nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒06‒18
74 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Macroeconomics and Household Heterogeneity By Perri, Fabrizio; Krueger, Dirk; Mitman, Kurt
  2. Macroeconomics and Household Heterogeneity By Krueger, Dirk; Mitman, Kurt; Perri, Fabrizio
  3. Macroeconomics and Household Heterogeneity By Dirk Krueger; Kurt Mitman; Fabrizio Perri
  4. Helicopter money or a risk sharing approach? By De Koning, Kees
  5. Revisiting the matching function By Kohlbrecher, Britta; Merkl, Christian; Nordmeier, Daniela
  6. Links between weak investment and the slowdown in productivity and potential output growth across the OECD By Patrice Ollivaud; Yvan Guillemette; David Turner
  7. The Structure of Government Spending and the Business Cycle By Grechyna, Daryna
  8. Inflation Dynamics in a Dollarised Economy: The Case of Zimbabwe By William Kavila and Pierre Le Roux
  9. Credit, asset prices and business cycles at the global level By Dées, Stéphane
  10. The credit channel is alive at the zero lower bound but how does it operate? Firm level evidence on the asymmetric effects of U.S. monetary policy By Uluc Aysun; Kiyoung Jeon; Zeynep Kabukcuoglu
  11. A Quantitative Model of "Too Big to Fail,"' House Prices, and the Financial Crisis By Acikgoz, Omer; Kahn, James
  12. Macro, Money and Finance: A Continuous Time Approach By Markus K. Brunnermeier; Yuliy Sannikov
  13. 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
  14. Unemployment and Wage Rigidity in Japan: A DSGE Model Perspective By Chun-Hung Kuo; Hiroaki Miyamoto
  15. Monetary Policy Transmission in Nepal By Birendra Bahadur Budha
  16. Inflation expectations and monetary policy in Europe By Andreou, Elena; Eminidou, Snezana; Zachariadis, Marios
  17. Everything you always wanted to know about bitcoin modelling but were afraid to ask By Fantazzini, Dean; Nigmatullin, Erik; Sukhanovskaya, Vera; Ivliev, Sergey
  18. Markups, Trend positif d’inflation et Coûts en bien-être By Wabenga Yango, James; Nlemfu Mukoko, J.Blaise
  19. Persistent Stochastic Shocks in a New Keynesian Model with Uncertainty By Tobias Kranz
  20. How can it work ? On the impact of quantitative easing in the Eurozone By Francesco Saraceno; Roberto Tamborini
  21. Is Government Spending Predetermined? A Test of Identification for Fiscal Policy Shocks By Anna Kormilitsina
  22. Adjusting production indices for varying weather effects By Erik Haustein; Sven Schreiber
  23. The Financial Stability Dark Side of Monetary Policy By Piergiorgio Alessandri; Antonio M. Conti; Fabrizio Venditti
  24. Saving behavior and housing wealth By Gröbel, Sören; Ihle, Dorothee
  25. Le retour de l’économie keynésienne By Xavier Ragot
  26. The Integration of Search in Macroeconomics: Two Alternative Paths By Samuel Danthine; Michel De Vroey
  27. Relevance of the fiscal-policy setup in the analysis of macroprudential and ex-post financial crisis interventions By Julian A. Parra-Polania; Carmiña O. Vargas
  28. The Aino 2.0 model By Kilponen, Juha; Orjasniemi, Seppo; Ripatti, Antti; Verona, Fabio
  29. Productivité agricole, intégration et transformation structurelle de l’économie marocaine By Chatri, Abdellatif; Maarouf, Abdelwahab; Ezzahid, Elhaj
  30. A Narrative Account of Legislated Social Security Changes for Germany By Sebastian Gechert; Christoph Paetz; Paloma Villanueva
  31. Pass-through du taux de change aux prix au Maroc By Chatri, Abdellatif; Maarouf, Abdelwahab; Ragbi, Aziz
  32. Analysis of average value of a Fourier series using z-transform: comparison with Hodrick-Prescott filter By Minskya, Ksovim
  33. Public Wages, Public Employment, and Business Cycle Volatility: Evidence from U.S. Metro Areas By Boeing-Reicher, Claire A.; Caponi, Vincenzo
  34. Stock Return Predictability in South Africa: An Alternative Approach By Ailie Charteris and Barry Strydom
  35. Product Quality and International Price Dynamics By Marta Arespa; Diego Gruber
  36. Business cycles and on the job search By Jacek Suda; Marek Antosiewicz
  37. Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not" By Tomas Havranek; Anna Sokolova
  38. Rainfall Variability and Macroeconomic Performance:A Case Study of India, 1952–2013 By Nomoto, Takaaki
  39. Shadow banking, financial regulation and animal spirits: An ACE approach By Krug, Sebastian; Wohltmann, Hans-Werner
  40. The impact of oil price shocks on the US stock market: A note on the roles of US and non-US oil production By Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
  41. Inter-industry trade and business cycle dynamics By Lechthaler, Wolfgang; Mileva, Mariya
  42. Nonlinearities in Wagner's law: Further evidence from South Africa By Phiri, Andrew
  43. Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires By Mark Gertler; Christopher Huckfeldt; Antonella Trigari
  44. Macroeconomics, Aging and Growth By Ronald Lee
  45. Inflation-growth nexus in developing economies: New empirical evidence from a dis-aggregated approach By Muhammad Ayyoub
  46. Inflation at the Household Level By Greg Kaplan; Sam Schulhofer-Wohl
  47. Sovereign Risk and Bank Lending: Evidence from 1999 Turkish Earthquake By Yusuf Soner Baskaya; Sebnem Kalemli-Ozcan
  48. Long Run Current Account through theoretical Intertemporal Model By Ghassan, Hassan B.; Drissi, Ramzi
  49. The Forward Premium Bias, Carry Trade Return and the Risks of Volatility and Liquidity By Shehadeh, Ali; Li, Youwei; Moore, Michael
  50. Long-run convergence in a neo-Kaleckian open-economy model with autonomous export growth By Won Jun Nah; Lavoie, Marc
  51. How central is central counterparty clearing? A deep dive into a European repo market during the crisis By Ebner, André; Fecht, Falko; Schulz, Alexander
  52. Income Inequality and Macroeconomic Imbalances under EMU By Benedicta Marzinotto
  53. Leaning against the wind when credit bites back By Karsten R. Gerdrup; Frank Hansen; Tord Krogh; Junior Maih
  54. Retirement Financing: An Optimal Reform Approach By Hosseini, Roozbeh; Shourideh, Ali
  55. Finance and Inclusive Human Development: Evidence from Africa By Asongu, Simplice; Nwachukwu, Jacinta C.
  56. House Prices and Immovable Property Taxes: Evidence from OECD Countries By Tommaso Oliviero; Agnese Sacchi; Annalisa Scognamiglio; Alberto Zazzaro
  57. A three-pole filter understanding of the average value of a Fourier series By Minskya, Ksovim
  58. Estimating the top tail of the wealth distribution By Vermeulen, Philip
  59. Understanding and applying long-term GDP projections By Paul Hubbard; Dhruv Sharma
  60. Sovereign Risk and Bank Lending: Evidence from 1999 Turkish Earthquake By Baskaya, Soner; Kalemli-Ozcan, Sebnem
  61. Modelling of Inflationary Processes in Russia By Egorov D.A.; Perevyshina E.A.
  62. L’impact du découplage des politiques monétaires de la BCE et de la Fed By Christophe Blot; Paul Hubert; Christine Rifflart
  63. Newer need not be better: evaluating the Penn World Tables and the World Development Indicators using nighttime lights By Pinkovskiy, Maxim L.; Sala-i-Martin, Xavier X.
  64. Revisiting the relationship between welfare spending and income inequality in OECD countries By d'Agostino, Giorgio; Pieroni, Luca; Procidano, Isabella
  65. Can the Euro Survive? By Jamal Ibrahim Haidar
  66. Consumption Network Effects By De Giorgi, Giacomo; Frederiksen, Anders; Pistaferri, Luigi
  67. Consistent Variance of the Laplace Type Estimators: Application to DSGE Models By Anna Kormilitsina; Denis Nekipelov
  68. Time-consistent unemployment insurance By Kankanamge, Sumudu; Weitzenblum, Thomas
  69. Money, Velocity, and the Stock Market By Karl Pinno; Apostolos Serletis
  70. Expected service lives and depreciation profiles for capital assets. Evidence based on a survey of Norwegian firms By Terje Skjerpen; Nina Barth; Ådne Cappelen; Steinar Todsen; Thom Åbyholm
  71. The Consumption-Investment Decision of a Prospect Theory Household By Fortin, Ines; Hlouskova, Jaroslava; Tsigaris, Panagiotis
  73. Los gobiernos departamentales y la inversión de regalías en Colombia By Karelys Guzmán-Finol; Ana María Estrada-Jabela
  74. The Political Economy of Underfunded Municipal Pension Plans By Jeffrey Brinkman; Daniele Coen-Pirani; Holger Sieg

  1. By: Perri, Fabrizio (Federal Reserve Bank of Minneapolis); Krueger, Dirk (University of Pennsylvania); Mitman, Kurt (IIES)
    Abstract: The goal of this chapter is to study how, and by how much, household income, wealth, and preference heterogeneity amplify and propagate a macroeconomic shock. We focus on the U.S. Great Recession of 2007-2009 and proceed in two steps. First, using data from the Panel Study of Income Dynamics, we document the patterns of household income, consumption and wealth inequality before and during the Great Recession. We then investigate how households in different segments of the wealth distribution were affected by income declines, and how they changed their expenditures differentially during the aggregate downturn. Motivated by this evidence, we study several variants of a standard heterogeneous household model with aggregate shocks and an endogenous cross-sectional wealth distribution. Our key finding is that wealth inequality can significantly amplify the impact of an aggregate shock, and it does so if the distribution features a sufficiently large fraction of households with very little net worth that sharply increase their saving (i.e. they are not hand-to mouth) as the recession hits. We document that both these features are observed in the PSID. We also investigate the role that social insurance policies, such as unemployment insurance, play in shaping the cross-sectional income and wealth distribution, and through it, the dynamics of business cycles.
