summarizes the agenda’s key measures and implementation schedules, both internationally and in Canada, reviews the effectiveness of the reform measures in preventing and addressing financial imbalances, and outlines outstanding issues. It finds that, to date, there is evidence that the G20’s reform measures are increasing financial system resilience globally, especially in the banking sector. Yet, implementation is still ongoing, and it may be too early to judge how the reform measures are interacting with one another. In Canada, the resilience of the financial system is being enhanced by the ongoing implementation of more-rigorous global regulatory and supervisory standards. Consequently, the likelihood and impact of severe financial stress in the future should be reduced, supporting the primary focus of monetary policy on achieving its 2 per cent inflation target.
    Keywords: Financial stability, Financial system regulation and policies, Monetary policy framework
    JEL: E52 G01 G21 G23 G28
    Date: 2016
  62. By: Arbex, Marcelo (University of Windsor); O'Dea, Dennis (University of Washington); Wiczer, David (Federal Reserve Bank of St. Louis)
    Abstract: We introduce an irregular network structure into a model of frictional, on-the-job search in which workers find jobs through their network connections or directly from firms. We show that jobs found through network search have wages that stochastically dominate those found through direct contact. Because we consider irregular networks, heterogeneity in the worker's position within the network leads to heterogeneity in wage and employment dynamics: better connected workers climb the job ladder faster and do not fall off it as far. These workers also pass along higher quality referrals, which benefits their connections. Despite this rich heterogeneity from the network structure, the mean-field approach allows the problem of our workers to be formulated tractably and recursively. We then calibrate and study the wage and employment dynamics coming from our job ladder with network heterogeneity. This quantitative version of our mechanism is consistent with several features of empirical studies on networks and labor markets: jobs found through networks have higher wages and last longer.
    Keywords: Labor Markets; Social networks; Job search; Unemployment; Wages dispersion.
    JEL: D83 D85 E24 J31 J64
    Date: 2016–05–19
  63. By: Kilinc, Zubeyir; Yucel, Eray
    Abstract: In this study, we try to uncover the information capacity of the Purchasing Managers Index (PMI) as a leading indicator of GDP growth of euro area. Our results show that PMI carries a significant amount of information that can be used to forecast the growth rate in the current as well as subsequent quarters. In particular, having verified that a PMI level around 50 works as the threshold distinguishing between positive and negative rates of GDP growth, we establish a sequence of other PMI thresholds to signify certain levels of GDP growth. Our estimation strategy reveals asymmetric responses of GDP growth to unit changes in PMI before and after the estimated threshold levels.
    Keywords: Purchasing Managers Index; Leading Indicators; Thresholds
    JEL: C24 C51 E27
    Date: 2016–04–22
  64. By: Adriano A. Rampini; S. Viswanathan
    Abstract: Households' insurance against shocks to income, health and other non-discretionary expenditures, and asset values (that is, household risk management) is limited, especially for poor households. We argue that a trade-off between intertemporal financing needs and insurance across states explains this basic insurance pattern. In a model with limited enforcement, we show that household risk management is increasing in household net worth and income, incomplete, and precautionary. These results hold in economies with income risk, durable goods and collateral constraints, and durable goods price risk, under quite general conditions and, remarkably, risk aversion is sufficient and prudence is not required. In equilibrium, collateral scarcity results in a lower interest rate, reduced insurance, and increased inequality.
