nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒06‒25
fifty-nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Contagious Malady? Open Economy Dimensions of Secular Stagnation By Gauti B. Eggertsson; Neil R. Mehrotra; Sanjay R. Singh; Lawrence H. Summers
  2. The labor market channel of macroeconomic uncertainty By Elisa Guglielminetti
  3. Housing Market Spillovers in South Africa: Evidence from an Estimated Small Open Economy DSGE Model By Rangan Gupta; Xiaojin Sun
  4. Are Supply Shocks Contractionary at the ZLB? Evidence from Utilization-Adjusted TFP Data By Julio Garín; Robert Lester; Eric Sims
  5. The Analytics of the Greek Crisis By Gourinchas, Pierre-Olivier; Philippon, Thomas; Vayanos, Dimitri
  6. News and inflation expectation updates By Gerardo Licandro; Miguel Mello
  7. 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
  8. Monetary News, U.S. Interest Rate and Business Cycles in Emerging Economies By Vicondoa, Alejandro
  9. No Man is an Island : the Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics By Mattia GUERINI; Mauro Napoletano; Andrea Roventini
  10. 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
  11. Impact of international monetary policy in Uruguay: a FAVAR approach By Elizabeth Bucacos
  12. Credibility of History-Dependent Monetary Policies and Macroeconomic Instability By Cateau, Gino; Shukayev, Malik
  13. Modeling inflation shifts and persistence in Tunisia: Perspectives from an evolutionary spectral approach By Ftiti, Zied; Guesmi, Khaled; Nguyen, Duc Khuong; Teulon, Frédéric
  14. Monetary Policy Rules in Emerging Countries: Is There an Augmented Nonlinear Taylor Rule? By Guglielmo Maria Caporale; Abdurrahman Nazif Catik; Mohamad Husam Helmi; Faek Menla Ali; Coskun Akdeniz
  15. Investment-Specific News Dominates TFP News in Driving U.S. Business Cycles By Nadav Ben Zeev; Hashmat U. Khan
  16. Capital Accumulation and the Dynamics of secular stagnation By Gilles Le Garrec; Vincent Touze
  17. Optimal Automatic Stabilizers By Alisdair McKay; Ricardo Reis
  18. Co-movements between Public and Private Wages in the EU: Which Factors Play a Role? By Marzinotto, Benedicta; Turrini, Alessandro
  19. Do fiscal multipliers depend on fiscal positions? By Raju Huidrom; M. Ayhan Kose; Jamus J. Lim; Franziska L. Ohnsorge
  20. The housing market, household portfolios and the German consumer By Geiger, Felix; Muellbauer, John; Rupprecht, Manuel
  21. Macroeconomic Regimes, Technological Shocks and Employment Dynamics By Tommaso Ferraresi; Andrea Roventini; Willi Semmler
  22. The Doug Purvis Memorial Lecture—Monetary/Fiscal Policy Mix and Financial Stability: The Medium Term Is Still the Message By Stephen S. Poloz
  23. Expectations and Stability in the Kaleckian Growth Model By Gilberto Tadeu Lima; Mark Setterfield
  24. Interest rates, corporate lending and growth in the Euro Area By Gabriele Tondl
  25. Macroeconomic Imbalances and Business Cycle Synchronization. Why Common Economic Governance is Imperative for the Eurozone By Elizaveta Lukmanova; Gabriele Tondl
  26. Identifying macroeconomic effects of refugee migration to Germany By Weber, Enzo; Weigand, Roland
  27. Top-Down vs. Bottom-Up? Reconcilling the Effects of Tax and Transfer Shocks on Output By Sebastian Gechert; Christoph Paetz; Paloma Villanueva
  28. Unfolding the Turbulent Century: A Reconstruction of China's Economic Development, 1840-1912 By MA, Ye; JONG, Herman de
  29. Policy Options for Competitiveness and Economic Development in the Western Balkans: the Case for Infrastructure Investment By Mario Holzner
  30. When preferences for a stable interest rate become self-defeating By Ragna Alstadheim; Øistein Røisland
  31. Bias in Official Fiscal Forecasts: Can Private Forecasts Help? By Jeffrey A. Frankel; Jesse Schreger
  32. Monetary Policy, Real Activity, and Credit Spreads : Evidence from Bayesian Proxy SVARs By Caldara, Dario; Herbst, Edward
  33. Trade Finance Affects Trade Dynamics By Marta Arespa; Diego Gruber
  34. Forecasting Employment Growth in Sweden Using a Bayesian VAR Model By Raoufina, Karine
  35. Risky Banks and Macroprudential Policy for Emerging Economies By Nuguer Victoria; Cuadra Gabriel
  36. Makroökonomische/Sozialpolitische Perspektiven auf die Sozialpolitik/Makroökonomie By Klüh, Ulrich
  37. Theoretical Paradigm on Bank Capital Regulation and its Impact on Bank-Borrower Behavior By Gunakar Bhatta, Ph.D.
  38. Aging, Pensions, and Growth By Tetsuo Ono
  39. The PRISME model: can disaggregation on the production side help to forecast GDP? By C. Thubin; T. Ferrière; E. Monnet; M. Marx; V. Oung
  40. Sovereign Risk, Bank Funding and Investors' Pessimism By Faia, Ester
  41. The Integration of Search in Macroeconomics: Interviews with David Andolfatto, Peter Diamond and Monika Merz By Samuel Danthine; Michel De Vroey
  42. Cien años de acumulación de capital en Argentina: tasa de ganancia, composición del capital y distribución del producto By Esteban Ezequiel Maito
  43. End of the sovereign-bank doom loop in the European Union? The bank recovery and resolution directive By Covi, Giovanni; Eydam, Ulrich
  44. Job Creation and the Role of Dependencies By Fornaro, Paolo; Luomaranta, Henri
  45. Inflation, currency depreciation and households balance sheet in Uruguay By Rodrigo Lluberas; Juan Odriozola
  46. The ECB`s Monetary Policy: stability without "safe" assets? By Silke Tober
  47. Unintended Consequences- Advice for Politicians and Policy Analysts By Frank Milne
  48. Does Inequality Hamper Innovation and Growth? By Caiani, Alessandro; Russo, Alberto; Gallegati, Mauro
  49. Understanding and applying long-term GDP projections By Paul Hubbard; Dhruv Sharma
  50. Emergence of Asia: Reforms, Corporate Savings, and Global Imbalances By Jingting Fan; Sebnem Kalemli-Ozcan
  51. Price Discounts and the Measurement of Inflation: Further Results By Kevin J, Fox.; Iqbal A. Syed
  52. Real Exchange Rate Misalignment in the Euro Area: Is the Current Development Helpful? By Jan Hajek
  53. The Unintended Consequences of the Zero Lower Bound Policy By Marco Di Maggio; Marcin Kacperczyk
  54. Testing for Non-Fundamentalness By Hamidi Sahneh, Mehdi
  55. Are State and Time Dependent Models Really Different? By Fernando E. Alvarez; Francesco Lippi; Juan Passadore
  56. Is financial sector development an engine of economic growth? evidence from India By Ziaurrahman, Muhammad; Masih, Mansur
  57. The impact of real estate, inequality and current account imbalances on excessive credit: A cross country analysis By Halim, Asyraf Abdul; Ariff, Muhammad; Masih, A. Mansur M.