    Keywords: Recessions; Wealth Inequality; Social Insurance
    JEL: E21 E32 J65
    Date: 2016–06–01
  2. By: Krueger, Dirk; Mitman, Kurt; Perri, Fabrizio
    Abstract: The goal of this chapter is to study how, and by how much, household income, wealth, and preference heterogeneity amplify and propagate a macroeconomic shock. We focus on the U.S. Great Recession of 2007-2009 and proceed in two steps. First, using data from the Panel Study of Income Dynamics, we document the patterns of household income, consumption and wealth inequality before and during the Great Recession. We then investigate how households in different segments of the wealth distribution were affected by income declines, and how they changed their expenditures differentially during the aggregate downturn. Motivated by this evidence, we study several variants of a standard heterogeneous household model with aggregate shocks and an endogenous cross-sectional wealth distribution. Our key finding is that wealth inequality can significantly amplify the impact of an aggregate shock, and it does so if the distribution features a sufficiently large fraction of households with very little net worth that sharply increase their saving (i.e. they are not hand-to mouth) as the recession hits. We document that both these featuresare observed in the PSID. We also investigate the role that social insurance policies, such as unemployment insurance, play in shaping the cross-sectional income andwealth distribution, and through it, the dynamics of business cycles.
    Keywords: Recessions; Social Insurance; Wealth Inequality
    JEL: E21 E32 J65
    Date: 2016–06
  3. By: Dirk Krueger; Kurt Mitman; Fabrizio Perri
    Abstract: The goal of this chapter is to study how, and by how much, household income, wealth, and preference heterogeneity amplify and propagate a macroeconomic shock. We focus on the U.S. Great Recession of 2007-2009 and proceed in two steps. First, using data from the Panel Study of Income Dynamics, we document the patterns of household income, consumption and wealth inequality before and during the Great Recession. We then investigate how households in different segments of the wealth distribution were affected by income declines, and how they changed their expenditures differentially during the aggregate downturn. Motivated by this evidence, we study several variants of a standard heterogeneous household model with aggregate shocks and an endogenous cross-sectional wealth distribution. Our key finding is that wealth inequality can significantly amplify the impact of an aggregate shock, and it does so if the distribution features a sufficiently large fraction of households with very little net worth that sharply increase their saving (i.e. they are not hand-to mouth) as the recession hits. We document that both these features are observed in the PSID. We also investigate the role that social insurance policies, such as unemployment insurance, play in shaping the cross-sectional income and wealth distribution, and through it, the dynamics of business cycles.
    JEL: E21 E32 J65
    Date: 2016–06
  4. By: De Koning, Kees
    Abstract: The U.S. financial crisis of 2007-2008 clearly illustrated that some mortgage borrowings became not only a curse for investors, but equally for individual households with a mortgage and for all homeowners; for the employed who lost their jobs, for pension funds and last but not least for the U.S. government which saw its debt levels skyrocket. Money invested in U.S. mortgage-backed securities came from around the world and this resulted in a crisis in the U.S. becoming an international financial pandemic. Why did the crisis occur, how did it happen and what could have been done to avoid it happening? The prevailing wisdom in the years 1997-2007 was that house prices in the U.S. were the result of supply and demand factors and therefore should not be subject of government intervention. The 2007-2008 financial crisis disabused the world of that notion in a dramatic fashion. The main driver of the crisis was the use of borrowed funds to acquire homes. Buyers’ (and bankers’ funding) sentiment was to buy in the expectation that the rise in house prices would compensate for the interest costs. The prevailing interest matted less than the potential gains. Table 1 in the paper shows how fast both the outstanding mortgage level and the annual increase in household real estate values grew over the period 1997-2005. What was overlooked, however, was what the economy could bear in terms of borrowed funds as compared to its National Income (or its near equivalent of GDP). A dynamic yet stable debt-to-income level offers the best prospects for economic growth, not just in one year, but also in the long run. No effective action was taken to stop the excessive mortgage lending growth over the period 1997-2006; no effective action was taken to stop the deterioration in the quality of mortgage products on offer, especially from 2004 onwards; no effective action was taken to stop or diminish the risks from the securitization and internationalization of mortgages. In the paper a number possible policy options will be explored: a “traffic light system, a “mortgage quality control system” dealing with subprime mortgages and their securitization and a “lender of last resort for individual households” option. The suggestion is that some “helicopter money” is used in the lender of last resort option. The risk sharing approach is an option when banks individually do not follow what is required in macro-economic terms.
    Keywords: Federal Reserve, financial crisis, mortgage lending in U.S., an early warning traffic light system, a mortgage quality control system, helicopter money, National Mortgage Bank, macro-economic mortgage risk assessments, a Macro-economic Reserve policy system.
    JEL: E3 E32 E51 E58 E6 E61
    Date: 2016–06–08
  5. By: Kohlbrecher, Britta; Merkl, Christian; Nordmeier, Daniela
    Abstract: There is strong empirical evidence for Cobb-Douglas matching functions. We show in this paper that this widely found relation between matches on the one hand and unemployment and vacancies on the other hand can be the result of different underlying mechanisms. Obviously, it can be generated by assuming a Cobb-Douglas matching function. Less obvious, the same relationship results from a vacancy free entry condition and idiosyncratic productivity shocks. A positive aggregate productivity shock leads to more vacancy posting, a shift of the idiosyncratic selection cutoff and thereby more hiring. We calibrate a model with both mechanisms to administrative German labor market data and show that idiosyncratic productivity for new contacts is an important driver of the elasticity of the job-finding rate with respect to market tightness. Accounting for idiosyncratic productivity can explain the observed negative time trend in estimated matching efficiency and asymmetric business cycle responses to large aggregate shocks.
    Keywords: matching function,idiosyncratic productivity,job creation,vacancies,time trend,asymmetries
    JEL: E24 E32 E20 E30
    Date: 2016
  6. By: Patrice Ollivaud; Yvan Guillemette; David Turner
    Abstract: The OECD framework for estimating potential output is combined with previous OECD empirical research to analyse the causes of recent weak productivity growth. Current weak labour productivity growth in many OECD countries reflects historically weak contributions from both total factor productivity (TFP) growth and capital deepening. The slowdown in trend productivity growth in the pre-crisis period is mostly explained by a long-established slowdown in TFP growth, but since the crisis, the further deceleration is mainly due to weak capital deepening, a development apparent in practically every OECD country. Much of the weakness in the growth of the capital stock since the financial crisis can be explained by an accelerator response of investment to continued demand weakness, leading in turn to a deterioration in potential output via a hysteresis-like effect. Circumstantial evidence suggests that a misallocation of capital in the pre-crisis period also contributed to the slowdown in capital stock growth, particularly among the most severely affected countries. In many OECD countries, declining government investment as a share of GDP has further exacerbated post-crisis weakness in capital stock growth, both directly and probably indirectly via adverse spillover effects on business investment. Finally, at a time when the use of conventional macro policy instruments has become increasingly constrained, the slower pace of structural reform represents a missed opportunity, not least because more competitionfriendly product market regulation could have boosted both investment and potential growth. Les liens entre la faiblesse de l'investissement et le ralentissement de la croissance de la productivité et de la production potentielle dans l'OCDE Le cadre général de l’OCDE pour l’estimation du potentiel de production est combiné à des résultats empiriques antérieurs de l’OCDE pour analyser les causes de la faiblesse récente de la croissance de la productivité. La faible croissance de la productivité du travail de ces dernières années reflète des contributions historiquement faibles à la fois de la productivité totale des facteurs (PTF) et de l’intensité capitalistique. Le ralentissement de la croissance tendancielle de la productivité avant la crise est principalement expliqué par un ralentissement de longue date de la croissance de la PTF ; néanmoins, depuis la crise, l’accentuation de la décélération s’explique surtout par une plus faible contribution de l’intensité capitalistique, qui s’observe dans pratiquement tous les pays de l’OCDE. Une part substantielle de la faiblesse de la croissance du stock de capital depuis la crise financière peut s’expliquer par la réponse de l’investissement, via un effet accélérateur, à la faiblesse prolongée de la demande, conduisant à son tour à une détérioration de la production potentielle suivant un effet de type hystérèse. Des preuves circonstancielles suggèrent qu’une mauvaise allocation du capital avant la crise a aussi contribué au ralentissement de la croissance du stock de capital, notamment parmi les pays les plus sévèrement touchés. Dans beaucoup de pays de l’OCDE, la baisse de l’investissement public en point de PIB a encore aggravé la faiblesse post-crise de la croissance du stock de capital, à la fois directement et aussi probablement indirectement via des effets négatifs sur l’investissement des entreprises. Enfin, dans un contexte où les instruments conventionnels de politiques macroéconomiques sont de plus en plus contraints, le ralentissement du rythme des réformes structurelles représente une opportunité manquée, ne serait-ce qu’en raison du soutien à la fois à l’investissement et à la croissance du potentiel qu’auraient pu fournir des réglementations plus adéquates du marché des produits.
    Keywords: investment, potential output, financial crisis, capital stock, global financial crisis, investissement, stock du capital, crise financière, potentiel de production, crise financière globale
    JEL: E22 E27 E32 E65 E66
    Date: 2016–06–08
  7. By: Grechyna, Daryna
    Abstract: We explore the role of the composition of government spending for the cyclical properties of fiscal variables and for the volatility of the business cycles. In the U.S., the fraction of mandatory spending in total government outlays increased from around 0.40 to 0.60 during the last 50 years, while the share of total government outlays in national output stayed relatively constant during this period. We distinguish mandatory and discretionary public spending in a standard model of optimal fiscal policy and show that the composition of government spending is able to explain a fraction of the reduction in output volatility during the Great Moderation and an increase in the countercyclicality of fiscal policy in the U.S. This is another argument in support of the "rules-based" fiscal policy rather than fiscal discretion.
    Keywords: optimal fiscal policy, mandatory and discretionary public spending, volatility, business cycles.
    JEL: E32 E62 H21 H41
    Date: 2016–03
  8. By: William Kavila and Pierre Le Roux
    Abstract: This paper explores the dynamics of inflation in the dollarised Zimbabwean economy using the Autoregressive Distributed Lag Model (ARDL) with monthly data from 2009:1 to 2012:12. The main determinants of inflation were found to be the US dollar/South African rand exchange rate, international oil prices, inflation expectations and South African inflation rate. During the local currency era, inflation dynamics in Zimbabwe were explained by excess growth in money supply, changes in import and administered prices, unit labour costs and output (Chhibber, Cottani, Firuzabadi and Walton, 1989). According to Makochekanwa (2007), hyperinflation during the same era was attributed to excess money supply growth, lagged inflation and political factors. Coorey, Clausen, Funke, Munoz and Ould-Abdallah (2007) affirmed these findings by identifying excess money supply growth as a source of high inflation in Zimbabwe during the local currency era. In essence, the findings of this study point to a shift in inflation dynamics in Zimbabwe. This shift in inflation dynamics means that policies, which were used to respond to both internal and external shocks that have an impact on price formation, might not be applicable in a dollarised economy.