    JEL: D14 D91 E21 G22 I13
    Date: 2016–05
  65. By: Carlos Medel
    Abstract: In this article, it is analysed the multihorizon predictive power of the Hybrid New Keynesian Phillips Curve (HNKPC) making use of a compact-scale Global VAR (GVAR) for the headline inflation of six developed countries with different inflationary experiences; covering from 2000.1 until 2014.12. The key element of this article is the use of direct measures of inflation expectations—Consensus Economics—embedded in a GVAR environment, i.e. modelling cross-country interactions. The GVAR point forecast is evaluated using the Mean Squared Forecast Error (MSFE) statistic and statistically compared with several benchmarks. These belong to traditional statistical modelling, such as autoregressions (AR), the exponential smoothing model (ES), and the random walk model (RW). One last economics-based benchmark is the closed economy univariate HNKPC. The results indicate that the GVAR has a low performance compared to that exhibited by the RW. The most accurate forecasts, however, are obtained with the AR and especially with the univariate HNKPC. In the long-run, the ES model also appears as a better alternative rather than the RW. The MSPE is obviously affected by the unanticipated effects of the financial crisis started in 2008. So, when considering an evaluation sample just before the crisis, the GVAR appears as a valid alternative for some countries in the long-run. The most robust forecasting devices across countries and horizons result in the univariate HNKPC, giving a role for economic fundamentals when forecasting inflation.
    Date: 2016–05
  66. By: Isohätälä, Jukka; Milne, Alistair; Robertson, Donald
    Abstract: We study the impact of financing constraints on investment and output dynamics, in a continuous time setting with output a linear function of capital. Decline of net worth reduces investment and, if firms can rent capital to unconstrained outside investors, can create a 'net worth trap' with both investment and output falling below normal levels for long time periods. We provide a detailed account of our model solution and discuss both the economic intuition underpinning our results and the implications for macroeconomic modeling. Keywords: cash flow management, corporate prudential risk, financial accelerator, financial distress, induced risk aversion, liquidity constraints, liquidity risk, macroeconomic propagation, multiperiod financial management, non-linear macroeconomic modelling, Tobin's q, precautionary savings
    JEL: E44
    Date: 2014–11–17
  67. By: Miles Parker (Reserve Bank of New Zealand)
    Abstract: This paper studies how disasters affect consumer price inflation, one of the main remaining gaps in our understanding of the impact of disasters. There is a marked heterogeneity in the impact between advanced economies, where the impact is negligible, and developing economies, where the impact can last for several years. There are also differences in the impact by type of disasters, particularly when considering inflation sub-indices. Storms increase food price inflation in the near term, although the effect dissipates within a year. Floods also typically have a short-run impact on inflation. Earthquakes reduce CPI inflation excluding food, housing and energy.
    Date: 2016–06
  68. By: Maddalena Cavicchioli; Angeliki Papana; Ariadni Papana Dagiasis; Barbara Pistoresi
    Abstract: In this paper we implement an efficient non-parametric statistical method, Random survival forests, for the selection of the determinants of Central Bank Independence (CBI) among a large database of political and economic variables for OECD countries. This statistical technique enables us to overcome omitted variables and over omitting problems. It turns out that the economic variables are major determinants compared to the political ones and linear and nonlinear effects of chosen predictors on CBI are found.
    Keywords: Central bank independence, political and economic determinants, Random survival forests
    JEL: E58 C82
    Date: 2016–05
  69. By: Giulio Fella (Centre for Macroeconomics (CFM); Institute for Fiscal Studies; School of Economics and Finance Queen Mary); Marco Cozzi (Department of Economics University of Victoria)
    Abstract: Employment contracts often contain severance-pay provisions. Many countries also mandate minimum levels of severance pay and other forms of employment protection. Both privately-contracted and legislated severance pay provisions are commonly increasing, approximately linear, functions of job tenure. A candidate explanation for the existence of severance pay is as a means of (imperfectly) insuring workers against the risk of job loss. Job displacement risk has two components: the loss of earnings during unemployment and the loss of earnings upon re-employment associated with the loss of pre-displacement tenure. The first component is short-lived, at least in Anglo-Saxon countries where the average unemployment duration is of the order of one quarter. Conversely, a large body of empirical evidence documents that post-displacement earnings losses are large and persistent, of the order of 25 per cent in the post-displacement year and 10 per cent after six years. The existing literature studying the effects of severance pay in the presence of incomplete insurance markets has considered only the first type of risk and concluded that the insurance benefits of severance pay are negligible. Instead, we reassess the role of severance pay as an insurance device in a quantitative framework featuring both transitory unemployment risk and persistent earnings reductions upon re-employment. In contrast to previous studies, we find that the welfare gains from the insurance against job displacement afforded by severance pay are sizeable. Most of these gains stem from the fact that severance pay provides insurance against the–persistent–earnings loss associated with job displacement. Finally, the model can account for why severance pay is generally an increasing function of on-the-job tenure. Keeping constant the average severance transfer, the average welfare gain is between 15 and 20 per cent higher if the transfer is (linearly) increasing intenure. A tenure-independent transfer over-insures workers with low tenure.
