nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒07‒02
83 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Credit Channel of Monetary Policy Transmission in Russia By Leontieva, E.A.; Perevyshin, Y.N.
  2. Raising an Inflation Target : The Japanese Experience with Abenomics By De Michelis, Andrea; Iacoviello, Matteo
  3. Loan supply shocks in Macedonia: a Bayesian SVAR approach with sign restrictions By Rilind Kabashi; Katerina Suleva
  4. Macro, Money and Finance: A Continuous Time Approach By Brunnermeier, Markus K; Sannikov, Yuliy
  5. The Division of Temporary and Permanent Employment and Business Cycle Fluctuations By Chen, Kuan-Jen; Lai, Ching-Chong; Lai, Ting-Wei
  6. Uncertainty shocks and labor market dynamics in Japan By Hiroaki Miyamoto
  7. Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison By Anna Kormilitsina; Sarah Zubairy
  8. Parasal Aktarım Mekanizması: Firma Bilanço Kanalı ve Türkiye By KOC, Umit; SAHIN, Hasan
  9. Fiscal multipliers in Slovak economy DSGE simulation By Juraj Zeman
  10. Time-varying volatility, financial intermediation and monetary policy By Sandra Eickmeier; Norbert Metiu; Esteban Prieto
  11. Housing and Macroeconomics By Monika Piazzesi; Martin Schneider
  12. A note on imperfect credibility By Ippei Fujiwara; Timothy Kam; Takeki Sunakawa
  13. Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination By George-Marios Angeletos; Chen Lian
  14. Optimal Automatic Stabilizers By McKay, Alisdair; Reis, Ricardo
  15. Las tasas de variación como una aproximación a los ciclos. El precio de la vivienda en la Comunidad de Madrid (1960-2014) By Susana Cortés Rodríguez
  16. The Staying Power of Staggered Wage and Price Setting Models in Macroeconomics By John B. Taylor
  17. Household Borrowing Constraints and Residential Investment Dynamics By Hashmat U. Khan; Jean-François Rouillard
  18. Is the Macroeconomy Locally Unstable and Why Should We Care? By Beaudry, Paul; Galizia, Dana; Portier, Franck
  19. Improving Competitiveness in the Balkan Region – Opportunities and Limits By Hubert Gabrisch; Doris Hanzl-Weiss; Mario Holzner; Michael Landesmann; Johannes Pöschl; Hermine Vidovic
  20. Variance Decomposition of Prices in an Emerging Economy By Fernando Borraz; Joaquín Saldain
  21. Matching Workers By Espen R. Moen; Eran Yashiv
  22. The business cycle in the contemporary capitalist economy By Magdalena Drapala
  23. The European Central Bank's QE: A new hope By Garcia Pascual, Antonio; Wieladek, Tomasz
  24. The impact of unconventional monetary policy on the sovereign bank nexus within and across EU countries. A time-varying conditional correlation analysis By Giulio Cifarelli; Giovanna Paladino
  25. The Econometric Estimation of the Macroeconomic Effects of the Shock of Monetary Policy for the Russian Economy By Vashchelyuk, N.V.; Polbin, Andrey; Trunin, Pavel
  26. The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union : A DSGE Model for the Euro Area By Verstegen, Loes; Meijdam, Lex
  27. The early years of the primary dealer system By Garbade, Kenneth D.
  28. The real effects of universal banking on firms’ investment: Micro-evidence from 2004-2009 By F. Vinas
  29. Prévision de l’activité économique au Québec By Maxime Leroux; Rachidi Kotchoni; Dalibor Stevanovic
  30. Public debt and aggregate risk By Desbonnet, Audrey; Kankanamge, Sumudu
  31. Evaluating monetary policy options for managing resource revenue shocks when fiscal policy is laissez-faire : Application to Nigeria By Chuku Chuku
  32. Challenges of Fiscal Policy in Emerging and Developing Economies By Raju Huidrom; M. Ayhan Kose; Franziska L. Ohnsorge
  33. Challenges of fiscal policy in emerging and developing economies By Raju Huidrom; M. Ayhan Kose; Franziska L. Ohnsorge
  34. Minimum Wage, Economic Growth and Preference for Consumption By Minoru Watanabe
  35. Linking excessive disinflation and output movements in an emerging, small open economy A hybrid New Keynesian Phillips Curve perspective By Karol Szafranek