    Keywords: Inflation, dollarisation, Autoregressive Distributed Lag Model
    JEL: E31 E42 C50
    Date: 2016
  9. By: Dées, Stéphane
    Abstract: This paper assesses the role of financial variables in real economic fluctuations, in view of analysing the link between financial cycles and business cycles at the global level. A Global VAR modelling approach is used to first assess the contribution of credit and asset price variables to real economic activity in a number of countries and regions. The GVAR model is based on 38 countries estimated over 1987-2013. An analysis on a sample excluding the post-financial crisis period is also provided to check whether financial variables have gained importance in explaining business cycle fluctuations over the recent past. In a second step, financial shocks are identified through sign restrictions in order to illustrate how financial and business cycles could be related. Overall, the paper shows that the importance of credit and asset price variables in explaining real economic fluctuations is relatively large, but has not significantly increased since the global financial crisis. The international transmission of financial shocks on business cycle fluctuations also tends to be large and persistent. JEL Classification: E32, E37, E44, E51, F47
    Keywords: business cycle, financial cycle, GVAR model, international transmission of shocks
    Date: 2016–04
  10. By: Uluc Aysun (Department of Economics, College of Business Administration, University of Central Florida); Kiyoung Jeon (Research Department, Bank of Korea); Zeynep Kabukcuoglu (Department of Economics, Villanova School of Business, Villanova University)
    Abstract: We calculate borrowing spreads for over 8,000 U.S. firms and investigate how these are related to the stance of monetary policy. After 2009, we observe, consistent with credit channel theory, a positive relationship between shadow federal funds rates and borrowing spreads for only firms with high borrowing spreads and low quality. Conversely, we find a negative relationship for firms (of high and low quality) with low borrowing spreads. These relationships are reversed for the period before 2008. Our results uncover the distortional effects of monetary policy. Loose monetary policy causes spreads to converge (diverge) across firms after 2009 (before 2008).
    Keywords: credit channel; zero lower bound; firm-level data; shadow rates
    JEL: E44 E51 E52 G10
    Date: 2016–06
  11. By: Acikgoz, Omer; Kahn, James
    Abstract: This paper develops a quantitative model that can rationally explain a sizeable part of the dramatic rise and fall of house prices in the 2000-2009 period. The model is driven by the assumption that the government cannot resist bailing out large financial institutions, but can mitigate the consequences by limiting financial institutions' risk-taking. An episode of regulatory forbearance, modeled as a relaxation of loan-to-value limits for conforming mortgages, is welfare-reducing, results in opportunistic behavior and, for plausible parameters inflates house prices and price/rent ratios by roughly twenty percent. This "boom" is followed by a collapse with high default rates.
    Keywords: Too-Big-to-Fail, Financial Crisis, House Prices
    JEL: E02 E21 E3 G21 R31
    Date: 2016–06–06
  12. By: Markus K. Brunnermeier; Yuliy Sannikov
    Abstract: This paper puts forward a teaching manual for how to set up and solve a continuous time model that allows one to analyze endogenous (1) level and risk dynamics. The latter includes (2) tail risk and crisis probability as well as (3) the Volatility Paradox. Concepts such as (4) illiquidity and liquidity mismatch, (5) endogenous leverage, (6) the Paradox of Prudence, (7) undercapitalized sectors (8) time-varying risk premia, and (9) the external funding premium are part of the analysis. Financial frictions also give rise to an endogenous (10) value of money.
    JEL: C63 E32 E41 E44 E51 G01 G11 G20
    Date: 2016–06
  13. 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
  14. By: Chun-Hung Kuo (International Univeristy of Japan); Hiroaki Miyamoto (The University of Tokyo)
    Abstract: This paper develops a dynamic stochastic general equilibrium model with labor market frictions and nominal wage rigidity. We estimate our model for Japan's economy using Bayesian methods. This allows us to estimate the structural parameters of the Japanese economy, the unobservable shocks and examine their transmission mechanism. We can also study how wage rigidity affects overall model performance. Our analysis demonstrates the importance of including nominal wage rigidity in explaining the Japanese data. We find that while nominal wage rigidity plays only a trivial role in inflation dynamics, it is crucial in determining the response of labor market variables to structural shocks.
    Keywords: DSGE models, Bayesian estimation, Labor market search, Wage rigidity
    JEL: E24 E32 J64
    Date: 2016–05
  15. By: Birendra Bahadur Budha (Nepal Rastra Bank)
    Abstract: This paper examines the monetary policy transmission in Nepal based on the data for the period 2002-2015. As a first step in the analysis, the paper analyzes the issue of inflation convergence and the monetary independence in the context of the existing exchange rate peg and the capital flow policy of Nepal. The paper employs a number of macro indicators, and alternative empirical strategies based on the peculiarities of Nepal. The results show that the existing exchange rate peg has resulted in the convergence of the Nepalese price level to the Indian price level in the long-run. Despite the peg, there is an evidence of the independence of the Nepalese monetary policy to a large extent. The narrative approach of identifying monetary policy shows the evidence of the bank lending channel, interest rate channel, and the asset price channel of the Nepalese monetary policy though there exists a lag in monetary policy transmission due to high information asymmetry, adjustment costs and the poor financial infrastructure. In addition, the SVAR approach provides the evidence of the monetary policy transmission, in which the effect of the expansionary monetary policy on the gross domestic product decays to zero at about 8 quarters. Moreover, the paper also shows that the money market liquidity is largely guided by the remittance inflows in recent years. The analysis of the money market development indicates the need for the review of the operating procedures and the implementation aspects of the monetary policy. The evidence of monetary transmission channels implies that NRB can use its policy to achieve the specified objectives over certain time horizon.
    Keywords: Monetary policy transmission, Narrative approach, SVAR
    JEL: E42 E52 E58
    Date: 2015–08
  16. By: Andreou, Elena; Eminidou, Snezana; Zachariadis, Marios
    Abstract: We use monthly data across fifteen euro-area economies for the period 1985:1-2015:3 to obtain different monetary policy shocks pertaining to more versus less informed individuals. We then investigate how these affect inflation expectations of different types of consumers before and after the incidence of the recent Crisis. Shocks obtained based on the assumption that individuals are well informed can have different impact on inflation expectations as compared to shocks obtained based on the assumption that they are not as informed. Moreover, monetary policy can have different effects on inflation expectations for different types of consumers. Finally, monetary policy has different effects on inflation expectations after as compared to before the incidence of the recent Crisis.
    Keywords: crisis; Inflation expectations; Monetary policy; shocks
    JEL: E31 E52 F41
    Date: 2016–06
  17. By: Fantazzini, Dean; Nigmatullin, Erik; Sukhanovskaya, Vera; Ivliev, Sergey
    Abstract: Bitcoin is an open source decentralized digital currency and a payment system. It has raised a lot of attention and interest worldwide and an increasing number of articles are devoted to its operation, economics and financial viability. This article reviews the econometric and mathematical tools which have been proposed so far to model the bitcoin price and several related issues, highlighting advantages and limits. We discuss the methods employed to determine the main characteristics of bitcoin users, the models proposed to assess the bitcoin fundamental value, the econometric approaches suggested to model bitcoin price dynamics, the tests used for detecting the existence of financial bubbles in bitcoin prices and the methodologies suggested to study the price discovery at bitcoin exchanges.
    Keywords: Bitcoin, Crypto-currencies, Hash rate, Investors' attractiveness, Social interactions, Money supply, Money Demand, Speculation, Forecasting, Algorithmic trading, Bubble, Price discovery.
    JEL: C22 C32 C51 C53 E41 E42 E47 E51 G17
    Date: 2016
  18. By: Wabenga Yango, James; Nlemfu Mukoko, J.Blaise
    Abstract: This work analyzes the implications of changing the parameters of Markups prices and wages, cost of welfare associated with a trend of inflation of 2 or 4 %. By using a New Keynesian model more comprehensive results show a relatively uniform low value of these parameters , gives costs well be quite modest. These costs are quite high conditionally the specific shock to investment compared to those generated by the shock neutral technology and the impact of monetary policy. Moreover, the costs of well be associated with an inflation trend starting from 2 to 4% , are much higher those associated with the trend of 0 to 2% .
    Keywords: Markups, positive trend of inflation, welfare cost
    JEL: E31 E32
    Date: 2015–10
  19. By: Tobias Kranz
    Abstract: Both from theoretical and practical viewpoints, I argue that the New Keynesian model's forward-looking IS curve should be derived by quadratic approximation. This leaves uncertainty in the basic three-equation model. After adding exogenous AR(1) processes, I examine the results by numerical simulation. First, I derive a reduced-form solution for the nominal rate of interest which describes the equilibrium behavior under optimal discretion. Focusing on the persistence parameter, the equilibrium will be simulated and compared to the model version containing the certainty equivalence. In a next step, impulse response functions show the adjustments over time after a cost shock. As a result, accounting for uncertainty can lead to lower interest rates of roughly 25 basis points compared to the case without uncertainty.
    Keywords: Impulse Response, New Keynesian Model, Persistent Stochastic Shocks, Quadratic Approximation, Simulation, Uncertainty
    JEL: E12 E17 E43 E47 E52
    Date: 2016
  20. By: Francesco Saraceno (OFCE); Roberto Tamborini
    Abstract: How can the quantitative easing (QE) programme launched in March 2015 by the ECB be successful in the Eurozone (EZ)? What will be its impact on the member countries? And how will it relate to countries' fiscal policies? To address these questions, we use a simple extension of the three-equation New Keynesian model. We modify the benchmark model in two respects: 1) we (re)-introduce an LM money supply and demand equation to capture the fact that the ECB operates at the zero lower bound and hence cannot use a standard Taylor rule; and 2) we extend the model to a two-country framework. The model supports the ECB official view that the channel whereby QE is meant to operate is the reversal of deflationary expectations. It also highlights that instrumental to this goal is the elimination of persistent output gaps, both at the EZ and at the country level, and hence the reduction of country-specific interest-rate spreads -- the "unofficial" objective of the programme. We show that QE, if large enough, can succeed for the EZ as a whole. The ECB nevertheless cannot also close individual countries' output gaps, unless specific and unrealistic conditions are met. In this case fiscal accommodation at the country level should also intervene. We show that QE can enhance the effectiveness of fiscal policy, and therefore conclude that the coordination of fiscal and monetary policies is of paramount importance.