  58. A Review of Literature on Monetary Neutrality - The case of India By Kuek, Tai Hock
  59. Challenges for the ECB in Times of Deflation By Francesco Saraceno

  1. By: Gauti B. Eggertsson; Neil R. Mehrotra; Sanjay R. Singh; Lawrence H. Summers
    Abstract: Conditions of secular stagnation - low interest rates, below target inflation, and sluggish output growth - characterize much of the global economy. We consider an overlapping generations, open economy model of secular stagnation, and examine the effect of capital flows on the transmission of stagnation. In a world with a low natural rate of interest, greater capital integration transmits recessions across countries as opposed to lower interest rates. In a global secular stagnation, expansionary fiscal policy carries positive spillovers implying gains from coordination, and fiscal policy is self-financing. Expansionary monetary policy, by contrast, is beggar-thy-neighbor with output gains in one country coming at the expense of the other. Similarly, we find that competitiveness policies including structural labor market reforms or neomercantilist trade policies are also beggar-thy-neighbor in a global secular stagnation.
    JEL: E31 E32 E52 F33
    Date: 2016–06
  2. By: Elisa Guglielminetti (Bank of Italy)
    Abstract: Uncertainty has recently become a major concern for policymakers and academics. Spikes in uncertainty are often associated with recessions and have detrimental effects on the aggregate economy. This paper analyzes the effects of uncertainty on firms' hiring and investment decisions, both empirically and theoretically. Empirically, VAR estimates show the negative effects of uncertainty on economic performance and in particular on the labor market. Counterfactual experiments highlight the significant role of hiring decisions as a transmission channel for uncertainty. The empirical findings are rationalized through a DSGE model with search and matching frictions in the labor market and stochastic volatility. The model is able to replicate the observed co-movement among consumption, investment, output and labor market outcomes generated by an uncertainty shock. Price stickiness greatly amplifies the reaction of the economy. Simulations show that monetary policy can mitigate the adverse effects of uncertainty by adopting a strong anti-inflationary policy.
    Keywords: uncertainty shocks, labor market, search, DSGE model, business cycle, survey data
    JEL: E21 E22 E23 E24 E32
    Date: 2016–06
  3. By: Rangan Gupta (Department of Economics, University of Pretoria); Xiaojin Sun (Department of Economics and Finance, University of Texas at El Paso)
    Abstract: This paper evaluates, for the first time, the impact of housing market spillovers on a small open economy, namely South Africa, using a small-open economy new Keynesian dynamic stochastic general equilibrium model (SOE-NKDSGE) which explicitly incorporates a housing sector. Using quarterly data covering the period of 1971:Q1-2015:Q3, we obtain the following set of results: (a) Over the business cycle, the housing preference shock and the technology shock in the consumption sector drive most of the fluctuations of real house price; (b) The spillover effects of the housing market to the boarder economy are not negligible; (c) The central bank of South Africa has actively responded to house price movements over the past 45 years; and (d) The flexible exchange rate policy has helped South Africa maintain the macroeconomic stability to a large extent.
    Keywords: Housing Market, Spillovers, Monetary Policy, Dynamic Stochastic General Equilibrium Model, South Africa
    JEL: E21 E32 E44 E52 R31
    Date: 2016–05
  4. By: Julio Garín; Robert Lester; Eric Sims
    Abstract: The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. However, in line with the predictions of the basic model, positive productivity shocks have a stronger negative effect on inflation at the ZLB.
    JEL: E31 E32 E43 E52
    Date: 2016–06
  5. By: Gourinchas, Pierre-Olivier; Philippon, Thomas; Vayanos, Dimitri
    Abstract: We provide an empirical and theoretical analysis of the Greek Crisis of 2010. We first benchmark the crisis against all episodes of sudden stops, sovereign debt crises, and lending boom/busts in emerging and advanced economies since 1980. The decline in Greece's output, especially investment, is deeper and more persistent than in almost any crisis on record over that period. We then propose a stylized macro-finance model to understand what happened. We find that a severe macroeconomic adjustment was inevitable given the size of the fiscal imbalance; yet a sizable share of the crisis was also the consequence of the sudden stop that started in late 2009. Our model suggests that the size of the initial macro/financial imbalances can account for much of the depth of the crisis. When we simulate an emerging market sudden stop with initial debt levels (government, private, and external) of an advanced economy, we obtain a Greek crisis. Finally, in recent years, the lack of recovery appears driven by elevated levels of non-performing loans and strong price rigidities in product markets.
    Keywords: bank-sovereign loop; DSGE model; fiscal contraction; Greek crisis; price rigidities; sovereign default; sudden stop
    JEL: E2 E3 E5 E6 F3 F4
    Date: 2016–06
  6. By: Gerardo Licandro (Banco Central del Uruguay); Miguel Mello (Banco Central del Uruguay)
    Abstract: Do inflation expectations react to news? In the last decade, Uruguay has resorted to heterodox practices along with inflation targeting to prevent the divergence of inflation, including price subsidies and agreements. Using data from a novel survey of firm's inflation expectations we study individual inflation expectation updates and the impact on individual expectation updates of news regarding monetary policy and other heterodox measures. To control for monetary policy stance we construct a qualitative index of monetary policy based on monetary policy communications. We construct several news indices for monetary policy and other measures. We find that price controls news tends to generate clusters of inflation expectations updates. Using several econometric techniques we are able to find that news about heterodox measures do affect inflation expectations with the expected sign.
    Keywords: Monetary transmission, inflation expectations, expectations channel
    JEL: E43 E52 E58
    Date: 2015
  7. By: Uluc Aysun (University of Central Florida, Orlando, FL)
    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
  8. By: Vicondoa, Alejandro
    Abstract: This paper identifies anticipated (news) and unanticipated (surprise) shocks to the U.S. Fed Funds rate using CBOT Fed Funds Future Market and assesses their propagation to emerging economies. Anticipated movements account for 80% of quarterly Fed Funds fluctuations and explain a significant fraction of the narrative monetary policy shocks. An expected 1% increase in the reference interest rate induces a fall of 2% in GDP of emerging economies two quarters before the shock materializes. Unanticipated contractionary shocks also cause a recession. Both shocks have a larger impact in emerging relative to developed economies and the financial channel is the most relevant for their transmission. Anticipation is also relevant to understand the transmission of U.S. real interest rate shocks.