  36. Professor Schneider's Shadow Economy:What do we really know? A Rejoinder By Feige, Edgar L.
  37. The Transvaluation of the Theory of Economic Policy: The Lucas Critique Reconsidered By Katherine Moos
  38. What Price-Level Data Tells Us About Consumer Price Rigidity in Zimbabwe: Evidence From New Data By Mike Nyawo and Neil Rankin
  39. Does Partisan Conflict Deter FDI Inflows to the US? By Marina Azzimonti
  40. Output gaps and policy stabilisation in Latin America: the effect of commodity and capital flow cycles By Enrique Alberola-Ila; Rocío Gondo; Marco Jacopo Lombardi; Diego Urbina
  41. Finanzas, crisis y los límites de las reformas en Estados Unidos By Stanley Simon Malinowitz
  42. Terms of trade volatility, government spending cyclicality, and economic growth By Markus Brueckner; Francisco Carneiro
  43. Terms of Trade Volatility, Government Spending Cyclicality, and Economic Growth By Markus Brueckner; Francisco Carneiro
  44. Precautionary Saving Over the Business Cycle By Edouard Challe; Xavier Ragot
  45. Nonlinearities in sovereign risk pricing the role of cds index contracts By Anne Laure Delatte; Julien Fouquau; Richard Portes
  46. Risk-sharing deposits in islamic banks: do interest rates have any influence on them? By Tariq, Anam; Masih, Mansur
  47. Persistent vs. Permanent Income Shocks in the Buffer-Stock Model By Jeppe Druedahl; Thomas Høgholm Jørgensen
  48. Die relative Autonomie der Zentralbank: Eine politökonomische Analyse der türkischen Geldpolitik nach 2001 By Ulas Sener
  49. Decomposição de Inflação: revisão da metodologia e resultados para 2012 a 2014 By Rafael Tiecher Cusinato; Francisco Marcos Rodrigues Figueiredo; Vicente da Gama Machado; Euler Pereira Gonçalves de Mello; Leonardo Pio Perez
  50. Effects of Income Growth on Domestic Saving Rates: The Role of Poverty and Borrowing Constraints By Markus Brueckner; Tomoo Kikuchi; George Vachadze
  51. 通胀及通胀预期冲击的动态特征分析 By Xu, Kun; Cheng, Jian-hua; Xu, Wenli
  52. Macroeconomic Impact of International Reserves: Empirical Evidence from South Asia By Prakash Kumar Shrestha, Ph.D.
  53. Inflation Targets and the Zero Lower Bound In a Behavioral Macroeconomic Model By De Grauwe, Paul; Ji, Yuemei
  54. Heterogeneous Firms and International Trade: The role of productivity and financial fragility By Tiziana Assenza; Domenico Delli Gatti; Jakob Grazzini; Giorgio Ricchiuti
  55. Investments and uncertainty revisited: The case of the US economy By Degiannakis, Stavros; Filis, George; Palaiodimos, George
  56. Systemic Risk in Clearing Houses: Evidence from the European Repo Market By Thesmar, David; Ors, Evren; Derrien, Francois; Boissel, Charles
  57. Entrepreneurship and the Business Cycle: Stylized Facts from U.S. Venture Capital Activity By Hashmat U. Khan; Pythagoras Petratos
  58. Do fiscal multipliers depend on fiscal positions ? By Huidrom,Raju; Kose,Ayhan; Lim,Jamus Jerome; Ohnsorge,Franziska Lieselotte
  59. Generalized State-Dependent Models: A Multivariate Approach By S. Heravi; J. Easaw; R. Golinelli
  60. Practical Kolmogorov-Smirnov Testing by Minimum Distance Applied to Measure Top Income Shares in Korea By JIN SEO CHO; MYUNG-HO PARK
  61. Measures of the Contribution made by ICT to Innovation Output. An Update of the ICT Innovation Output Indicator By Annarosa Pesole
  62. Clearing and Settlement Systems from Around the World: A Qualitative Analysis By Michael Tompkins; Ariel Olivares
  63. Time-Varying Persistence of Inflation: Evidence from a Wavelet-Based Approach By Heni Boubaker; Giorgio Canarella; Rangan Gupta; Stephen M. Miller
  64. Macro and institutional determinants of domestic investment in Sub-Saharan African countries By Akanbi, Olusegun A
  65. The non-observed economy in Uruguay. A look at the first decade of the 21st century By Maira Caño-Guiral
  66. Inflation targeting and exchange rate volatility in emerging markets By Cabral,Rene; Carneiro,Francisco Galrao; Mollick,Andre Varella