    Keywords: Monetary Policy; ECB; Deflation; Zero-Lower-Bound
    JEL: E3 E4
    Date: 2015–10
  21. By: Anna Kormilitsina (Southern Methodist University)
    Abstract: Strategies to identify fiscal policies and their effects often use an idea that fiscal instruments cannot respond to realizations of macroeconomic uncertainties within one quarter. I evaluate the validity of this assumption in a standard estimated DSGE model, where informational subperiods are introduced to ensure fiscal policy choices are made before the current state of economy realizes. At the same time, fiscal instruments are allowed to partially respond to macroeconomic shocks, and these responses are estimated using the Bayesian method. The resulting estimates indicate that within one quarter, government spending is adjusted in response to the neutral technology shock, and the tax rate responds to realizations of the preference shock. Moreover, the model capturing contemporaneous responses of fiscal instruments to shocks provides a better fit to the data than the model where fiscal variables are completely predetermined. These results suggest that treating fiscal instruments as predetermined is misleading. Instead of identifying fiscal shocks, such a strategy identifies a combination of the shocks and other macroeconomic uncertainties. I demonstrate that the positive consumption response to the government spending shock in a Cholesky identified structural VAR model reflects the response to the technology shock, while the consumption response is negative in the estimated model.
    Keywords: Government spending shocks, DSGE model estimation, Timing, Informational subperiods
    JEL: E32 C11 E62
    Date: 2016–06
  22. By: Erik Haustein; Sven Schreiber
    Abstract: While recurring and regular variations of weather conditions are implicitly addressed by standard seasonal adjustment procedures of economic time series, extraordinary weather outcomes are not. We analyze their impact on German total industrial and construction-sector production and find modest but significant effects. The estimated effects of weather deviations can be subtracted from the already seasonally adjusted data to obtain seasonally as well as weather adjusted series. Given the timely availability of the weather data compared to the publication lag of economic measurements, we also show how to exploit this contemporaneous impact in real time to help the nowcasting of industrial production.
    Keywords: weather, business cycle, nowcasting
    JEL: E23 E32
    Date: 2016
  23. By: Piergiorgio Alessandri (Bank of Italy); Antonio M. Conti (Bank of Italy; ECARES, Université libre de Bruxelles); Fabrizio Venditti (Bank of Italy)
    Abstract: Market risk premia play an important role in the transmission of monetary policy. If the transmission were to work asymmetrically for positive and negative shocks, monetary authorities would face a problematic trade-off: a temporary stimulus could boost the economy in the short run, but at the same time sow the seeds of a painful medium-run market reversal (the "financial stability dark side" of monetary policy of Stein, 2014). We study the relation between interest rates, credit spreads and output in the U.S. using monthly data and a range of nonlinear dynamic models. We find clear signs of a reduced-form asymmetry, but no evidence in support of the causal mechanism that underpins the 'dark side' argument: spreads rise noticeably ahead of economic slowdowns but they do not appear to cause them directly, particularly if they move in response to monetary shocks. This suggests that the asymmetry is best interpreted as a purely predictive relation, with markets being particularly sensitive to bad economic news; and that it creates no complications for monetary policy or for the exit strategy from monetary accommodation.
    Keywords: risk premia, asymmetry, monetary policy, financial stability, local projections.
    JEL: C32 E32 F34
    Date: 2016–05
  24. By: Gröbel, Sören; Ihle, Dorothee
    Abstract: Housing property is the most important position in a household's wealth portfolio. Even though there is strong evidence that house price cycles and saving patterns behave synchronously, the underlying causes remain controversial. The present paper examines if there is a wealth effect of house prices on savings using household-level longitudinal data from the German Socio-Economic Panel for the period 1996-2012. We find that young renters increase and young homeowners decrease their savings in response to unanticipated house price shocks, whereas old households only hardly respond to house price changes. We interpret this as evidence of a housing wealth effect.
    Keywords: housing wealth,saving behavior,SOEP,Germany
    JEL: D91 E21 R31
    Date: 2016
  25. By: Xavier Ragot (OFCE)
    Abstract: Pre-crisis standard macroeconomic models, qualified as neo Keynesian, rely more on the concept of natural rate of interest than on global demand. But new insights in macroeconomic theory build far more realistic models, especially as regards labour and good and services markets. These models renew with the Keynes intuitions – under-consumption, savings paradox – and are more suitable to reality confrontation. The Keynesian or neo-classical pattern should no more be a political or theoretical stake but rather an empirical one. For example, recent econometric studies highlight that the American economy behaves as Keynesian during the biggest crisis but as non Keynesian during smaller ones. This should be a guide for policy makers.
    Keywords: Keynesian; Policy makers; Keynes intuition
    JEL: E12 E13 E17
    Date: 2016–03
  26. By: Samuel Danthine (CREST - ENSAI); Michel De Vroey (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Our paper analyzes and compares two attempts at integrating unemployment in macroeconomics. The first, due to Diamond, consists in a search model exhibiting multiple equilibria and wherein cycles may be produced. The second is due to Andolfatto and Merz who, more or less simultaneously, constructed models enabling the integration of the matching function into RBC modeling. In the first sections, we present the methodology upon which our paper is based – Leijonhufvud’s decision-tree insight – and briefly describe these three economists’ motivations and the context in which they were working. We continue with recounting the birth and further development of the search paradigm upon which Diamond’s, Andolfatto’s and Merz’s attempts were based. These preliminaries settled we address the heart of the paper, the critical analysis of their respective contributions. Our interest lies specifically in how they made their way in the development of the field. We explain why Diamond’s model, which ambitioned to rival Lucas’s explanation of business fluctuations, did not live up to its author’s expectations. Andolfatto and Merz’s project was less ambitious yet their model became an established component of the RBC program – but at the price of abandoning several constitutive traits of the search approach.
    Keywords: Search and Matching models, Diamond, Lucas, Andolfatto, Merz, Real Business Cycle models, Matching function, Unemployment
    JEL: B21 B40 D83 E24 J64
    Date: 2016–04–30
  27. By: Julian A. Parra-Polania (Banco de la República de Colombia); Carmiña O. Vargas (Banco de la República de Colombia)
    Abstract: In a previous paper (Parra-Polania and Vargas, 2015) we modify the financial constraint of a very standard model to incorporate the fact that international lenders take into account that taxes (or subsidies) affect borrowers’ income available for debt repayments, and find that ex-post interventions are completely ineffective to manage crises (even though they are financed by taxes that do not entail further distortions) and, instead, macroprudential policies are still able to correct the underestimation of the social costs of decentralized debt decisions. These results are obtained under the assumption, also common in the related literature, that there is a balanced-budget fiscal policy. In this paper we extend our previous work to consider countercyclical fiscal policies (keeping the alternative financial constraint). We show that some combination of policy interventions could completely avoid crises, but under restrictive conditions. Classification JEL: E62, F34, F41, H23, D62
    Keywords: financial crisis, fiscal policy, credit constraint, macroprudential tax, ex-post policy
    Date: 2016–06
  28. By: Kilponen, Juha; Orjasniemi, Seppo; Ripatti, Antti; Verona, Fabio
    Abstract: This paper presents Aino 2.0 – the dynamic stochastic general equilibrium (DSGE) model currently used at the Bank of Finland for forecasting and policy analysis. The paper provides a detailed theoretical description of the model, its estimation and how it can be used to interpret the evolution of the Finnish economy between 1995 and 2014, including the rise and fall of the electronics industry, the global financial crisis, and the stagnant growth performance since the end of the financial crisis.
    Keywords: DSGE model, Finnish economy, small open economy, Bayesian estimation, aggregate shocks
    JEL: C11 C53 E32 E37
    Date: 2016–05–31
  29. By: Chatri, Abdellatif; Maarouf, Abdelwahab; Ezzahid, Elhaj
    Abstract: This paper aims to verify how the performance of the agricultural sector affects the process of structural transformation of the Moroccan economy. It analyzes the dynamics of productivity in two ways. First, the speed of convergence of agricultural productivity to the level recorded by other sectors of the economy. The second, the decomposition of the change in aggregate productivity into the structural changes or reallocation effect and the within or intra effect. Furthermore, the paper uses the Input-Output methodology for measuring the degree of integration of the Moroccan economy and seeing if there was or not emergence of new leading sectors.
    Keywords: Agriculture, Input-Output Analysis, Morocco, productivity, structural transformation.
    JEL: C5 C67 E23 E24 O10 O13 O47
    Date: 2015–07–21
  30. By: Sebastian Gechert; Christoph Paetz; Paloma Villanueva
    Abstract: Exploiting official historical records of the German Bundestag and Bundesrat, the Federal Ministry of Labour and Social Affairs and the German statutory pension insurance scheme, we construct a narrative of legislated social security changes for Germany between 1970 and 2013 in order to identify important discretionary shocks to the social security system. The historical account covers major changes in transfers and social security benefits and contributions for pensions, health care, long-term care and unemployment insurance on the German federal level and thus complements the tax narrative of Uhl (2013). Based on the provided information we are able to code a rich bottom-up time-series of fiscal policy shocks for empirical macroeconomic analysis, addressing the identification problem. Therefore, we collect information regarding the underlying motivation, the dates of the legislative process and the prospective financial impact, closely following the methodology of Romer and Romer (2010) and Uhl (2013).
    Keywords: Narrative Record Identification, Action-Based Approach, Social Security
    JEL: E62 H20 H30 H55 N00
    Date: 2016
  31. By: Chatri, Abdellatif; Maarouf, Abdelwahab; Ragbi, Aziz
    Abstract: In this paper, we use SVAR model to evaluate the degree of exchanges rate pass-through to domestic prices. Our results suggest that the responsiveness of the later is low overall, decreases over time and it is higher for tradables than non-tradables goods. The low inflation environment, the modernization of the monetary policy framework and the country's import structure are the main factors explaining these results. This would facilitate the implementation of a more flexible exchange rate regime and explicit long- run inflation goal.