    Keywords: International business cycle, Interest rate, News shocks, Small open economy
    JEL: E32 E52 F41 F44
    Date: 2016
  9. By: Mattia GUERINI (Scuola Superiore Sant'Anna); Mauro Napoletano (OFCE); Andrea Roventini (Laboratory of Economics and Management (Pisa) (LEM))
    Abstract: We develop an agent-based model in which heterogeneous firms and households interact in labor and good markets according to centralized or decentralized search and matching protocols. As the model has a deterministic backbone and a full-employment equilibrium, it can be directly compared to Dynamic Stochastic General Equilibrium (DSGE) models. We study the effects of negative productivity shocks by way of impulse-response func- tions (IRF). Simulation results show that when search and matching are centralized, the economy is always able to return to the full employment equilibrium and IRFs are similar to those generated by DSGE models. However, when search and matching are local, co- ordination failures emerge and the economy persistently deviates from full employment. Moreover, agents display persistent heterogeneity. Our results suggest that macroeco- nomic models should explicitly account for agents’ heterogeneity and direct interactions
    Keywords: Agent-based model; Local interactions; Heterogenous agents; DGSE Model
    JEL: E3 E32 E37
    Date: 2016–06
  10. 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: 2016–06
  11. By: Elizabeth Bucacos (Banco Central del Uruguay)
    Abstract: This study analyzes the Uruguayan economy’s vulnerability to foreign monetary policy in the last twenty years. The usual way of assessing monetary policy transmission effects - such as panel data analysis, correlation analysis and even case studies - have not offered much statistically significant evidence for Uruguayan economic growth. However, being a small open dollarized economy with a relatively less sophisticated asset market, it seems plausible that Uruguay may suffer from international monetary policy shocks. The challenge, then, is to unveil the channels through which those monetary shocks finally affect relevant Uruguayan variables. In this paper, factor augmented vector autoregressive (FAVAR) models are used in two stages. In the first stage, the impact of foreign monetary policy is assessed on commodity prices, foreign output, and regional output. In the second one, the effects on real exchange rate, domestic assets (as housing prices) and on domestic output are analyzed. Este estudio analiza la vulnerabilidad de la economía uruguaya a los shocks de política monetaria externos en los últimos veinte años. La forma habitual de analizar los efectos de la transmisión de los shocks de política monetaria – tales como análisis de datos de panel, análisis de correlación e incluso estudio de casos – no han ofrecido mucha evidencia estadísticamente significativa con respecto a los efectos sobre el crecimiento económico en Uruguay. Sin embargo, siendo una pequeña economía abierta dolarizada con un mercado de activos relativamente poco sofisticado, parece razonable que Uruguay sufra los choques de política monetaria internacional. Entonces, el desafío es revelar los canales a través de los cuales esos choques finalmente afectan las variables económicas uruguayas relevantes. En este documento se utilizan modelos de factores aumentados autorregresivos (FAVAR) en dos etapas. Primero, se establece el impacto de la política monetaria externa sobre precios de commodites, producto externo y producto regional. En una segunda etapa, se analizan los efectos sobre el tipo de cambio real, activos domésticos (como el precio de la vivienda) y el producto doméstico.
    Keywords: tapering, emerging economies, housing prices, Uruguay, reversión, restricción cuantitativa en EEUU, economías emergentes, precios de vivienda
    JEL: E42 R31 E62
    Date: 2015
  12. By: Cateau, Gino (Bank of Canada); Shukayev, Malik (University of Alberta, Department of Economics)
    Abstract: This paper evaluates the desirability of history-dependent policy frameworks when the central bank cannot perfectly commit to maintain a level target path. Specifically, we consider a central bank that seeks to implement optimal policy under commitment in a simple New Keynesian model via a price-level (or nominal GDP level) target rule. However, the central bank retains the option to reset its target path if the social cost of not doing so exceeds a certain threshold. We find that endowing the central bank with the discretion to optimally reset its target path weakens the effectiveness of the history dependent framework to stabilize the economy through expectations. The endogenous nature of credibility brings novel results relative to models where the timing of target resets is exogenous. First, the central bank needs a high degree of policy credibility to realize the stabilization benefits associated with committing to a price-level target. In our benchmark calibration, the price-level target must be expected to last for 10 years to bridge three quarters of the welfare gap between discretion and full commitment. Second, there is a possibility of multiple equilibria. Indeed, it is possible to have a high credibility equilibrium where the probability of resetting the target is small. But it is also possible to have a low credibility equilibrium where the target is reset much more frequently leading inflation and output to be permanently more volatile.
    Keywords: monetary policy commitment; price-level targeting; nominal-income targeting; multiple equilibria; policy credibility
    JEL: E31 E52
    Date: 2016–06–08
  13. By: Ftiti, Zied; Guesmi, Khaled; Nguyen, Duc Khuong; Teulon, Frédéric
    Abstract: This article examines the dynamic characteristics of the inflation rate in Tunisia over the last two decades, and particularly following the onset of the Arab Spring in 2010 which causes distortions in this country’s monetary policy. We focus on the two specific dimensions of the Tunisian inflation rate: inflation regimes and persistence. We tackle this issue by adopting an evolutionary spectral approach, initially proposed by Priestley and Tong (1973). Our main findings indicate a stable inflation regime in the last 10 years, with an average inflation rate of around 5.5%. It is also found that the Tunisian inflation experienced a high degree of inertia which reflects its gradual responses to shocks. We also discuss the policy implications of these results, which typically require policy-makers to implement sound institutional reforms to reduce inflation.
    Keywords: Inflation, Structural break, Spectral analysis, Inflation persistence
    JEL: C1 C14 C5 C51 E3 E31 E6 E60
    Date: 2014–11–30
  14. By: Guglielmo Maria Caporale; Abdurrahman Nazif Catik; Mohamad Husam Helmi; Faek Menla Ali; Coskun Akdeniz
    Abstract: This paper examines the Taylor rule in five emerging economies, namely Indonesia, Israel, South Korea, Thailand, and Turkey. In particular, it investigates whether monetary policy in these countries can be more accurately described by (i) an augmented rule including the exchange rate, as well as (ii) a nonlinear threshold specification (estimated using GMM), instead of a baseline linear rule. The results suggest that the reaction of monetary authorities to deviations from target of either the inflation or the output gap varies in terms of magnitude and/or statistical significance across the high and low inflation regimes in all countries. In particular, the exchange rate has an impact in the former but not in the latter regime. Overall, an augmented nonlinear Taylor rule appears to capture more accurately the behaviour of monetary authorities in these countries.
    Keywords: Taylor rule, nonlinearities, emerging countries
    JEL: C13 C51 C52 E52 E58
    Date: 2016
  15. By: Nadav Ben Zeev (Ben-Gurion University of the Negev); Hashmat U. Khan (Department of Economics, Carleton University)
    Abstract: When both IST news and TFP news shocks compete, the former substantially dominate the latter in driving post-WWII US business cycles. We use the most recent 2016 vintage of Fernald (2014)'s utilization-adjusted TFP data since it is somewhat favourable to TFP news shocks identification (Sims (2016)). At a 20 quarter horizon, IST news shocks account for nearly 70 percent of the forecast error variance in output, 65 percent in hours, and 50 percent in investment. By contrast, TFP news shocks account for less than 5 percent of the variation in output, consumption, and hours, and about 20 percent in investment. TFP news shocks also fail to generate comovement with respect to consumption and hours, both of which decrease after a positive TFP news shock. These sharp findings have important implications for future research on news-driven business cycles. In particular, for shifting focus from TFP news to IST news, and in reconciling the empirical evidence with structural explanations.
    Keywords: Investment-specific news, TFP news, Shocks, News-driven business cycles
    JEL: E32
    Date: 2016–06
  16. By: Gilles Le Garrec (OFCE); Vincent Touze (OFCE)
    Abstract: We characterize the dynamics of secular stagnation as a permanent regime switching from a full employment equilibrium to an underemployment equilibrium. In the latter, the natural interest rate is negative, and the economy is in deáation. Due to the non negativity condition imposed on policy rate, the zero lower bond (ZLB) applies which prevents targeting ináation. The secular stagnation equilibrium is achieved in a standard overlapping generations model with capital accumulation where two market imperfections are introduced: credit rationing and downward nominal wage rigidity. To Ögure out how to escape the secular stagnation trap, we study the impact of various macroeconomic policies. Raising the ináation target is only e§ective if the central bank has enough credibility. By supporting aggregate demand, Öscal policy can help the economy get out of the secular stagnation trap. However, this policy reduces the incentive to accumulate capital: there is a trade-o§ between exiting secular stagnation and depressing potential GDP. Dynamic multi- pliers are upper than one unless the Öscal stimilus is too strong. We also shed light on an asymmetry in the dynamics: recovery takes longer than falling into recession.