  67. Environmental Policy and Endogenous Market Structure By Barbara Annicchiarico; Luca Correani; Fabio Di Dio
  68. Impulse Response Matching Estimators for DSGE Models By GUERRON-QUINTANA, Pablo; INOUE, Atsushi; KILIAN, Lutz
  69. The Indian banking system: A ticking time bomb By Pandey, Ashish
  70. On Prices' Cyclical Behaviour in Oligopolistic Markets By Luca Lambertini; Luigi Marattin
  71. Fiscal Policy in Multinational Model of Common Economic Equilibrium By Zubarev, Andrey; Nesterova, K.V.
  72. Leisure and Housing Consumption after Retirement: New Evidence on the Life-Cycle Hypothesis By Sven Schreiber; Miriam Beblo
  73. Complacency is Really Dangerous: Three Great Economic Crises By Frank Milne
  74. Approaches to Defining and Measuring Russia’S Internet Economy By Gulnara Abdrakhmanova; Galina Gennadievna Kovaleva; Sergey M. Plaksin
  75. Financing Durable Assets By Adriano A. Rampini
  76. Long-Term Prognosis of Basic Demographic and Macroeconomic Indicators in Russia By Kazakova, Maria; Trunin, Pavel
  77. Does Indonesian National Health Insurance serve a potential for improving health equity in favour of workers in informal economy? By Kartika, Dwintha Maya
  78. An Amplification Mechanism in a Model of Energy By Anna Kormilitsina
  79. Durable policy approaches: framework development and brief literature review By Nixon, Chris
  80. Demographic Transition and the Unobservable Scale Effects of Economic Growth By Kaixing Huang
  81. Zimbabwe to introduce Zimbabwe Bond Notes: reactions and perceptions of economic agents within the first seven days after the announcement By Makochekanwa, Albert
  82. The use of short-term indicators and survey data for predicting turning points in economic activity: A performance analysis of the OECD system of CLIs during the Great Recession By Roberto Astolfi; Michela Gamba; Emmanuelle Guidetti; Pierre-Alain Pionnier
  83. TARP and Market Discipline: Evidence on the Moral Hazard Effects of Bank Recapitalizations By Forssbaeck, Jens; Nielsen, Caren Yinxia

  1. By: Leontieva, E.A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy); Perevyshin, Y.N. (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This study investigates the transmission of monetary policy onto retail bank interest rates in Russia. The paper reviews theoretical approaches of interest rate pass-through, the reasons for its incompleteness. Our estimates, based on ECM, show incomplete interest rate pass-through from MIACR to retail deposit rates in Russia in 2010-2014. The possible reasons of incomplete interest rate pass-through are imperfect substitution between bank deposits and other types of savings and weak competition within the Russian banking sector. Also we analyze how monetary policy of The Central Bank of Russian Federation influences the bank lending in Russia in 2010-2014. We use two approaches: cointegration analysis of macroeconomic data and panel regression on individual banks balance data. We show that monetary policy instruments (interest rate on auction REPO and volumes of refinancing operations) have affected bank lending at that time.
    Keywords: monetary policy, market interest rates, commercial banks, banking loans, interest rate pass-through, credit channel
    JEL: E52 E51 E58 E43 C32 C33 G21
    Date: 2015–03–04
  2. By: De Michelis, Andrea; Iacoviello, Matteo
    Abstract: This paper draws from Japan’s recent monetary experiment to examine the effects of an increase in the inflation target during a liquidity trap. We review Japanese data and examine through a VAR model how macroeconomic variables respond to an identified inflation target shock. We apply these findings to calibrate the effect of a shock to the inflation target in a new-Keynesian DSGE model of the Japanese economy. We argue that imperfect observability of the inflation target and a separate exchange rate shock are needed to successfully account for the behavior of nominal and real variables in Japan since late 2012. Our analysis indicates that Japan has made some progress towards overcoming deflation, but further measures are needed to raise inflation to 2 percent in a stable manner.