    Keywords: Pass-through, exchange rate, monetary policy, inflation
    JEL: E52 F31
    Date: 2016–05–25
  32. By: Minskya, Ksovim
    Abstract: This paper develops a method of analyzing average value of a complex-valued function that can be represented as a Fourier series satisfying a few realistic restrictions. This method may be useful when Discrete Fourier transform is highly inefficient, and comparison with Hodrick-Prescott filter is made.
    Keywords: filtering, time series, hodrick-prescott, z-transform, average value, linear trend
    JEL: C19 C49 C59 C69 E32
    Date: 2016–06–01
  33. By: Boeing-Reicher, Claire A. (Kiel Institute for the World Economy); Caponi, Vincenzo (CREST)
    Abstract: Based on data from a cross section of U.S. metro areas, we show that public employment correlates negatively with business cycle volatility, hinting at a stabilizing effect of public employment, while public wages correlate weakly and positively with business cycle volatility, hinting at a destabilizing effect of public wages. To explain these relationships, we set up a search and matching model that contains a government sector and a role for government spending in product markets. This latter mechanism affects how the outside option behaves, and this mechanism can help a search and matching model to generate wage-reducing and stabilizing effects of public employment. Without this mechanism, a search and matching model cannot generate these effects.
    Keywords: public employment, public wages, business cycle volatility, crowding out, search and matching
    JEL: E32 E63 J21
    Date: 2016–05
  34. By: Ailie Charteris and Barry Strydom
    Abstract: There is considerable debate internationally as to whether share returns are predictable. The limited evidence in South Africa (Gupta and Modise, 2012a, b and 2013) reveals that valuation ratios have no forecasting power but the Treasury bill rate, term spread and money supply have been found to be able to predict share returns at a relatively short horizon. In this study, the consumption aggregate wealth ratio of Lettau and Ludvigson (2001) is applied to South African share returns to assess its forecasting power using in-sample tests over both short and long horizons. The forecasting power of this composite variable is compared to a number of traditional variables. Similarly to the developed market evidence, the results indicate that the consumption aggregate wealth ratio is a significant predictor of returns and combined with the term spread, can explain a substantial component of the variation in future share returns. The implications of these findings for practitioners and policy makers are discussed.
    Keywords: real returns, forecasting, cointegration, consumption aggregate wealth ratio
    JEL: G1 E21 C53
    Date: 2016
  35. By: Marta Arespa (Universitat de Barcelona); Diego Gruber (Kernel Analytics)
    Abstract: Two puzzling facts of international real business cycles are 1) weak or negative correlations between the terms of trade and output, and 2) a rise in relative consumption for countries where national goods become relatively more expensive. We show these puzzles either vanish or become much weaker in recent data. We propose a new mechanism that generates endogenous international price movements that are consistent with both the "old" and the "new" facts. In this mechanism, firms operating in a monopolistically competitive environment adjust price and quality of their products in response to technological shocks. This model is consistent with the old facts if price levels are not adjusted for quality. Instead, if quality adjustments to price level are introduced, the model's properties are in line with the new facts.
    Keywords: Quality, International Real Business Cycle, Ba kus- Smith puzzle,Hedoni Prices.
    JEL: E31 F44
    Date: 2016
  36. By: Jacek Suda; Marek Antosiewicz
    Abstract: We study steady state and business cycle properties of a model with heterogeneous firms and on-the-job search in the spirit of Moscarini and Postel-Vinay (2012). We extend the setup by including capital in the production function and show how this change influences model properties. The model is solved using a novel numerical method, projection within perturbation, which uses Chebyshev polynomial approximation and Clenshaw-Curtis quadrature for dealing with heterogeneity. We analyze worker flows between firms, distribution of firm size and wages, and study how productivity and other shocks affect them. When we introduce a working capital channel into the model we find that costly borrowing that finances firms' wage and vacancy bill shifts the distribution of firms to the right.
    Keywords: job search, business cycle, unemployment, computation method, heterogeneous firms
    JEL: E32 J31 J64
    Date: 2016–05
  37. By: Tomas Havranek (Charles University in Prague); Anna Sokolova (National Research University Higher School of Economics)
    Abstract: We show that three factors combine to explain the mean excess sensitivity reported in studies estimating consumption Euler equations: the use of macro data, publication bias, and liquidity constraints. When micro data are used, publication bias is corrected for, and the households under examination do not face liquidity constraints, the literature implies no evidence for the excess sensitivity of consumption to income. Hence little remains for pure rule-of-thumb behavior. The results hold when we control for 45 additional variables reflecting the methods employed by researchers and use Bayesian model averaging to account for model uncertainty. The estimates of excess sensitivity are also systematically a ected by the order of approximation of the Euler equation, the treatment of non-separability between consumption and leisure, and the choice of proxy for consumption
    Keywords: Excess sensitivity, rule-of-thumb consumers, liquidity constraints, publication bias, Bayesian model averaging
    JEL: C83 D12 E21
    Date: 2016
  38. By: Nomoto, Takaaki
    Abstract: The present and emerging climate change highlights the need to understand the impact of weather shocks on the economy in the context of macroeconomic dynamism. In this regard, the present paper develops an empirical framework applicable to macro-data such as GDP to distinguish the impact of weather shocks on agricultural production, the indirect impact on non-agricultural production through its impact on agriculture, and the direct impact on non-agricultural production. For policymakers, distinguishing the direct and indirect impact on non-agriculture is critical in deciding the proper and efficient allocation of limited resources to adaptation and mitigation efforts. The present paper applies the developed framework to assess the impact of rainfall variability on India’s macroeconomic performance during 1952 to 2013 as a case study, finding that rainfall’s impact on non-agriculture is mostly rooted in its impact on agriculture. In this way, the paper contributes to the growing climate-economy literature.
    Keywords: Business cycle, Environment and Development, Monsoon, Agriculture, Kalman filter
    JEL: E32 O11 O53 Q54 Q56
    Date: 2016–06
  39. By: Krug, Sebastian; Wohltmann, Hans-Werner
    Abstract: Over the past decades, the framework for financing has experienced a fundamental shift from traditional bank lending towards a broader market-based financing of financial assets. As a consequence, regulated banks increasingly focus on coping with regulatory requirements meaning that the resulting funding gap for the real economy is left to the unregulated part of the financial system, i.e. to shadow banks highly relying on securitization and repos. Unfortunately, economic history has shown that unregulated financial intermediation exposes the economy to destabilizing externalities in terms of excessive systemic risk. The arising question is now whether and how it is possible to internalize these externalities via financial regulation. We aim to shed light on this issue by using an agent-based computational macro-model as experimental lab. The model is augmented with a shadow banking sector representing an alternative investment opportunity for the real sector which shows animal spirit-like, i.e. highly pro-cyclical and myopic, behavior in its investment decision. We find that an unilateral inclusion of shadow banks into the regulatory framework, i.e. without access to central bank liquidity, has negative effects on monetary policy goals, significantly increases the volatility in growth rates and that its disrupting character materializes in increasing default rates and a higher volatility in the credit-to-GDP gap. However, experiments with a full inclusion, i.e. with access to a lender of last resort, lead to superior outcomes relative to the benchmark without shadow banking activity. Moreover, our results highlight the central role of the access to contagion-free, alternative sources of liquidity within the shadow banking sector.
    Keywords: Shadow Banking,Financial Stability,Monetary Economics,Macroprudential Policy,Financial Regulation,Agent-based Macroeconomics
    JEL: E44 E50 G01 G28 C63
    Date: 2016
  40. By: Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
    Abstract: Kilian and Park (IER 50 (2009), 1267-1287) find shocks to oil supply are relatively unimportant to understanding changes in U.S. stock returns. We examine the impact of both U.S. and non-U.S. oil supply shocks on U.S. stock returns in light of the unprecedented expansion in U.S. oil production since 2009. Our results underscore the importance of the disaggregation of world oil supply and of the recent extraordinary surge in the U.S. oil production for analysing impact on U.S. stock prices. A positive U.S. oil supply shock has a positive impact on U.S. real stock returns. Oil demand and supply shocks are of comparable importance in explaining U.S. real stock returns when supply shocks from U.S. and non-U.S. oil production are identified.
    Keywords: Oil prices, Stock returns, U.S. oil production
    JEL: E44 G12 Q43
    Date: 2016–06
  41. By: Lechthaler, Wolfgang; Mileva, Mariya
    Abstract: Motivated by the increased importance of trade between industrialized and less-developed countries, we build a DSGE model featuring comparative advantage and inter-industry trade to analyze business cycle dynamics. We show that productivity shocks lead to shifts in the relative demand of exporting and import-competing sectors, implying an important role for the mobility of workers across sectors. If workers are very mobile then the aggregate implications of the two-sector model are very similar to a one-sector model. If workers are very immobile then the two-sector model features smaller responses in GDP to domestic shocks but larger responses to foreign shocks, implying larger comovement of GDP across countries.
    Keywords: international business cycles,inter-industry trade,comparative advantage,wage inequality
    JEL: E20 E25 F41 F44 F62
    Date: 2016
  42. By: Phiri, Andrew
    Abstract: Recently, it has being speculated that the linear relationship between government expenditure and economic growth may be misspecified. In our study, we contribute to the literature by investigating a nonlinear expenditure-growth relationship for South Africa by applying threshold cointegration analysis to six variations of Wagner’s law. Indeed, our empirical analysis reveal a nonlinear relationship between the time series for four out of the six versions of Wagner’s law thus providing strong evidence of existing nonlinearities for the case of South Africa. We further find uni-directional causality running from government spending to output productivity with positive increases in government expenditure leading to improved GDP levels hence lending support to the Keynesian hypothesis. And yet, we also find that negative deviations from the steady-state are eradicated slower than positive ones hence implying that increases in government spending would be offset by negative shocks to the macroeconomy over the long-run. This implies that excessive spending by South African government is not a panacea in overcoming the adverse effects of the recent global recession on the macroeconomy.
    Keywords: Wagner’s law; South Africa; nonlinear; cointegration; error correction model; causality.