    Keywords: Severance Payments, Incomplete Markets, Welfare
    JEL: E24 D58 J65
    Date: 2016–05
  70. By: François Le Grand (EMLyon Business School); Xavier Ragot (OFCE)
    Abstract: We analyze derivative asset trading in an economy in which agents face both aggregate and uninsurable idiosyncratic risks. Insurance markets are incomplete for idiosyncratic risk and, possibly, for aggregate risk as well. However, agents can exchange insurance against aggregate risk through derivative assets such as options. We present a tractable framework, which allows us to characterize the extent of risk sharing in this environment. We show that incomplete insurance markets can explain some properties of the volume of traded derivative assets, which are difficult to explain in complete market economies.
    Keywords: Incomplete markets; Heterogeneous agent models; Imperfect risk sharing; Derivative assets
    JEL: G1 G12 E44
    Date: 2015–09
  71. By: Marco Veronese Passarella (University of Leeds)
    Abstract: This paper builds upon the Marxian reproduction schemes. It aims to test the impact of some of the most apparent 'stylised facts' which characterise the current phase of capitalism on an artificial two-sector growing economy. It is shown that, simplified though they are, the Marxian reproduction schemes allow framing a variety of radical and other ‘dissenting’ renditions of the recent economic and financial crises of early-industrialised countries with a flexible and sound analytical model.
    Keywords: Marx, Crisis, Reproduction Schemes, Post-Keynesian Economics
    JEL: B50 E11 E12
    Date: 2016–05
  72. By: Donal Smith
    Abstract: This paper examines the international impact of shocks to a large array of measures of financial frictions and financial stress. The methodology employed in this paper is twofold, it firstly utilities the Global VAR (GVAR) approach and then employs a set of Generalized Connectedness Measures (GCM) to summarise the results of this analysis. These two methodologies provide a way to rank the relative importance of different measures of financial shocks on countries and macroeconomic variables. The methodologies are applied to a data set of 17 countries, over the period 1981Q1 to 2013Q1, with 12 separate measures of financial frictions and financial stress. Utilising connectedness index measures, it is found that financial stress measures constructed from the corporate bond market are the most in uential on global macroeconomic variables and that this result is also consistent across individual countries. It is found that many proposed measures of financial stress are not net transmitters of influence but are more dependent on external factors. The paper finds little evidence to support the use of credit as a financial shock variable as is common in the literature. This variable is found to be a weak transmitter of shocks and highly influenced by shocks to other variables.
    Keywords: Financial Frictions, Financial Shocks, international linkages, macroeconomic connectedness, Generalized Connectedness Measures (GCMs), Financial Stress Indicators
    JEL: C32 C53 E17 F44 F65 G01
    Date: 2016–05
  73. By: Hüning, Hendrik; Meub, Lukas
    Abstract: We develop a two-period generalized beauty contest to study the optimal level of publicity when disclosed information is subject to multiplier effects. We build upon the static case, where all agents receive a private signal about an unknown fundamental state and only a fraction of all agents receive an additional public signal. However, in our model, agents no longer act simultaneously; rather, agents informed by both signals act in the first period, while those uninformed act in the second period and learn about the public signal through a multiplier signal. We show that in the unique equilibrium of our sequential game, informed agents overreact more strongly to public signals. The optimal dissemination of public information is thus considerably lower than the static case suggests. Multiplier effects might decrease overall welfare if coordination incentives are sufficiently strong. Our results hold relevance for the optimal information policy design of public authorities.