    Keywords: Abenomics ; Credibility ; Deflation ; Inflation target ; Japan ; Monetary policy
    JEL: E31 E32 E47 E52 E58 F31 F41
    Date: 2016–05
  3. By: Rilind Kabashi (National Bank of the Republic of Macedonia); Katerina Suleva (National Bank of the Republic of Macedonia)
    Abstract: This paper analyses the effects of loan supply, as well as aggregate demand, aggregate supply and monetary policy shocks between 1998 and 2014 in Macedonia using a structural Vector Auto Regression with sign restrictions and Bayesian estimation. The main results indicate that loan supply shocks have no significant effect on loan volumes and lending rates, as well as on economic activity and prices. The effects of monetary policy on lending activity are fairly limited, although there is some evidence that it affects lending rates more than loan volumes. Monetary policy shocks have strong effects on inflation, while the central bank reacts strongly to adverse shocks hitting the economy. Baseline results are fairly robust to several extensions and robustness checks. According to historical decomposition, the lending activity was supporting economic growth before and during the crisis, but its contribution became negative during the recovery and it was a drag on growth until the end of the period. Pre-crisis GDP growth is mostly explained by the supportive interest rate of the main monetary policy instrument. However, the restrictive policy during the crisis for the purposes of maintaining monetary policy goals was associated with a fall in GDP, while the policy became supportive again during the early stages of the recovery. Policy rates in the recent years mostly reflect subdued lending activity and aggregate supply factors, which the central bank tries to counteract with a more accommodative policy.
    Keywords: loan supply, monetary policy, Bayesian VAR, sign restrictions, Macedonia
    JEL: C11 C32 E51 E52
    Date: 2016–05
  4. By: Brunnermeier, Markus K; Sannikov, Yuliy
    Abstract: This paper puts forward a 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.
    Keywords: (Inside) Money; Endogenous Risk Dynamics; Financial Frictions; Macroeconomic Modeling; Monetary Economics; Paradox of Prudence; Volatility Paradox
    JEL: C63 E32 E41 E44 E51 G01 G11 G20
    Date: 2016–06
  5. By: Chen, Kuan-Jen; Lai, Ching-Chong; Lai, Ting-Wei
    Abstract: This paper investigates the fluctuations in temporary relative to aggregate employment over the business cycle, as well as the underlying driving forces. We develop a dynamic general equilibrium model to investigate the following stylized facts: (i) temporary employment is more volatile than permanent employment, (ii) the share of temporary employment (the ratio of temporary to aggregate employment) exhibits strong pro-cyclicality, (iii) permanent employment lags by two quarters on average, and (iv) the correlation between temporary employment and output is stronger than that involving the permanent counterpart. The quantitative analysis suggests that the proposed channels explain the main facts very well and the model provides a possible prediction based on the counter-factual exercises.
    Keywords: Pro-cyclicality of Temporary Employment; Lagged Behavior of Permanent Employment; Labor Productivity; Business Cycles
    JEL: E24 E32
    Date: 2016–04–26
  6. By: Hiroaki Miyamoto (University of Tokyo)
    Abstract: This paper examines the effects of uncertainty shocks on Japan’s labor market. Using a measure of uncertainty from the stock market data and a structural VAR model, I find that an increase in uncertainty leads to a rise in unemployment and declines in output, vacancies, and inflation. I then develop a dynamic general equilibrium model with labor market frictions and examine the transmission mechanism of uncertainty shocks. In the model, uncertainty shocks are defined as unexpected increases in the volatility of technology shock. My model can replicate the observed pattern of labor market responses to uncertainty shocks. I also discuss how the job separation channel influences the macroeconomic effect of uncertainty shocks.
    Keywords: Uncertainty, Unemployment, Search and matching, Japanese economy
    JEL: E24 E32 J64
    Date: 2016–06
  7. By: Anna Kormilitsina (Southern Methodist University); Sarah Zubairy (Texas A&M University)
    Abstract: The inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures, observed in many empirical studies, has stimulated the development of alternative theories of government spending shocks. Using the Bayesian approach, we evaluate the quantitative performance of five extant models, and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model. Moreover, we find that consumption decreases in all estimated models in response to a rise in government spending.
    Keywords: government spending shock, Bayesian comparison, transmission mechanism, deep habits, rule of thumb consumers
    JEL: E32 C11 E62
    Date: 2016–01
  8. By: KOC, Umit; SAHIN, Hasan
    Abstract: According to the firm balance-sheet channel of monetary transmission mechanism, since external finance is costly than internal finance, financially constrained firms chose internal finance. Monetary and fiscal authorities should consider the existence of the firm balance-sheet channel, when they design policies if it operates. A rise in real interest rates causes a rise in firm’s debt, fall in net worth and as a result of these changes, a rise in the marginal cost of external financing occurs. Consequently firms’ ability for investing and job creation decreases. In an economy in which investment is positively related with cash flow, an increase in firm’s cash flow results with an inrease in firm’s investment. In this paper we examined the effect of real interest rate, real exchange rate, cash flow and sales on the investment behaviour of the firm. The panel data analysis, performed by using Central Bank of Turkey’s firm balance sheet database, shows that the firm balance-sheet channel operates in Turkey.