    JEL: C22 E62 H50
    Date: 2016–06–02
  43. By: Mark Gertler; Christopher Huckfeldt; Antonella Trigari
    Abstract: Macroeconomic models often incorporate some form of wage stickiness to help account for employment fluctuations. However, a recent literature calls in to question this approach, citing evidence of new hire wage cyclicality from panel data studies as evidence for contractual wage flexibility for new hires, which is the relevant margin for employment volatility. We analyze data from the SIPP and find that the wages for new hires coming from unemployment are no more cyclical than those of existing workers, suggesting wages are sticky at the relevant margin. The new hire wage cyclicality found in earlier studies instead appears to reflect cyclical average wage gains of workers making job-to-job transitions, which we interpret as evidence of procyclical match quality for new hires from employment. We then develop a quantitative general equilibrium model with sticky wages via staggered contracting, on-the-job search, and variable match quality, and show that it can account for both the panel data evidence and aggregate labor market regularities. An additional implication of the model is that a sullying effect of recessions emerges, along the lines originally suggested by Barlevy (2002)
    JEL: E32 J3 J64
    Date: 2016–06
  44. By: Ronald Lee
    Abstract: Inevitable population aging and slower population growth will affect the economies of all nations in ways influenced by cultural values, institutional arrangements, and economic incentives. One outcome will be a tendency toward increased capital intensity, higher wages, and lower returns on capital, a tendency partially offset when the elderly are supported by public or private transfers rather than assets, and when economies are open, in which case aging will lead to increased flows of capital and labor. Rising human capital investment per child accompanies the falling fertility that drives population aging, and partially offsets slower labor force growth. Research to date finds little effect on technological progress or labor productivity. National differences in labor supply at older ages, per capita consumption of the elderly relative to younger ages, strength of public pension and health care systems, and health and vitality of the elderly all condition the impact of population aging on the economy. Policy responses include increasing the size of the labor force, mainly by raising the retirement age; reducing benefits and/or raising taxes for public transfer programs for the elderly, with concern for dead-weight loss and the fair distribution of costs across socioeconomic classes; investing more in children to increase the quality and productivity of the future labor force; and public programs that promote fertility by facilitating market work for women with children.
    JEL: E20 E24 H51 H55 J11 J14 J18
    Date: 2016–06
  45. By: Muhammad Ayyoub
    Abstract: This study challenges the traditional way of examining the “inflation–output growth nexus”. Research at the aggregate level yields mostly ambiguous results, we perform a dis-aggregated analysis of output growth and inflation. For each sector—industry, services and agriculture—we consider inflation and the value–added growth in a sample of 113 developing (low and middle income) economies over the period 1974–2013. Empirical investigation reveals that different sectors of the economy respond differently to various impulses of inflation. Specifically, inflation impacts the growth of industrial and services sectors negatively; whereas a growth enhancing relationship has been found for the agriculture sector. We further calculated a threshold level, for each sector, beyond which inflation is harmful to growth. These are 13.48 %, 14.48 %, 15.37 % and 40 % for aggregate GDP, industrial, services and agriculture sectors respectively. This implies that the central banks of developing economies must weigh the varying consequences of its actions on individual sectors bearing in mind each sector’s share in the respective economy.
    Keywords: Agriculture sector; developing economies; dis–aggregated approach; inflation growth nexus; system GMM; threshold level.
    JEL: E31 E58
    Date: 2016–02
  46. By: Greg Kaplan; Sam Schulhofer-Wohl
    Abstract: We use scanner data to estimate inflation rates at the household level. Households' inflation rates are remarkably heterogeneous, with an interquartile range that varies between 6.2 and 9.0 percentage points on an annual basis. Most of the heterogeneity comes not from variation in broadly defined consumption bundles but from variation in prices paid for the same types of goods — a source of variation that previous research has not measured. The entire distribution of household inflation rates shifts in parallel with aggregate inflation. Deviations from aggregate inflation exhibit only slightly negative serial correlation within each household over time, implying that the difference between a household's price level and the aggregate price level is persistent. Together, the large cross-sectional dispersion and low serial correlation of household-level inflation rates mean that almost all of the variability in a household's inflation rate over time comes from variability in household-level prices relative to average prices for the same goods, not from variability in the aggregate inflation rate. We provide a characterization of the stochastic process for household inflation that can be used to calibrate models of household decisions.
    JEL: D12 D30 E31
    Date: 2016–06
  47. By: Yusuf Soner Baskaya; Sebnem Kalemli-Ozcan
    Abstract: We investigate the effect of sovereign risk on banks' credit provision. We use the August 1999 Marmara Earthquake as an unanticipated exogenous fiscal shock that led to an increase in Turkish government's default risk. Based on administrative data on the universe of banks, we find that banks with higher exposures to government bonds before the earthquake suffered a bigger shock to their balance sheet and decreased lending more than the banks with lower exposures, after the earthquake. A bank that holds half of its total assets in government bonds decreases lending to private sector, measured as private sector loans to asset ratio, 2.5 percentage points. We show a similar effect on foreign banks' lending outside Turkey, where these banks also had high exposure to Turkish government bonds pre-earthquake, easing concerns on earthquake driven changes in credit demand. Our estimates, which trace the impact of an exogenous 100 basis point increase in sovereign spreads due to earthquake to credit supply by banks, explain 55 percent of the actual decline in loan provision during July-October 1999. These findings show that bank-sovereign doom loop can be responsible for a large fraction of credit crunch during an actual sovereign debt crisis.
    JEL: E0 F0 G0 G01 G21
    Date: 2016–06
  48. By: Ghassan, Hassan B.; Drissi, Ramzi
    Abstract: This paper analyses the current account in the present value model (PVMCA) framework. Based on Obstfeld and Rogoff’s book (1996), we aim to model the current account (CA) to GDP ratio in the long run. Since there is scarce theory-based empirical modeling, this paper provides evidence for main determinants of the current account. Firstly, we criticize the tautological approach in the paper of Cerrato et al. (2014) when they use a simple relation between the output growth and the per capita GDP growth. This relation leads to identical equations of aggregate and per capita CA-to-GDP ratio. Secondly, we consider the overlapping generations to determine the equation of per-capita CA using relevant variables. This model appears more interesting and testable. It allows to verify empirically the validity of the PVMCA through the quasi-elasticity of CA-to-GDP with respect to the per capita growth rate of output and consumption.
    Keywords: Current account, Consumption, Intertemporal Model, Long-run, Per-capita GDP, Quasi-elasticity.
    JEL: E21 F32
    Date: 2015–02–12
  49. By: Shehadeh, Ali; Li, Youwei; Moore, Michael
    Abstract: In this paper, we analyse the relationship between the currency carry return and volatility and liquidity risk factors. We find that both categories of risk factors are relevant to understanding and explaining carry return, with an outperformance for volatility ones especially the global FX volatility risk factor. Consistent with the poor performance of currency carry trades during high FX volatility regime, we also show that the well-established negative slope coefficient in the Fama regression tends to be more positive and even above unity in times of high FX volatility. The paper, overall, contributes to the risk-based solution of the forward premium bias puzzle.
    Keywords: FX rates; Currency carry trade; Forward-bias puzzle; FX risk premium
    JEL: E44 F31 F41 G11 G15
    Date: 2016–06–02
  50. By: Won Jun Nah; Lavoie, Marc
    Abstract: A simple neo-Kaleckian open-economy model is presented and its implications for growth regimes are analyzed. The present model features long-run convergence to its normal rate of capacity utilization, which is conditionally achieved by incorporating the Harrodian principle of instability and autonomous growth in foreign demand. It is demonstrated that some aspects of the main Kaleckian results can be preserved not only in the short run but also in the long run, in the sense that both (i) a decrease in the propensity to save, and (ii) a change in income distribution favoring labor, bring about higher average rates of production growth and capital accumulation. However, the long-run impact of a change in the profit share is shown to be subjected to the condition that the responsiveness of the real exchange rate with respect to the profit share has to be bounded from above, confirming that the scope for wage-led demand or wage-led growth can be limited by open-economy considerations.
    Keywords: neo-Kaleckian,growth,capacity utilization,exports,profit share,real exchange rate
    JEL: E11 F41 O41
    Date: 2016
  51. By: Ebner, André; Fecht, Falko; Schulz, Alexander
    Abstract: Repo markets offering central counterparty (CCP) clearing and anonymized trading were remarkably resilient during the recent crises. We use the full transaction level dataset on all repo trades on Eurex Repo, including identifiers for market participants, to provide a detailed description of the market's development and microstructure during the crises and under different monetary policy interventions. Overall, we find high excess liquidity being associated with lower private liquidity provision in this market. Cross-segment arbitrage and market making is limited but growing steadily. The reallocation of liquidity risk across banks within this market varies substantially with the general market conditions.
    Keywords: repo,central counterparty,market microstructure,financial crisis
    JEL: G2 D4 E58
    Date: 2016
  52. By: Benedicta Marzinotto
    Abstract: This paper explains the build-up and reversal of euro area macroeconomic imbalances by considering the interaction between the underlying income distribution in each country and EMU-induced financial liberalization. The argument is that the sharp increase in money supply since the early 1990s had the effect of relaxing collateral constraints for illiquid lower- income groups, whilst having no specific impact on other households. The former started over-borrowing against optimistic expectations about their future income. It follows that unequal countries such as Greece, Ireland, Italy, Portugal and Spain - where the share of lower-income groups is relatively high - had greater private debt burdens and worse external positions than equal countries. Consequently, current account reversal was asymmetric because the crisis forced these indebted households to abruptly reduce consumption not least because they were the first to be pulled out of the labour market and hardly had financial buffers. The hypothesis is tested using a difference-in-difference approach to panel data.
    Keywords: current account, income inequality, financial liberalization, debt leverage, difference-in-difference
    JEL: F32 F41 E2
    Date: 2016–05
  53. By: Karsten R. Gerdrup (Norges Bank (Central Bank of Norway)); Frank Hansen (Norges Bank (Central Bank of Norway)); Tord Krogh (Norges Bank (Central Bank of Norway)); Junior Maih (Norges Bank (Central Bank of Norway))
    Abstract: This paper analyzes the cost-benefit trade-off of leaning against the wind (LAW) in monetary policy. Our starting point is a New Keynesian Markov-switching model where the economy can be in a normal state or in a crisis state. The set-up enables us to weigh benefits against costs for different systematic LAW policies. We find that the benefits of LAW in terms of a lower frequency of severe financial recessions exceed costs in terms of higher volatility in output and in inflation in normal times when i) agents underestimate crisis risk, and ii) the severity of crises is endogenous (i.e. when "credit bites back"). Furthermore, we find that using an asymmetric rule that only includes positive credit growth can reduce the frequency of severe financial recessions even further, but that this comes at the cost of higher volatility in normal times. Finally, we find that LAW policies can lead to relatively higher output volatility in normal times when agents perceive crisis risk correctly because they are already internalizing the risk of lower future consumption by reducing consumption today.