    Keywords: Secular stagnation; Capital accumulation; Zero lower Bound
    JEL: D91 E31 E52
    Date: 2016–06
  17. By: Alisdair McKay; Ricardo Reis
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as inefficient business cycles driven by aggregate shocks through matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity and progressivity depend on a macroeconomic stabilization term. Using a series of analytical examples, we show that this term typically pushes for an increase in generosity and progressivity as long as slack is more responsive to social programs in recessions. A calibration to the U.S. economy shows that taking concerns for macroeconomic stabilization into account raises the optimal unemployment benefits replacement rate by 13 percentage points but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programs as automatic stabilizers affects their optimal design.
    JEL: E62 H21 H30
    Date: 2016–06
  18. By: Marzinotto, Benedicta (University of Udine); Turrini, Alessandro (European Commission)
    Abstract: This paper assesses the relationship between government and manufacturing wages. We find that the long-run relation between the two wages is stronger when the government is a large employer. Manufacturing wages are better aligned with productivity and unemployment when public wages, to which they respond, are set through bargaining. Finally, manufacturing wages react in the same way whether public wages are increased or cut, a relation that seems to hold also under fiscal consolidation provided the public sector is a large employer.
    Keywords: government wages, wage-setting, cost competitiveness, fiscal consolidation, cointegration
    JEL: C32 E24 E62 H59
    Date: 2016–05
  19. By: Raju Huidrom; M. Ayhan Kose; Jamus J. Lim; Franziska L. Ohnsorge
    Abstract: This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large dataset of advanced and developing economies. Our methodology permits us to trace the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. We report three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long run multiplier can be as large as unity when fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors'increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and, a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments.
    Keywords: Fiscal multipliers, fiscal position, state-dependency, Ricardian channel, interest rate channel, business cycle
    JEL: E62 H50 H60
    Date: 2016–06
  20. By: Geiger, Felix; Muellbauer, John; Rupprecht, Manuel
    Abstract: House price booms in Anglo-Saxon economies and their collapse were an important part of the financial accelerator via consumption, construction and the banking system. This paper examines links for Germany between household portfolios, income and consumption in a six-equation system, for 1980-2012 data, for consumption, house prices, consumer credit, housing loans, liquid assets and permanent income with latent variables representing the shifts in the availability of the two types of credit. We find evidence of well specified consumption and house price functions and that Germany differs greatly from the Anglo-Saxon economies: rising house prices do not translate into higher consumer spending. This suggests that the transmission of monetary policy via asset prices, in particular house prices, on consumption is likely to be less effective, and any financial accelerator weaker, in Germany than in the US or the UK. There is little evidence of overvaluation of German house prices by 2012. JEL Classification: E21, E27, E44, E51, E58
    Keywords: consumption, credit conditions, credit market liberalization, household debt, housing collateral, monetary transmission
    Date: 2016–05
  21. By: Tommaso Ferraresi (Università degli Studi di Firenze [Firenze]); Andrea Roventini (Laboratory of Economics and Management (Pisa) (LEM)); Willi Semmler (New School for Social Research)
    Abstract: In this work we investigate the interrelations among technology, output and employment in the different states of the U.S. economy (recessions vs. expansions). More precisely, we estimate different threshold vector autoregression (TVAR) models with TFP, hours, and GDP, employing the latter as threshold variable, and we assess the ensuing generalized impulse responses of GDP and hours as to TFP shocks. We find that positive productivity shocks, while spurring GDP growth, display a negative effect on hours worked at least on impact, independently of the state of the economy. In the 1957-2011 period, the effects of productivity shocks on employment are abundantly negative in downturns, but they are not significantly different from zero in good times. However, the impact of TFP shocks in different business cycle regimes depends on the chosen sample: after the mid eighties (1984-2011), productivity shocks increase hours during recessions. Finally, we express and test some conjectures that might have caused the changes in the responses in different time periods.
    Keywords: Technology shocks; Employment; Threshold vector autoregression; Generalized impulse response functions
    JEL: E32 O33 C32 E63
    Date: 2016–06
  22. By: Stephen S. Poloz
    Abstract: Financial stability risks have become topical in the wake of the global financial crisis and the subsequent extended period of very low interest rates. This paper investigates the significance of the mix of monetary and fiscal policies for financial stability through counterfactual simulations of three key historical episodes, using the Bank’s main policy model, ToTEM (Terms-of-Trade Economic Model). The paper finds that there is an intimate relationship between the monetary/fiscal policy mix and the dynamics of both private sector and public sector debt accumulation. No attempt is made to develop criteria for policy mix optimization, since it is clear from the model simulations that the appropriate policy mix is highly state-dependent. This finding points to the need for a coherent framework for weighing the relative financial and macroeconomic consequences of accumulating public sector versus private sector debt. Furthermore, the analysis suggests that there are potential benefits to ex ante monetary/fiscal policy coordination, and that Canada’s policy framework—where the monetary and fiscal authorities jointly agree on an inflation target while enshrining central bank operational independence—represents an elegant coordinating mechanism.
    Keywords: Economic models, Financial stability, Fiscal Policy, Monetary policy framework
    JEL: E37 E5 E63
    Date: 2016
  23. By: Gilberto Tadeu Lima (Department of Economics, University of São Paulo); Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: A central element in the canonical Kaleckian growth model is the demand-led output-adjustment stability condition known as the Keynesian stability condition. This condition requires that, all else constant, saving be more responsive to changes in capital capacity utilization than investment. This paper further explores the plausibility of the Keynesian stability condition by enriching the Kaleckian growth model with a more fully developed Keynesian theory of expectations formation. As a result, the responsiveness of investment to changes in capacity utilization is reduced, and through mechanisms that have clear and plausible behavioural underpinnings. It therefore becomes more likely (in principle) that the Keynesian stability condition will hold in practice. The paper also explores the consequences of such re-specification of investment behaviour for certain comparative static results associated with the canonical Kaleckian growth model.
    Keywords: Keynesian stability condition, expectations, Kaleckian growth model
    JEL: B50 E12 E22
    Date: 2016–04
  24. By: Gabriele Tondl (Department of Economics, Vienna University of Economics and Business)
    Abstract: The sluggish development of corporate lending has remained the central concern of EU monetary policy makers as it is considered to hinder seriously the resurgence of growth. This paper looks at the development of loans to large corporations vs SMEs in the pre-crisis and post-crisis period and wishes to answer: (i) to which extent do allocated loan volumes actually contribute to output growth? (ii) which factors determine the development of loans, considering above all loan interest rates? and (iii) what causes differences in loan interest levels across the EA? The results indicate that different loan developments in the EA explain very well differences in output development, loans to SMEs contribute even more to output growth than those for large corporations. Loan development itself is negatively influenced by the interest level which differs significantly across EA members, with small loans in addition always being charged an interest premium over large loans. The capitalization of banks, the size of banks and their internationalization play a role as well. A part of the sluggish growth of loans can be explained by the increasing use of alternative financial instruments by large firms. Interest rates in turn are following the ECB interest rate, - but this link has become looser in the post-crisis period, and long term government bond rates. Different risks faced by banks and different bank structures have become important explanatories of interest rates in the post-crisis period.