    Keywords: Monetary transmission mechanism, firm balance-sheet channel, panel data
    JEL: E22 E52
    Date: 2014–12
  9. By: Juraj Zeman (National Bank of Slovakia, Research Department)
    Abstract: In order to calculate fiscal multipliers for Slovakia, I used a small open DSGE model of Slovakia constructed by Zeman and Senaj (2009), augmented by more sophisticated fiscal sector that comprises of government expenditure components – consumption, investment and social transfers to liquidity constrained households as well as government revenue components – personal income tax, employer social contributions, VAT tax and lump-sum tax. The Slovak government has laid out a plan of public finance consolidation for the period from 2013 to 2017 in order to meet the Fiscal Compact criteria. According to fiscal multipliers calculated in this paper the consolidation will cause an aggregate loss of 2.5 % of GDP during this period.
    Keywords: Fiscal multipliers, expenditure and revenue components, DSGE simulations
    JEL: E32 E62 H20 H50
    Date: 2016–05
  10. By: Sandra Eickmeier; Norbert Metiu; Esteban Prieto
    Abstract: We document that expansionary monetary policy shocks are less effective at stimulating output and investment in periods of high volatility compared to periods of low volatility, using a regime-switching vector autoregression. Exogenous policy changes are identified by adapting an external instruments approach to the non-linear model. The lower effectiveness of monetary policy can be linked to weaker responses of credit costs, suggesting a financial accelerator mechanism that is weaker in high volatility periods. To rationalize our robust empirical results, we use a macroeconomic model in which financial intermediaries endogenously choose their capital structure. In the model, the leverage choice of banks depends on the volatility of aggregate shocks. In low volatility periods, financial intermediaries lever up, which makes their balance sheets more sensitive to aggregate shocks and the financial accelerator more effective. On the contrary, in high volatility periods banks decrease leverage, which renders the financial accelerator less effective; this in turn decreases the ability of monetary policy to improve funding conditions and credit supply, and thereby to stimulate the economy. Hence, we provide a novel explanation for the non-linear effects of monetary stimuli observed in the data, linking the effectiveness of monetary policy to the procyclicality of leverage.
    Keywords: Monetary policy, credit spread, non-linearity, intermediary leverage, financial accelerator
    JEL: C32 E44 E52
    Date: 2016–05
  11. By: Monika Piazzesi; Martin Schneider
    Abstract: This paper surveys the literature on housing in macroeconomics. We first collect facts on house prices and quantities in both the time series and the cross section of households and housing markets. We then present a theoretical model of frictional housing markets with heterogeneous agents that nests or provides background for many studies. Finally, we describe quantitative results obtained during the last 15 years on household behavior, business cycle dynamics and asset pricing, as well as boom bust episodes.
    JEL: E0 E44 G11 G12 R2 R3
    Date: 2016–06
  12. By: Ippei Fujiwara; Timothy Kam; Takeki Sunakawa
    Abstract: We explore how outcomes of optimal monetary policy with loose commitment (Schaumburg and Tambalotti, 2007; Debortoli and Nunes, 2010) can be observationally equivalent, or interpretable as outcomes of deeper optimal policy under sustainable plans (Chari and Kehoe, 1990). Both interpretations of "imperfect credibility" in optimal monetary policy design are attempts to rationalize outcomes that lie in between the conventional extremes of optimal policy under commitment and under discretion. In a standard monetary-policy framework, when we match impulse responses of inflation and the output gap to large enough markup shocks, we find that a small probability (1 - a = 0.05) of replanning in the quasi/loose commitment world corresponds to N = 18 in the N-period punishment optimal sustainable monetary policy, in terms of observable outcomes. For plausible cases of loose-commitment model economies (with a between 0.77 and 1) we can find an observationally equivalent sustainable-plan economy indexed by some N.
    Keywords: imperfect credibility, monetary policy, sustainable policy
    JEL: E52 E58 E61
    Date: 2016–06
  13. By: George-Marios Angeletos; Chen Lian
    Abstract: This chapter studies how incomplete information helps accommodate frictions in coordination, leading to novel insights on the joint determination of expectations and macroeconomic outcomes. We review and synthesize recent work on global games, beauty contests, and their applications. We elaborate on the distinct effects of strategic uncertainty relative to fundamental uncertainty. We demonstrate the potential fragility of workhorse macroeconomic models to relaxations of common knowledge; the possibility of operationalizing the notions of “coordination failure” and “animal spirits” in a manner that unifies unique- and multiple-equilibrium models; and the ability of incomplete information to offer a parsimonious explanation of important empirical regularities. We provide a general treatment of these ideas, as well as specific applications in the context of business cycles, financial crises, and asset pricing.