    Keywords: generalized beauty contest,monetary policy,optimal communication,strategic complementarities
    JEL: D82 D83 E5
    Date: 2016
  74. By: Zhiguo He; Arvind Krishnamurthy; Konstantin Milbradt
    Abstract: What makes an asset a “safe asset”? We study a model where two countries each issue sovereign bonds to satisfy investors' safe asset demands. The countries differ in the float of their bonds and their resources/fundamentals available to rollover debts. A sovereign's debt is more likely to be safe if its fundamentals are strong relative to other possible safe assets, but not necessarily strong on an absolute basis. Debt float can enhance or detract from safety: If global demand for safe assets is high, a large float can enhance safety. The large float offers greater liquidity which increases demand for the large debt and thus reduces rollover risk. If demand for safe assets is low, then large debt size is a negative as rollover risk looms large. When global demand is high, countries may make fiscal/debt-structuring decisions to enhance their safe asset status. These actions have a tournament feature, and are self-defeating: countries may over-expand debt size to win the tournament. Coordination can generate benefits. The model sheds light on the effects of “Eurobonds” – i.e. a coordinated Euro-area-wide safe bond design. Eurobonds deliver welfare benefits only when they make up a sufficiently large fraction of countries' debts. Small steps towards Eurobonds may hurt countries and not deliver welfare benefits.
    JEL: E44 F33 G15 G28
    Date: 2016–05
  75. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Central and West Asia Department, ADB); Asian Development Bank (ADB) (Central and West Asia Department, ADB); Asian Development Bank (ADB)
    Abstract: This brief describes a proposed decentralized RIA System for Tajikistan where most responsibilities for ensuring good RIA are delegated to regulators with the support of a central body.
    Keywords: tajikistan, impact analysis, ria process, regulatory costs, regulatory risks, legal systems, laws, parliament resolutions, government resolutions, presidential decrees, tajikistan legal acts, tajikistan public policy, governance
    Date: 2015–12
  76. By: Gosselin, Pierre; Lotz, Aïleen; Wambst, Marc
    Abstract: In a society characterized by a multitude of heterogeneous agents and a large number of possibly immaterial, i.e. cultural, educational, etc. goods, each one having distinct social (relative price) and personal value (individual preference), we study the impact of these relative prices on capital accumulation between generations, depending on internal economic and social parameters, i.e. capital mobility, productivity, personal and social values discrepancies. We consider an arbitrary number of agents, modelled by a one-period production function and a two-period intertemporal utility. Agents live, produce and consume over one period, but optimize over two periods, so providing a stock of goods for the next generation. In period one, the inherited stock may be disposed of to enable an alternate production of goods, depending on the agent individual preferences and on the present social value of goods. This creates a dynamics in capital accumulation that depends on the evolution of social and individual values. A threshold phenomenon appears in the evolution of the stock of capital built by an agent and his heirs. Below a certain level, the initial stock will quickly fall to zero. Above, accumulation appears. This threshold strongly depends on the volatility of personal and social values. If the social values vary strongly through time, the threshold increases: stocks will depreciate faster than what it takes to rebuild them. Shocks on social values of goods can drive the stock above or below the threshold, inducing in turn a reversal in dynamics. If an agent is a forerunner, i.e. his personal values will be next period social values, a strong mobility in capital will decrease his threshold: there is a gain to innovate. When social values are an average of several groups'values, one group will ultimately dominate. Its values become society values. Its stock appreciates at the expense of others'.
    Keywords: Capital theory, Capital accumulation, Investment allocation, Two-sector models, Disaggregated capital, Take-off, Threshold effect, Intergenerational models, Cambridge capital controversy.
    JEL: E22 O10 O30 O40
    Date: 2016–05–01

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