    Keywords: Corporate lending, Credit market fragmentation, Interest pass-through, Bank lending rates, Finance and growth, Euro Area
    JEL: E40 E43 E44
    Date: 2016–06
  25. By: Elizaveta Lukmanova (Department of Economics, Vienna University of Economics and Business); Gabriele Tondl (Department of Economics, Vienna University of Economics and Business)
    Abstract: This paper investigates a new category of influential factors on business cycle synchronization (BCS), so far hardly regarded in the BCS literature: It provides an empirical assessment of the impact of macroeconomic imbalances, as monitored by the European Commission by the scoreboard indicators since 2011, on BCS in the Euozone. We use a quarterly data set covering the period 2002-2012 and estimate the direct and indirect effects of macroeconomic imbalances in the pre- and post-crisis period in a simultaneous equations model. Business cycle correlation between EA members is measured by the recently proposed dynamic conditional correlation of Engle 2002 which can better identify synchronous and asynchronous behaviour of BC than the commonly used measures. We find that appearing differences between EA members in the current account, in government deficit and public debt, in private debt and unit labor cost developments have reduced BCS in the EA, even more in the post-crisis period than before. Moreover, these explanatory factors of BCS, generally reinforce each other and are also influenced by other critical macro imbalances. Since BCS is essential in a monetary union, this paper provides clear support that a stronger, common economic governance would be important for the functioning and survival of the Eurozone.
    Keywords: Business cycle synchronization, Macroeconomic imbalances, Monetary union, Euro Area, Simultaneous equations model, Panel data
    JEL: E32 E60 E61 F45 C33
    Date: 2016–06
  26. By: Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weigand, Roland (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This study investigates impacts of migration on the German economy, explicitly distinguishing refugee and non-refugee immigration. We propose a macroeconometric modelling approach complemented by instrumental variable techniques. We find that non-refugee immigration has more beneficial medium-run effects on GDP and the labour market." (Author's abstract, IAB-Doku) ((en))
    Keywords: Einwanderung, Asylbewerber, Arbeitslosenquote, Bruttoinlandsprodukt, Lohn, Flüchtlinge
    JEL: F22 E24 C32 C36
    Date: 2016–05–31
  27. By: Sebastian Gechert; Christoph Paetz; Paloma Villanueva
    Abstract: Using the bottom-up approach of Romer and Romer (2010), we construct a rich narrative dataset of net-revenue fiscal shocks for Germany by reconstructing and extending the tax shock series of Hayo and Uhl (2014) and coding a shock series for social security contributions, benefits and transfers. Based on quarterly data for 1974q1 to 2013q4 we estimate the multiplier effects of shocks to net-revenues, taxes, social security contributions and benefits in a proxy SVAR framework (Mertens and Ravn 2013) and compare them with estimates of the top-down identification inspired by Blanchard and Perotti (2002). We find multiplier effects of net-revenue components for Germany between 0 and 1 for both the top-down and bottom-up approaches. These estimates are on the lower end of the scale given in the literature and we discuss the differences.
    Keywords: Narrative Record Identification, Action-Based Approach, Fiscal Multipliers, Revenue Elasticities
    JEL: E62 H20 H30
    Date: 2016
  28. By: MA, Ye; JONG, Herman de
    Abstract: This paper reconstructs China's economic development between 1840 and 1912 with an estimation of Gross Domestic Product (GDP). It provides for the first time a time series of GDP (per capita) for the late Qing Dynasty (1644-1911), based on sectoral output and value added, in current as well as in constant prices. The present estimation of per capita GDP in the late Qing period comes out higher than previous estimations, but it still suggests low average levels of Chinese living standards. The economy during the late Qing Empire was characterised by a large and growing agricultural sector and displayed only minor structural changes. Only in the beginning of the twentieth century did the economy start to show signs of growth.
    Keywords: China, GDP, 19th century, living standards
    JEL: E01 N15 O11
    Date: 2016–05
  29. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary The Western Balkans are a region with a substantial economic catch-up potential. Compared to other European economies these countries are either poor or very poor. Structural underdevelopment and low competitiveness impede the catch-up process. Mass unemployment and a huge trade deficit indicate heavy internal and external imbalances. Short-run policy measures should focus on fiscal devaluation and NPL resolution to foster cost competitiveness and private investment. A ‘Big Push’ in infrastructure investment is imperative for long-term prosperity. An investment volume of EUR 7.7 billion as envisaged in the ‘Berlin Process’ has the potential for an additional GNP growth impulse of about 1% p.a. and a positive employment effect of up to 200,000 people in the region.
    Keywords: macroeconomic policy, investment, infrastructure, fiscal devaluation, competitiveness, Western Balkans, Berlin Process
    JEL: E27 E60 F21 H54 O24
    Date: 2016–06
  30. By: Ragna Alstadheim (Norges Bank (Central Bank of Norway)); Øistein Røisland (Norges Bank (Central Bank of Norway))
    Abstract: Monetary policy makers often seem to have preferences for a stable interest rate, in addition to stable in?ation and output. In this paper we investigate the implications of having an interest rate level term in the loss function when the policymaker lacks commitment technology. We show that preferences for interest rate stability may lead to equilibrium indeterminacy. But even when determinacy is achieved, such preferences can become self-defeating, in the meaning of generating a less stable interest rate than in the case without preferences for interest rate stability. Aiming to stabilize the real interest rate instead of the nominal rate is more robust, as it always gives determinacy and also tends to give a more stable nominal interest rate than when the policymaker aims to stabilize the nominal rate.
    Keywords: Monetary policy, Discretion, Interest rate stability
    JEL: E52 E58
    Date: 2016–05–25
  31. By: Jeffrey A. Frankel; Jesse Schreger
    Abstract: Government forecasts of GDP growth and budget balances are generally more over-optimistic than private sector forecasts. When official forecasts are especially optimistic relative to private forecasts ex ante, they are more likely also to be over-optimistic relative to realizations ex post. For example, euro area governments during the period 1999-2007 assiduously and inaccurately avoided forecasting deficit levels that would exceed the 3% Stability and Growth Pact threshold; meanwhile private sector forecasters were not subject to this crude bias. As a result, using private sector forecasts as an input into the government budgeting-making process would probably reduce official forecast errors for budget deficits.
    JEL: E62 H68
    Date: 2016–06
  32. By: Caldara, Dario; Herbst, Edward
    Abstract: This paper studies the interaction between monetary policy, financial markets, and the real economy. We develop a Bayesian framework to estimate proxy structural vector autoregressions (SVARs) in which monetary policy shocks are identified by exploiting the information contained in high frequency data. For the Great Moderation period, we find that monetary policy shocks are key drivers of fluctuations in industrial output and corporate credit spreads, explaining about 20 percent of the volatility of these variables. Central to this result is a systematic component of monetary policy characterized by a direct and economically significant reaction to changes in credit spreads. We show that the failure to account for this endogenous reaction induces an attenuation bias in the response of all variables to monetary shocks.
    Keywords: Bayesian Inference ; Monetary policy ; Vector Autoregressions
    JEL: E52 C3 C5
    Date: 2016–05
  33. By: Marta Arespa (Universitat de Barcelona); Diego Gruber (Kernel Analytics)
    Abstract: Existent literature is by no means conclusive on the effects of trade finance on trade and the economy. We propose a suitable framework to explore the linkages between international trade and finance based on an international real business cycle model where firms require external finance to import and can be financially constrained. We find that credit shocks do affect the dynamic properties of the economy and they have the potential to cause significant deviations in trade and economic performance. The trade-to-GDP ratio falls following a negative credit shock, as the shock reduces the capability of firms to purchase foreign intermediate goods, thereby reducing efficiency and production. However, it forces a demand substitution towards domestic intermediate goods that limits GDP deterioration. We also find that financially developed countries trade more, are richer and more stable in terms of GDP and consumption, consistent with the empirical evidence. Finally, the model sheds light on persistent contradictions between theoretical business-cycle and their empirical counterparts, namely, the consumption/output anomaly and the volatility of consumption, imports and terms of trade relative to GDP.