    JEL: C7 D8 E01 E3 E40 G1
    Date: 2016–06
  14. By: McKay, Alisdair; Reis, Ricardo
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes de- pend 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.
    Keywords: Counter-cyclical fiscal policy; distortionary taxes.; redistribution
    JEL: E62 H21 H30
    Date: 2016–06
  15. By: Susana Cortés Rodríguez
    Abstract: El análisis clásico de series temporales es un enfoque ampliamente difundido y utilizado en la práctica habitual del mundo econométrico sin ninguna clase de reservas (Poveda & Martinez 1973). Sobre esta base, y en particular sobre el uso de tasas de variación, se tratará de demostrar la hipótesis de la existencia de ciclos en el precio de la vivienda en la Comunidad de Madrid. Como es bien conocido, este tipo de análisis se realiza con unas ciertas garantías, a partir de series de datos largas. Uriel (1992) afirma: “… puede considerarse que es pequeña si el número de observaciones es inferior a 60.” Las bases estadísticas nacionales, tanto públicas como privadas, no disponen de series largas por lo que la parte más importante del análisis posterior, radica en la obtención de datos sobre el precio de la vivienda para el periodo 1960/2014.
    Keywords: Precio; vivienda; tasas; ciclos; Madrid.
    JEL: E31 E32 E37
    Date: 2015–12–30
  16. By: John B. Taylor
    Abstract: After many years, many critiques, and many variations, the staggered wage and price setting model is still the most common method of incorporating nominal rigidities into empirical macroeconomic models used for policy analysis. The aim of this chapter is to examine and reassess the staggered wage and price setting model. The chapter updates and expands on my chapter in the 1999 Handbook of Macroeconomics which reviewed key papers that had already spawned a vast literature. It is meant to be both a survey and user-friendly exposition organized around a simple “canonical” model. It provides a guide to the recent explosion of microeconomic empirical research on wage and price setting, examines central controversies, and reassesses from a longer perspective the advantages and disadvantages of the model as it has been applied in practice. An important question for future research is whether staggered price and wage setting will continue to be the model of choice or whether it needs to be replaced by a new paradigm.
    JEL: E3 E4 E5
    Date: 2016–06
  17. By: Hashmat U. Khan (Department of Economics, Carleton University); Jean-François Rouillard (Universite de Sherbrooke)
    Abstract: Why does residential investment lead output in the US and Canada but it is coincident in other industrialized countries? In this paper we explore the role of home-equity loans used to boost consumption as a channel that affects residential investment. Towards this end, we consider a multi-agent real business cycle model augmented with household borrowing constraints that re flect home-equity loans or refinancing constraints. The main contribution of our paper is to highlight that the severity of these borrowing constraints in the economy can generate both stylized facts of residential investment dynamics. In US and Canada, a greater proportion of households rely on home-equity loans relative to other industrialized countries. This difference matters for the distinct residential investment dynamics observed across countries.
    Keywords: Home-Equity Loans, Borrowing Constraints, Residential Investment, Business Cycles
    JEL: E22 E32 R21 R31
    Date: 2016–05–30
  18. By: Beaudry, Paul; Galizia, Dana; Portier, Franck
    Abstract: In most modern macroeconomic models, the steady state (or balanced growth path) of the system is a local attractor, in the sense that, in the absence of shocks, the economy would converge to the steady state. In this paper, we examine whether the time series behavior of macroeconomic aggregates (especially labor market aggregates) is in fact supportive of this local-stability view of macroeconomic dynamics, or if it instead favors an alternative interpretation in which the macroeconomy may be better characterized as being locally unstable, with nonlinear deterministic forces capable of producing endogenous cyclical behavior. To do this, we extend a standard AR representation of the data to allow for smooth nonlinearities. Our main finding is that, even using a procedure that may have low power to detect local instability, the data provide intriguing support for the view that the macroeconomy may be locally unstable and involve limit-cycle forces. An interesting finding is that the degree of nonlinearity we detect in the data is small, but nevertheless enough to alter the description of macroeconomic behavior. We complete the paper with a discussion of the extent to which these two different views about the inherent dynamics of the macroeconomy may matter for policy.