    Keywords: Monetary policy, Financial stability, Leaning against the wind, Markovswitching, Endogenous crisis
    JEL: E12 E52 G01
    Date: 2016–06–02
  54. By: Hosseini, Roozbeh; Shourideh, Ali
    Abstract: We study policy reforms aimed at overhauling retirement financing. We develop a novel approach by considering optimal reforms: policy reforms that minimize the cost for the government while respecting the distribution of welfare in the economy. Our model is an OLG model with life-cycle features and bequest motives where individuals are heterogeneous in their earning ability and mortality. Theoretically, we show that due to the negative correlation between earnings ability and mortality, postretirement distortions to saving decisions are a robust feature of any optimal policy. We, then, use this framework to quantitatively analyze optimal reforms. Our quantitative exercise shows that an optimal reform relative to the status-quo must have three key features: First, post-retirement assets must be subsidized while bequests must be taxed. On average, optimal marginal subsidies on assets for individuals above age 65 is 3.2 percent, while optimal marginal tax on their bequest is 60 percent. Second, pre-retirement transfers must increase while social security benefits must become less generous in the aggregate and more progressive towards low income groups. Finally, earnings tax reform does not contribute to optimal reforms, i.e., optimal marginal taxes on earnings remain very close to the status-quo. The optimal policies reduce the present discounted value of net tax and transfers to each generation by 15 percent.
    Keywords: Retirement, Optimal Taxation, Social Security
    JEL: E6 H21 H55
    Date: 2016–01–19
  55. By: Asongu, Simplice; Nwachukwu, Jacinta C.
    Abstract: This study investigates direct and indirect linkages between financial development and inclusive human development in data panels for African countries using a battery of estimation techniques, notably: Two-Stage Least Squares, Fixed Effects, Generalized Method of Moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database (FDSD) of the World Bank are considered. The main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development. Policy implications are discussed in the light of fighting surplus liquidity and providing information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers.
    Keywords: Banking; human development; Africa
    JEL: E00 G20 I00 O10
    Date: 2015–12
  56. By: Tommaso Oliviero (CSEF, Università di Napoli Federico II); Agnese Sacchi (Universitas Mercatorum (Italy) and GEN (Spain).); Annalisa Scognamiglio (CSEF, Università di Napoli); Alberto Zazzaro (University of Naples Federico II (Italy), Polytechnic University of Marche (Italy), MoFiR (Italy) and CSEF (Italy).)
    Abstract: In this paper we study the impact of changes in immovable property taxation on the growth rate of house prices by analyzing a panel of 34 OECD countries over the period 1970-2014. We show that there is a negative relationship, robust to the inclusion of other cyclical determinants of house prices, country and year fixed effects. Furthermore, we do not find evidence of a stabilizing role of immovable property taxes on the variability of house prices: boom-bust cycles in housing markets are, in fact, not correlated with the levels of such a tax.
    Keywords: House prices, Immovable property tax.
    JEL: E62 H20 R21 R31
    Date: 2016–06–10
  57. By: Minskya, Ksovim
    Abstract: This paper extends the idea in ``Analysis of average value of a Fourier series using z-transform'' by the author. The main difference is that a three-pole filter is used instead of a two-pole filter. This paper reaches qualitatively the same conclusion.
    Keywords: three-pole filter; z-transform; filtering; linear trend
    JEL: C49 C59 C69 E32
    Date: 2016–06–05
  58. By: Vermeulen, Philip
    Abstract: Wealth survey data suffers simultaneously from under-representation at the top and underreporting of assets. Addressing both problems, I use the Household Finance and Consumption Survey to provide new estimates of the holdings of real assets, financial assets and liabilities and net wealth of the top one percent in Austria, Belgium, Finland, France, Germany, Italy, Spain and The Netherlands. Especially for countries doing little or no oversampling of the rich, financial asset and real asset shares held by the top 1 percent are substantially higher then survey data suggests. JEL Classification: E22, E44, G01
    Keywords: HFCN, wealth
    Date: 2016–05
  59. By: Paul Hubbard (The Australian National University); Dhruv Sharma
    Abstract: We project gross domestic product (GDP) for 140 world economies from 2020 to 2050 based on United Nation's demographic projections, the International Monetary Fund's GDP statistics and estimates of potential labour productivity derived from the World Economic Forum's Global Competitiveness Index (GCI) and a methodology published by the Australian Treasury. We review the conceptual framework underpinning this model, and identify its core assumptions. Finally, we highlight potential applications for this model, including : considering the dispersion of global economic activity; assessing the potential scale of activity across different trading blocs; and quantifying the impact of domestic policy reform scenarios in individual economies. Rather than provide an exhaustive analysis of the results, we make the data and results freely available . The views expressed in this paper represent the views of the authors and not those of the Australian Treasury.
    JEL: E01 E13 C82
    Date: 2016–06
  60. By: Baskaya, Soner; Kalemli-Ozcan, Sebnem
    Abstract: We investigate the e ffect of sovereign risk on banks' credit provision. We use the August 1999 Marmara Earthquake as an unanticipated exogenous fiscal shock that led to an increase in Turkish government's default risk. Based on administrative data on the universe of banks, we find that banks with higher exposures to government bonds before the earthquake suffered a bigger shock to their balance sheet and decreased lending more than the banks with lower exposures, after the earthquake. A bank that holds half of its total assets in government bonds decreases lending to private sector, measured as private sector loans to asset ratio, 2.5 percentage points. We show a similar effect on foreign banks' lending outside Turkey, where these banks also had high exposure to Turkish government bonds pre-earthquake, easing concerns on earthquake driven changes in credit demand. Our estimates, which trace the impact of an exogenous 100 basis point increase in sovereign spreads due to earthquake to credit supply by banks, explain 55 percent of the actual decline in loan provision during July-October 1999. These findings show that bank-sovereign doom loop can be responsible for a large fraction of credit crunch during an actual sovereign debt crisis.
    JEL: E32 F15 F36 O16
    Date: 2016–06
  61. By: Egorov D.A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Perevyshina E.A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This study is devoted to the analysis of two empirical approaches to modeling inflationary processes in Russia and abroad: the cost approach, and the Phillips curve. The authors examine the application of these approaches for the analysis of inflation factors in different countries, highlighting their strengths and weaknesses. Both approaches are used for the analysis of inflation in Russia in the 2000s. As part of the cost approach, a model for the consumer price index is estimated. Besides, various Phillips curve modifications are estimated for the consumer price index and various measures of economic activity (output gap, unemployment, unit labor costs). It is shown that the inflationary process in Russia is better described by the hybrid Phillips curve with output gap.
    Keywords: inflationary processes, Russian economy, hybrid Phillips curve, output gap
    Date: 2016–03–21
  62. By: Christophe Blot (OFCE); Paul Hubert (OFCE); Christine Rifflart (OFCE)
    Abstract: Alors que la Réserve fédérale a amorcé un cycle de hausse des taux en décembre 2015, la BCE a amplifié son programme d’assouplissement quantitatif en annonçant d’abord une extension de la durée du programme, puis une augmentation de sa taille et enfin un élargissement de la gamme d’actifs achetés. Il en résulte un découplage croissant de la politique monétaire entre les États-Unis et la zone euro. Ce découplage pourrait accentuer les effets du soutien qu’apporte la BCE par le canal du taux de change. Nous illustrons ce mécanisme en évaluant l’effet en zone euro des variations de taux d’intérêt anticipés et de taille du bilan sur le taux de change et le prix des cours boursiers. Les résultats suggèrent que l’effet taux est systématiquement significatif alors que l’effet par la taille du bilan serait moins important. En outre, après avoir alimenté la liquidité mondiale, la normalisation en cours de la politique monétaire américaine s’accompagne un recul des flux de capitaux des économies émergentes, provoquant ainsi de l’instabilité financière et fragilisant leur croissance. Nous estimons les effets de débordement de la politique monétaire de la Réserve fédérale et de la BCE sur les taux de change et les cours boursiers de ces pays. Nos résultats suggèrent que la sensibilité des économies émergentes aux politiques monétaires de la Réserve fédérale et de la BCE n’est pas homogène. Il ressort également que l’effet de signal de la politique monétaire pourrait être plus important pour sa transmission que les effets de réallocation de portefeuille.
    Keywords: Politique monétaire; Pays émergents; Prix d'actifs; Taux de change
    JEL: E5
    Date: 2016–04
  63. By: Pinkovskiy, Maxim L. (Federal Reserve Bank of New York); Sala-i-Martin, Xavier X. (Columbia University)
    Abstract: Nighttime lights data are a measure of economic activity whose measurement error is plausibly independent of the errors of most conventional indicators. Therefore, we can use nighttime lights as an independent benchmark to assess existing measures of economic activity (Pinkovskiy and Sala-i-Martin 2016). We employ this insight to find out which vintages of the Penn World Tables (PWT) and of the World Development Indicators (WDI) better estimate true income per capita. We find that revisions of the PWT do not necessarily dominate their predecessors in terms of explaining nighttime lights (and thus, of predicting unobserved true income). In particular, we find that the PWT 7.1 chain-based GDP series substantially outperforms the constant-price series in both PWT 8.0 and PWT 8.1, the two most recent vintages of the PWT. We additionally find that the World Development Indicators are as good, and often better, measures of unobserved true income as any recent vintages of the Penn World Tables. Furthermore, we find that each new round of the International Comparisons Programme has improved the WDI’s ability to predict log unobserved true income. We also find that vintages tend to be good or bad at predicting unobserved true income roughly equally across the sample period and do not tend to be particularly good at predicting unobserved income in the year of their price survey. We conclude that GDP series based on unadjusted domestic growth rates alone predict growth rates of true income better than series based on purchasing-power-parity adjustments to growth rates.