    Keywords: Trade finance, credit constraint, great trade collapse, RBC
    JEL: E3 F1 F4 G1
    Date: 2016
  34. By: Raoufina, Karine (National Institute of Economic Research)
    Abstract: In this paper, Bayesian VAR models are used to forecast employment growth in Sweden. Using quarterly data from 1996 to 2015, we conduct an out-of-sample forecast exercise. Results indicate that the forecasting performance at short horizons can be improved when survey data is included, such as employment expectations in the business sector and forward-looking variables from the trade sector.
    Keywords: Bayesian VAR model; employment forecasting
    JEL: C11 E24
    Date: 2016–06–08
  35. By: Nuguer Victoria; Cuadra Gabriel
    Abstract: We develop a two-country DSGE model with global banks to analyze the role of cross-border banking flows on the transmission of a quality of capital shock in the United States to emerging market economies (EMEs). Banks face a moral hazard problem for borrowing from households. EME's banks might be risky: they can also be constrained to borrow from U.S. banks. A negative quality of capital shock in the United States generates a global financial crisis. EME's macroprudential policy that targets non-core liabilities makes the domestic economy resilient to the volatility of cross-border banking flows and makes EME's households better-off.
    Keywords: Global banking; emerging market economies; financial frictions; macroprudential policy.
    JEL: G28 E44 F42 G21
    Date: 2016–06
  36. By: Klüh, Ulrich
    Abstract: Two opposing positions are frequently evoked to describe the relationship between macroeconomics and social policy. On the one hand, social policy is seen as a kind of service station. Macroeconomic programs and results are determined first, social policy deals with the consequences. On the other hand, there is a holistic approach of Keynesian provenience that situates macroeconomics in the broader research agenda for social policy. At the same time, points of contact between macroeconomics and social policy are rare. Sometimes there even seems to be a dichotomous relationship. How can we then describe the role of social policy in a macroeconomic context, and the role of macroeconomics in a social policy context? The article reviews pertinent links between the two fields and proposes a heuristic for re-engaging the macro and social dimension of policy.
    Keywords: Macroeconomics, Social Policy, Macro-regimes, Keynesianism
    JEL: A1 B0 B5 E0 E6 H0 I3 N0
    Date: 2016
  37. By: Gunakar Bhatta, Ph.D. (Nepal Rastra Bank)
    Abstract: Bank equity plays an important role in the credit allocation process of financial intermediaries. Financial institutions with higher level of equity are in better position to absorb losses and repay deposits in a timely manner. This relates to the bank capital channel of monetary policy transmission mechanism stating that banks having sound financial health could contribute significantly in transmitting monetary impulses to the real sector. Considering the important role that bank equity plays in shaping the risk taking behavior of financial intermediaries, central banks set the minimum paid-up capital requirement for banks and financial institutions. Though this regulatory requirement is aimed at ensuring the smooth financial intermediation, this could become costlier in extending loans particularly in the times of business cycle fluctuations. A higher capital requirement might also constrain the lending capacity of a bank. Given the conflicting theoretical assumptions on the role of equity capital on financial stability and economic growth, this paper develops a theoretical model examining the relationship between bank equity and its effect on bank-borrower behavior. The theoretical model recommends that higher level of bank equity might be helpful in ensuring financial stability by altering the behavior of the bank and borrower.
    Keywords: Bank, Credit, Capital, Regulation, Stability
    JEL: E51 G00 G21 G32 G38
    Date: 2015–09
  38. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This study presents an endogenous growth, overlapping-generations model fea- turing probabilistic voting over public pensions. The analysis shows that (i) the pension-GDP ratio increases as life expectancy increases in the presence of an an- nuity market, while it may show a hump-shaped pattern in its absence; (ii) the growth rate is higher in the presence of the annuity market than its absence, but the presence implies an intergenerational trade-off in terms of utility.
    Keywords: Economic Growth; Population Aging; Probabilistic Voting; Public Pension; Annuity Market
    JEL: D70 E24 H55
    Date: 2014–04
  39. By: C. Thubin; T. Ferrière; E. Monnet; M. Marx; V. Oung
    Abstract: Although a forecasting model has very good statistical properties and the mean of the residuals equals zero, it can produce systematic errors during a short period. In the case of regular publications, forecasters want to prevent such a persistence of errors over several periods. For this reason, a safeguard model can be used to inform the forecaster when there is a risk that the standard model (i.e. the best specified model on average) leads to persistent errors over several months or quarters. This paper explains why and how such a safeguard model has been built in order to improve the forecasts of French GDP at the current quarter horizon (nowcasts), which are officially published by the French central bank. The official benchmark model for GDP nowcasts is an aggregated model that relies exclusively on survey in the manufacturing industry. In the long run, this model still has the best performances. On the contrary, the safeguard model is a disaggregated model which features equations for the valued added of 6 sectors. From this example, we provide general remarks on the advantages of disaggregation as well as how such safeguard models can be used in practice.
    Keywords: GDP nowcasting; Aggregation; Mixed-frequency data.
    JEL: C52 C53 E37
    Date: 2016
  40. By: Faia, Ester
    Abstract: Data show that sovereign risk reduces liquidity, increases funding cost and risk of banks highly exposed to it. A feedback loop exists between sovereign and bank risk. I build a model that rationalizes those links. Banks act as delegated monitors and invest in risky projects and in risky sovereign bonds. As investors hear rumors of increased sovereign risk, they run the bank (via global games). Banks could rollover liquidity in repo market using government bonds as collateral, but as sovereign risk raises collateral values shrink. Overall banks' liquidity falls (its cost increases) and so does banks' credit. In this context noisy news (announcements with signal extraction) of consolidation policy are recessionary in the short run, as they contribute to investors and banks pessimism, and mildly expansionary in the medium run. The banks liquidity channel plays a major role in the fiscal transmission.
    Keywords: banks' funding costs; feedback loops; liquidity risk; repo freezes.; sovereign risk
    JEL: E5 E6 G3
    Date: 2016–06
  41. By: Samuel Danthine (CREST-ENSAI,); Michel De Vroey (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Peter Diamond, Monika Merz, and David Andolfatto must all three be credited for having integrated a search perspective in macroeconomic theory. In a previous paper, “The Integration of Search in Macroeconomics: Two Alternative Paths”, we set ourselves the task of analyzing and comparing their respective contributions. To support our study, we conducted interviews with them. The present paper is an edited transcript of these three interviews.
    Keywords: Search and matching models, Diamond, Lucas, Andolfatto, Merz, Real Business Cycle models, Matching function, Unemployment
    JEL: B21 B40 D83 E24 J64
    Date: 2016–05–31
  42. By: Esteban Ezequiel Maito
    Abstract: El presente trabajo analiza la acumulación de capital en Argentina durante el último siglo. A lo largo del mismo se observa un sostenido descenso de la tasa de ganancia, explicado principalmente por el crecimiento de la composición del capital y la tendencia a la sobreacumulación relativa de capital. Se presenta, tanto para la tasa de ganancia como para la composición de valor del capital, un análisis de la evolución de sus principales componentes. En el marco de una tendencia a la sobreacumulación de capital fijo respecto al valor agregado, la participación de las ganancias en el producto muestra una tendencia descendente debido al incremento tendencial del consumo de capital fijo y los impuestos netos y, hasta la última dictadura, de la participación asalariada.