    Keywords: Business Cycles; Limit Cycles; Time Series
    JEL: E24 E3 E32
    Date: 2016–05
  19. By: Hubert Gabrisch; Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Johannes Pöschl; Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary The aim of this study is to analyse the state of the competitiveness of seven Western Balkan economies and to suggest policy recommendations in order to increase their capacity to compete. Most countries from the Western Balkans have a persistent current account deficit of about 10% of GDP which indicates their substantial lack of competitiveness. Also their goods export share makes only about 20% of GDP while it is around 70% for the new EU member states in Central Europe. Contrary to their northern neighbours, the Western Balkan countries have specialised in low and low-medium tech industries and have only little higher-tech products e.g. from the machinery and automotive or chemical industry to offer on the international markets. Several of these countries are excluded from international production networks. The quality of the institutions in the Western Balkans is weak but improving with further steps in the European integration process; the EU acts as an anchor of institutional stability. There are still considerable administrative and technical barriers to trade. Public transport infrastructure is more often than not in a very bad shape. Most of these countries are excluded from the international transport networks. Also the human capital could be improved. Unemployment is extremely high and large parts of the population are stuck in subsistence farming or are migrating. The labour market has problems to absorb the idle labour force. Financing is clearly a major restriction for an increase in much needed productive capacities. Real interest rates are high, the share of non-performing loans is large and credit growth is weak. A number of policy recommendations are made. Most of the countries need strong investment in transport infrastructure, both to connect internally as well as to connect across borders. Some also need substantial investment in their ailing energy infrastructure. Additional support for foreign direct investment could quickly generate new production capacities and transfer of technology. Given that most of the Western Balkan economies have either unilaterally adopted the euro or have pegged their currency to the euro, monetary and exchange rate policy is not available as a tool to foster competitiveness. An alternative option would be to support social partnership and a cooperative incomes policy that aims to orientate itself at full employment, productivity gains and inflation. For some of the more developed economies, investment into a dual system of vocational education could be costly but beneficial. Lower priced measures that in part could also be implemented more quickly include the following policies An administrative reform should aim at increasing the absorption capacities of EU support funds in order to identify and co-finance the most advantageous projects. A quick solution of the dragging issue of non-performing loans could cause a much needed improvement in credit activity. A measure that could be implemented in a budgetary neutral way is a fiscal devaluation, whereby an increase of the value added tax and a reduction of the employer’s social security contribution could have the same competitiveness improving effects as a nominal exchange rate devaluation.
    Keywords: competitiveness, economic policy, non-performing loans, capital inflow, real exchange rate, production networks, trade in goods, trade in services, foreign direct investment, labour market, migration, infrastructure, dual education, fiscal devaluation, Western Balkans
    JEL: E24 E60 F10 F21 F22 F31 F32 H52 H54 I25 L14 O18 O24
    Date: 2016–06
  20. By: Fernando Borraz (Banco Central del Uruguay); Joaquín Saldain (Banco Central del Uruguay)
    Abstract: We use a one million good-level dataset of prices in Uruguay which comprises grocery stores in the capital city of Montevideo to decompose the variance of prices to identify the sources of such variability. We estimate the specific contribution of the product, chain and individual store to the variability of prices. Estimates are carried out with the data in different periods, with time trend inflation and excluding nonhomogeneous goods to estimate robust results. We use the three error model to decompose the price variation to find that chain specific shocks account for half of it. The importance of shocks to individual products and product categories common to all stores is the other half. Our results indicate that the importance of chains in price variation in Uruguay is halfway between that of US and Chile. Therefore, in an emerging economy the price strategies of retailers are not so much different than in the US to explain price variation than previously thought.
    Keywords: precios, descomposición de varianza, estrategias de firmas, Uruguay
    JEL: E31 E52 L10
    Date: 2015
  21. By: Espen R. Moen (Økonomisk institutt Universitetet i Oslo); Eran Yashiv (Tel Aviv University; Centre for Macroeconomics (CFM))
    Abstract: This paper studies the matching of workers within the firm when the productivity of workers depends on how well they match with their co-workers. The firm acts as a coordinating device and derives value from this role. It is shown that a worker's contribution to firm value changes over time in a non-trivial way as co-workers are replaced by new workers. The paper derives optimal hiring and replacement policies, including an optimal stopping rule, and characterizes the resulting equilibrium in terms of worker flows, firm output and the distribution of firm values. Simulations of the model reveal a rich pattern of worker turnover dynamics and their connections to the resulting firm values distribution. The paper stresses the role of horizontal differences in worker productivity, which are different from vertical, assortative matching issues. It derives the rent from organizational capital, with worker complementarities playing a key role. We compare the model to match-specific productivity models and explore the essential differences, with the emphasis laid on worker interactions and complementarities.