    Keywords: nighttime lights; GDP; measurement
    JEL: E01 E23 O11 O47 O57
    Date: 2016–06–01
  64. By: d'Agostino, Giorgio; Pieroni, Luca; Procidano, Isabella
    Abstract: The present paper estimates the effects of welfare interventions on income inequality. We propose a theoretical model showing that welfare policies follow the median voter constituency regardless of whether governments are center-left or center-right in the majority electoral system, whereas large differences exist between center-left and center- right coalitions in the proportional representation system. We exploit these differences in the mechanisms of welfare expenditure to estimate their elasticities on income inequality and find that a 1% increase in government spending reduces the Gini income index by half a percentage point. This result is robust under different compositions of expenditure, alternative imputation model specifications and falsification tests.
    Keywords: Welfare policies; Electoral rules; Income inequality; Instrumental variable approach; OECD countries
    JEL: C26 E62 H23 H53
    Date: 2016–06–15
  65. By: Jamal Ibrahim Haidar
    Abstract: One of the fascinating aspects of the European debt crisis has been the resilience of the euro. For much of 2011, the euro was a key reserve currency, oblivious to the chaos ravaging European economies. Now, however, the gravity of the crisis is finally dragging down the euro. As the Euro zone debt crisis enters its third uncertain year, the question about whether the euro can survive rises. This paper argues that the euro can survive given policymakers still have in hand various tools. These tools include creating exit rules, implementing new stabilisation rules and instruments, adopting new fiscal policy, introducing conditional Eurobonds, using inflation differentials and providing more independence to the European Central Bank.
  66. By: De Giorgi, Giacomo (Federal Reserve Bank of New York); Frederiksen, Anders (Aarhus University); Pistaferri, Luigi (Stanford University)
    Abstract: In this paper we study the relevance and mechanics of consumption network effects. We use long panel data on the entire Danish population to construct a measure of consumption based on administrative tax records, and define the peer groups in terms of workplace, occupation, education, and age. We then apply an IV strategy, and fixed effect models, to recover the effects. Our instruments arise naturally from the network structure and firms shocks. The estimated effects are statistically significant and relevant for policies as they generate non-negligible multiplier effects. Further, the results are consistent with a "Keeping-up" model.
    Keywords: consumption, networks, social multiplier, risk sharing
    JEL: E21 D12 D85
    Date: 2016–06
  67. By: Anna Kormilitsina (Southern Methodist University); Denis Nekipelov (University of Virginia)
    Abstract: Laplace-type estimator has become popular in applied macroeconomics, in particular for estimation of DSGE models. It is often obtained as the mean and variance of parameter's quasi-posterior distribution, which is defined using a classical estimation objective. We demonstrate that the objective must be properly scalded; otherwise, arbirarily small confidence intervals can be obtained if calculated directly from the quasiposterior distribution. We estimate a standard DSGE model and find that scaling up the objective may be useful in estimation with problematic parameter identification. In this case, however, it is important to adjust the quasi-posterior variance to obtain valid confidence intervals.
    Keywords: Laplace-type estimator, GMM, DSGE model
    JEL: C11 C13 C15 E30
    Date: 2015–05
  68. By: Kankanamge, Sumudu; Weitzenblum, Thomas
    Abstract: This paper examines the optimal time-consistent unemployment insurance policy in a search economy with incomplete markets. In a context of repeated choice without a commitment device, we show that the optimal replacement rate depends on how frequently in time the policy can be revised. The exact relation is dependent on the political process: if the utilitarian welfare criterion is used, the optimal rate is higher the shorter the choice periodicity. Self-insurance reduces the need for the public scheme but mostly because the policy cannot be changed often enough. The comparison with an economy where a commitment device is assumed shows that the commitment rate is close to time-consistent rates with very long choice periodicities.
    JEL: C63 E61 J65
    Date: 2016–05
  69. By: Karl Pinno (University of Calgary); Apostolos Serletis (University of Calgary)
    Abstract: This paper provides a study of the relationship between money growth variability, velocity, and the stock market, using recent advances in financial econometrics. We estimate a trivariate VARMA, GARCH-in-Mean, BEKK model to quantify the effects of financial market and money supply instability. We investigate the robustness of the results to different definitions of money using monthly Divisia indices for the United States from the Center for Financial Stability (CFS). Empirical evidence supports significance of financial market and money supply volatility, and we conclude that Friedman's money supply volatility hypothesis is alive and well.
    Date: 2016–06–06
  70. By: Terje Skjerpen; Nina Barth; Ådne Cappelen; Steinar Todsen; Thom Åbyholm (Statistics Norway)
    Abstract: In the Norwegian national accounts, as in many other countries, it is quite common to use information on depreciation rates and profiles based on studies from the US, Canada and the Netherlands due to a lack of national studies. We present new results based on a survey of Norwegian firms concerning their perception of the expected economic service life of different types of capital assets and their assessments of the most realistic depreciation profiles. For some capital categories, information on acquisition prices and second-hand market prices were also collected, together with information on the age of capital assets when they were sold in second-hand markets. We present the companies’ answers about expected service lives and depreciation profiles, and carry out an econometric analysis for two types of capital where second-hand markets exist, Machinery and equipment for mining and manufacturing, and Tools, instruments, furnishings etc. For the first group, the expected service life is estimated to be between 9 and 10 years, while, for the second group, the estimate is about 8 years. According to the descriptive analysis, the reported mean expected service lives are around 10 and 7 years, respectively. Our results are quite similar to those obtained in the literature.
    Keywords: Depreciation; Capital Stock; Service Lives; Survey
    JEL: C23 C81 D24 E22
    Date: 2016–05
  71. By: Fortin, Ines (Financial Markets and Econometrics, Institute for Advanced Studies, Vienna, Austria); Hlouskova, Jaroslava (Financial Markets and Econometrics, Institute for Advanced Studies, Vienna, Austria and Department of Economics, Thompson Rivers University, Kamloops, Canada); Tsigaris, Panagiotis (Department of Economics, Thompson Rivers University, Kamloops, Canada)
    Abstract: This study extends the literature on portfolio choice under prospect theory preferences by introducing a two-period life cycle model, where the household decides on optimal consumption and investment in a portfolio with one risk-free and one risky asset. The optimal solution depends primarily on the household’s choice of the present value of the consumption reference levels relative to the present value of its endowment income. If the present value of the consumption reference levels is set below the present value of endowment income, then the household behaves in such a way to avoid relative losses in consumption in any present or future state of nature (good or bad). As a result the degree of loss aversion does not directly affect optimal consumption and risk taking activity. However, it must be sufficiently high in order to rule out outcomes with relative losses. On the other hand, if the present value of the consumption reference levels is set exactly equal to the present value of the endowment income, i.e., the household sets its reference levels such that they are in balance with its income, then the household’s optimal consumption is the reference consumption in both periods and the household will not invest in the risky asset. Finally, if the present value of the household’s consumption reference levels is set above the present value of its endowment income, then the household cannot avoid experiencing a relative loss in consumption, either now or in the future. As a result, loss aversion directly affects consumption and risky investment. Reference levels play a significant role in consumption and risk taking activity. In most cases the household will “follow the Joneses” if the reference levels are set equal to the consumption levels of the Joneses. Independent of how consumption reference levels are set, being more ambitious, i.e., increasing one’s reference levels, will result in less happiness. The only case when this is not true is when reference levels increase with growing income (and the present value of reference levels is set below the present value of endowment income).
    Keywords: prospect theory, loss aversion, consumption-savings decision, portfolio allocation, happiness
    JEL: G02 G11 E20
    Date: 2016–06
  72. By: Ivan Idžojtić (Javorović Idžojtić i partneri j.t.d. ovlašteni porezni savjetnici)
    Abstract: U poslovnom svijetu gdje je sve slabija likvidnost pojedinih poslovnih subjekata pribjegava se, odnosno poduzimaju se različite mjere financijske politike kako bi se smanjio intenzitet djelovanja nenaplaćenih potraživanja. U ovom članku obrađuju se i pojašnjavaju te najčešće mjere namira (oblici) bez uporabe novca: kompenzacija, cesija, preuzimanje duga, asignacija te drugi oblici (npr. prijenos vrijed. papira, izdavanje vrijed. papira).
    Keywords: obračunska namira, oblici namire, kompenzacija, cesija, asignacija, preuzimanje duga
    JEL: E42 O16 G32
    Date: 2015–05
  73. By: Karelys Guzmán-Finol; Ana María Estrada-Jabela
    Abstract: Este trabajo describe cómo, a raíz del establecimiento del Sistema General de Regalías (SGR) en 2012, los departamentos colombianos ahora no solo ejecutan más recursos sino que tienen mayor participación en la escogencia de los proyectos que van a financiarse. Además, se analiza la manera en que se han invertido los recursos teniendo en cuenta los costos de oportunidad y las necesidades de los departamentos. El periodo de estudio es 2012-2015. Se pudieron identificar algunas diferencias en el patrón de la inversión al comparar departamentos productores y no productores. Asimismo, al evaluar la correspondencia entre la participación de algunos sectores (como transporte, ciencia y tecnología, educación, vivienda) en el valor de los proyectos aprobados e indicadores, como la cobertura en educación, el número de investigadores y grupos de investigación, el índice de déficit habitacional y el estado de las vías, no se observan altas correlaciones. ******ABSTRACT: This paper describes how, following the establishment of the General Royalties System (SGR) in 2012, the Colombian departments now have more resources and a greater participation in the selection of projects to be funded. We also discuss how resources have been invested, taking into account opportunity costs and the needs of the departments. The study period is 2012-2015. We were able to identify some differences in the pattern of investment of producers and non-producing departments. Moreover, in assessing the correspondence between the participation of some sectors (such as transport, science and technology, education, housing) to the value of approved projects and indicators, such as education coverage, the number of researchers and research groups, the housing deficit and the state of the roads, we did not observed high correlations.
    Keywords: Colombia, regalías, departamentos, inversión, necesidades.
    JEL: E62 R53 H50 H70
    Date: 2016–06–03
  74. By: Jeffrey Brinkman; Daniele Coen-Pirani; Holger Sieg
    Abstract: This paper analyzes the determinants of underfunding of local government's pension funds using a politico-economic overlapping generations model. We show that a binding downpayment constraint in the housing market dampens capitalization of future taxes into current land prices. Thus, a local government's pension funding policy matters for land prices and the utility of young households. Underfunding arises in equilibrium if the pension funding policy is set by the old generation. Young households instead favor a policy of full funding. Empirical results based on cross-city comparisons in the magnitude of unfunded liabilities are consistent with the predictions of the model.
    JEL: E6 H3 H7 R5
    Date: 2016–06

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