    Keywords: Argentina; Acumulación de capital; Distribución funcional; Tasa de ganancia; Composición del capital
    JEL: E01 E22 P10
    Date: 2015–12–30
  43. By: Covi, Giovanni; Eydam, Ulrich
    Abstract: In this paper we examine the relationship between the default risk of banks and sovereigns, i.e. the 'doom-loop'. Specifically we try to assess the effectiveness of the implementation of the new recovery and resolution framework. We use a panel with daily data on European banks and sovereigns ranging from 2008 to 2016. We find that there was a pronounced feedback loop between banks and sovereigns from 2008 to 2014. However, this feedback loop seems to have disappeared after the implementation of the new regulatory framework. This finding is robust across several specifications.
    Keywords: Financial Stability,Sovereign Bailout,Doom Loop,Bank Recovery and Resolution Directive,European Banking Union
    JEL: E58 G01 G18 L51
    Date: 2016
  44. By: Fornaro, Paolo; Luomaranta, Henri
    Abstract: We contribute to the large literature on the relation between firm size and job creation by examining the effects of dependences between enterprises. Using Finnish monthly data encompassing the population of Finnish private businesses, we calculate gross job creation and destruction, together with net job creation, for different size classes and industries. Importantly, we divide firms into a dependent (i.e. owned, at least partially, by a large company) and independent category. The analysis is based on both a dataset including entry and exit and a sample considering only continuous companies, to control for the effects of firm's age. Due to the quality of the data, we are able to isolate the 'organic' growth of firms, disregarding the effects of mergers and split-offs together with other legal restructurings. We find that independent companies have shown considerably higher net job creation, even after taking age into account. However, dependent firms do not show particularly different behavior with respect to the sensitivity to aggregate conditions, compared to their independent counterparts.
    Keywords: Dependencies, Job Creation, Firm-level Data, Large datasets, Employment statistics
    JEL: E24 E32 J63 L25 L26
    Date: 2016–05–01
  45. By: Rodrigo Lluberas (Banco Central del Uruguay); Juan Odriozola (Banco Central del Uruguay)
    Abstract: The aim of this study is to analyze the effect of inflation and currency depreciation on wealth distribution in Uruguay. Previous empirical work either completely disregard assets denominated in foreign currency or do not consider the effect of changes in the nominal exchange rate on wealth redistribution. We take a different approach and study not only the effect of unexpected inflation but also of exchange rate movements in nominal wealth redistribution within the household sector. This is of particular importance in Uruguay due to the historical relevance of US dollar denominated assets and liabilities. Based on the recent history, we study three alternative scenarios. A 2002-crisis type scenario with a rate of currency depreciation higher than inflation, an early 2008-crisis type scenario with an appreciation of the peso and low inflation and a 2013-type scenario in which depreciation and inflation are roughly the same. A large proportion of household assets are real and most Uruguayan households do not own financial assets or debts. This results in small movements in households nominal positions after unexpected inflation or currency depreciation, particularly compared to similar studies for developed countries. Our results suggest that a crisis like the one experienced in 2002 with an annual inflation of 26% and a 93.5% devaluation of the currency results in an small increase in wealth inequality.
    Keywords: inflation, nominal wealth, redistribution, households
    JEL: D14 D31 E31
    Date: 2015
  46. By: Silke Tober
    Abstract: The ECB's expansionary monetary policy has positive effects on the euro area economy. Interest rates have declined further, bank lending is improving, and the euro is weaker. However, inflation remains much too low and aggregate demand too weak for the output gap to close rapidly. Further weakening the euro is not a feasible option. A weaker euro would aggravate global imbalances and impact negatively on less-than-robust global growth. Expansionary fiscal policy therefore needs to add to the effects of monetary policy.The euro area, moreover, suffers a key problem that not only impedes monetary policy effectiveness but also constrains fiscal policy and puts the future stability of the euro area at risk: With the decision to give up on the safe-asset quality of euro area sovereign bonds the euro area is losing a fundamental stability anchor.
    Date: 2016
  47. By: Frank Milne (Queen's University)
    Abstract: This paper is aimed at providing advice to young Australian Politicians and Policy Analysts. The paper explains common dangers in policy formulation and implementation. It also explains the usual political pressures that distort policy formulation and common sources of policy failures.
    Keywords: Economic Policy formulation and implementation, Australia
    JEL: E60 E65
    Date: 2016–06
  48. By: Caiani, Alessandro; Russo, Alberto; Gallegati, Mauro
    Abstract: The paper builds upon the Agent Based-Stock Flow Consistent model presented in Caiani et al. (2015) to analyze the relationship between income and wealth inequality and economic development. For this sake, the original model has been amended under three main dimensions: first, the households sector has been subdivided into workmen, office workers, researchers, and executives which compete on segmented labor markets. Conversely, firms are now characterized by a hierarchical organization structure which determines, according to firms’ output levels, their demand for each type of workers. Second, in order to account for the impact of income and wealth distribution on consumption patterns, different households classes - also representing different income groups - have diversified average propensities to consume and save. Finally, the model now embeds technological change in an evolutionary flavor, affecting labor productivity evolution in the consumption sector through product innovation in the capital sector, where firms invest in R&D and produce differentiated vintages of machineries. The model is then calibrated using realistic values for both income and wealth distribution across different income groups, and their average propensities to consume. Results of the simulation experiments suggest that more progressive tax schemes and labor market policies aiming to increase low and middle workers’ coordination, and to support their wage levels, concur to foster economic development and to reduce inequality, though the latter seem to be more effective under both respects. The model thus provides some evidence in favor of a wage-led growth regime, where improvements of middle-low levels workers’ conditions create positive systemic effects, which eventually trickle up also to high income-profit earners households.
    Keywords: Innovation, Inequality, Agent Based Macroeconomics, Stock Flow Consistent Models.
    JEL: C63 D31 D33 E32 O33
    Date: 2016–06
  49. 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
  50. By: Jingting Fan; Sebnem Kalemli-Ozcan
    Abstract: One of the explanations for global imbalances is the self-financing behavior of credit-constrained firms in rapidly growing emerging markets. We use an extensive firm-level data set from several Asian countries during 2002–2011, and test the micro foundation of this theory by estimating the effect of an exogenous change in credit constraints, resulting from financial reforms, on firms’ saving behavior. As predicted, after financial reforms, firms who were credit-constrained previously decreased their savings more (or increased their savings less) relative to unconstrained firms. However, this firm-level effect did not lead to a decrease in aggregate corporate savings as conjectured by the theory. Our sector level regressions show that corporate savings increased after financial reforms, and more so for sectors more dependent on external finance. The current account surpluses also did not register a significant deterioration after financial reforms, consistent with our findings on sectoral and aggregate corporate savings
    JEL: E0 F0
    Date: 2016–06
  51. By: Kevin J, Fox. (School of Economics, UNSW Business School, UNSW); Iqbal A. Syed (School of Economics, UNSW Business School, UNSW)
    Abstract: Consumers are very responsive to sales, yet statistical agency practice typically under-weights sale prices in the Consumer Price Index (CPI). Evidence is lacking on the impact on the representativeness of prices included in the CPI and on estimates of inflation. We use high-frequency scanner data from US supermarkets to explore if there is any systematic directional impact. The key finding is that the exclusion of sales prices introduces a systematic effect. We also find that even when sales prices are included they are systematically under-weighted, but the under-weighting remains fairly stable over time so that inflation measurement is not significantly affected. In addition, we find evidence that the typical practice of using data from an incomplete period in constructing unit values can lead to an upward bias in the resulting price index.
    Keywords: cost-of-living, CPI, regular prices, retail sales, RYGEKS, RYCCD, scanner data
    JEL: C43 E31
    Date: 2016–05
  52. By: Jan Hajek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)
    Abstract: We use the behavioral equilibirum exchange rate (BEER) approach to examine the extent of real exchange rate misalignment in the euro area over the period 1980-2014. In a panel data setting, we find significant links between real exchange rates, relative productivity, trade balance and terms of trade. Unlike other papers related to the topic, we go further in the direction of linking the estimated misalignment to inflationary differentials. Our results indicate that a positive 1 percentage point inflationary differential between individual country and the euro area itself translates into 1.7 percentage point increase in overvaluation of the individual country’s real exchange rate. We also show the extent of overvaluation in peripheral countries of the euro area has been increasing since mid-2000s. At the end of observed period this trend partially stopped due to emergence of falling prices in these economies. We discuss implications of such reversal and conclude deflation in peripheral countries of t he euro area might be helpful when restoring its competitiveness.
    Keywords: real exchange rates, misalignment, euro area, panel data, inflationary differentials
    JEL: C21 E31 F31 F45
    Date: 2016–06
  53. By: Marco Di Maggio; Marcin Kacperczyk
    Abstract: We study the impact of the zero lower bound interest rate policy on the industrial organization of the U.S. money fund industry. We find that in response to policies that maintain low interest rates, money funds: change their product offerings by investing in riskier asset classes; are more likely to exit the market; and reduce the fees they charge their investors. The consequence of fund closures resulting from interest rate policy is the relocation of resources in affected fund families and in the asset management industry in general, as well as decline in capital of issuers borrowing from money funds.
    JEL: E52 G23 G28
    Date: 2016–06
  54. By: Hamidi Sahneh, Mehdi
    Abstract: Non-fundamentalness arises when observed variables do not contain enough information to recover structural shocks. This paper propose a new test to empirically detect non-fundamentalness, which is robust to the conditional heteroskedasticity of unknown form, does not need information outside of the specified model and could be accomplished with a standard F-test. A Monte Carlo study based on a DSGE model is conducted to examine the finite sample performance of the test. I apply the proposed test to the U.S. quarterly data to identify the dynamic effects of supply and demand disturbances on real GNP and unemployment.
    Keywords: Non-Fundamentalness; Invertibility; Vector Autoregressive.
    JEL: C32 C5 E3
    Date: 2016–06–01
  55. By: Fernando E. Alvarez; Francesco Lippi; Juan Passadore
    Abstract: Yes, but only for large monetary shocks. In particular, we show that in a broad class of models where shocks have continuous paths, the propagation of a monetary impulse is independent of the nature of the sticky price friction when shocks are small. The propagation of large shocks instead depends on the nature of the friction: the impulse response of inflation to monetary shocks is independent of the shock size in time-dependent models, while it is non-linear in state-dependent models. We use data on exchange rate devaluations and inflation for a panel of countries over 1974-2014 to test for the presence of state dependent decision rules. We present some evidence of a non-linear effect of exchange rate changes on prices in a sample of flexible-exchange rate countries with low inflation. We discuss the dimensions in which this finding is robust and the ones in which it is not.
    JEL: E50
    Date: 2016–06
  56. By: Ziaurrahman, Muhammad; Masih, Mansur
    Abstract: The question whether financial development leads to economic growth is the interest of many studies which have very crucial policy implications. However, there exist conflicting results as to which variable (financial development/economic growth) is causing whom. The purpose of this paper is to predict whether the financial sector development leads to economic growth. India has been taken as an investigation case because, to the best of our knowledge, India has never been the interest of this kind of study by applying time series techniques such as Autoregressive distributed lags (ARDL) and VECM methods for the period as recent as from 1960 up until 2013. This study found that there is a long run (co-integration) relationship between economic growth and financial sector development as experienced by India. The study observed causal relationship from financial sector development to economic boom i.e. financial market is found exogenous (leader) while economic growth is endogenous (follower). From the policy point of view, the study suggests that if government wants to enhance economic growth, it can do so by reformations in financial sector. Hence, India should consider financial sector as the policy variable (because of its exogenous nature) to bring reformations that will boost economic growth.
    Keywords: economic growth, financial market, ARDL, India
    JEL: C22 C58 E44
    Date: 2016–06–18
  57. By: Halim, Asyraf Abdul; Ariff, Muhammad; Masih, A. Mansur M.
    Abstract: The numerous financial crises in the 20th and 21st century demonstrate the role of excessive credit as the main instigator of financial crises. Could this excessive credit be natural byproducts of lingering economic ailments such as, income inequality, property bubbles and persistent current account imbalances? This study attempts to answer this question by applying the Least Squares Dummy Variable (LSDVC) and dynamic GMM estimations based on the data of ten countries from the year 2004 to 2012. Whilst past literature have investigated the effect of income inequality, dominant real estate sector and current account imbalances on excessive credit separately, this study extends the literature by examining the impact of all three variables on excessive credit aggregately. Our findings tend to indicate that there do exist a positive relationship between all three variables and excessive credit. However, we found that only income inequality and the real estate sector contribute significantly to excessive credit but current account imbalances only marginally do so. We also discovered that the contribution to excessive credit by the banking sector is just about twice the amount of all three variables combined. Our results serve as evidence for policymakers interested in reducing excessive credit by controlling all three variables as well as the banking sector.
    Keywords: Excessive Credit, Inequality, Real Estate, Current Account Imbalances, Credit-to- GDP Gap.
    JEL: C22 C58 E44 G15
    Date: 2016–06–17
  58. By: Kuek, Tai Hock
    Abstract: This paper reviews the literature on monetary neutrality in India from empirical perspectives. Based on monetary neutrality proposition, increment in money supply has no effect on real variables in the long-run. In another words, monetary injection into the economy by the government will not trigger or promote real economic growth as in real gross domestic product (GDP) in the long-run. With monetary neutrality proposition, effectiveness of the current monetary policies in an economy can be examined. For the case of India, mixed results have been obtained on the issue of monetary neutrality.
    Keywords: Monetary neutrality, literature review, India
    JEL: E4
    Date: 2016–06–13
  59. By: Francesco Saraceno (OFCE)
    Abstract: This paper assesses the performance of the European Central Bank (ECB) during the crisis that started in 2008. The ECB statute is consistent with a view of the economy that was predominant in the 1990s, a view that postulates a very limited role for discretional policies in managing the business cycle. The ECB had therefore to stretch its mandate on several occasions during the crisis to avoid severe outcomes. It was unable to avoid a slow but inexorable slide of the Eurozone towards deflation and a liquidity trap. To restore robust growth, fiscal policy should be used, and institutions should be redesigned away from the Washington Consensus framework that shaped the Maastricht Treaty. Better rules for fiscal governance and a widening of the ECB mandate are proposed.
    Keywords: Employment policy; Economic recession; Low income; Financial market
    Date: 2015

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