    Keywords: Worker interactions, Firm value, Complementarity, Worker value, Organizational capital, Salop circle, Hiring, Firing, Match Quality, Optimal Stopping.
    JEL: E23 E24 D23 J24
    Date: 2016–06
  22. By: Magdalena Drapala (Warsaw School of Economic)
    Abstract: This paper provides an introduction to the business cycle. In the capitalist economy there are fluctuations in economic activity which apply to all aspects of socio-economic development. Capitalist economy is growing at a variable rate. These regular changes in economic activity are called cyclical or economic fluctuations. Business cycles as we know them today were first identified and analyzed by Arthur Burns and Wesley Mitchell in their 1946 book, Measuring Business Cycles (Romer, 2008): “Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle”(Burns, Mitchell, 1946, s. 5).
    Keywords: business cycle; Michal Kalecki; political business cycle
    JEL: A10 F44 G00 P10
    Date: 2016–06
  23. By: Garcia Pascual, Antonio; Wieladek, Tomasz
    Abstract: We examine the impact of the ECB’s QE on Euro Area real GDP and core CPI with a Bayesian VAR, estimated on monthly data from 2012M6 to 2016M4. We assess the total impact via a counter-factual exercise, country-by-country and through alternative transmission channels. QE anouncement shocks are identified with four different identification schemes as in Weale and Wieladek (2016). We find that in absence of the first round of ECB QE, real GDP and core CPI would have been 1.3% and 0.9% lower, respectively. The effect is roughly 2/3 times smaller than in the UK/US. Impulse response analysis suggests that the policy is transmitted via the portfolio rebalancing, the signalling, credit easing and exchange rate channels. Spanish real GDP benefited the most and Italian the least.
    Keywords: ECB unconventional monetary policy; Transmission mechanism.
    JEL: E50 E51 E52
    Date: 2016–06
  24. By: Giulio Cifarelli (Dipartimento di Scienze per l'Economia e l'Impresa); Giovanna Paladino
    Abstract: We investigate the time varying dynamics of the linkages between sovereign and bank default risks over the period 2006-2015, using the credit default swap (CDS) spreads of the bonds of major international banks and of sovereign issuers as indicators of risk within four major European countries. The nexus between bank risk in core countries and sovereign risk of peripheral countries is also analyzed, under the hypothesis that higher bond yields and preferential treatment of bond issued by euro sovereigns under Basle II may have favored the stocking of peripheral sovereign bonds in core bank portfolios. The use of a time-varying regime switching correlation analysis, the STCC-GARCH, allows to identify the economic variable behind the state shifts, the so-called “transition variable†, and to date precisely the changes in the size of the correlations that are due to shocks (viz. the Lehman crisis, the evolution of the Greek crisis) or to unconventional monetary policies such as Quantitative Easing and TLTRO.
    Keywords: CDS spreads, Unconventional monetary policy, STCC-GARCH correlation analysis
    JEL: E43 E52 F36 C32
    Date: 2016
  25. By: Vashchelyuk, N.V. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Polbin, Andrey (Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy); Trunin, Pavel (Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy)
    Abstract: The paper is devoted to identifying the shock of monetary policy and evaluating its impact on the main macroeconomic variables of the Russian economy with the help of the structural vector autoregression model. According to the results monetary policy shocks have a significant impact on the real sector of the Russian economy in the short term period and on the nominal variables (interest rates, price level, lending). Positive monetary policy shock leads to a temporary increase in output, the volume of lending, as well as to a reduction in nominal interest rates on loans. At the same time the contribution of monetary policy shocks to the variance of macroeconomic variables is small.
    Keywords: monetary policy, macroeconomic variables, Russian economy
    Date: 2016–03–21
  26. By: Verstegen, Loes (Tilburg University, Center For Economic Research); Meijdam, Lex (Tilburg University, Center For Economic Research)
    Abstract: In this paper, we incorporate a transfer mechanism into a DSGE model with a rich fiscal sector to assess the effectiveness of fiscal transfers for a monetary union, in particular for the Economic and Monetary Union. Using a heterogeneous setup, the model is estimated for the North and the South of Europe using Bayesian methods. The results show that the transfer mechanism is effective in stabilizing the economy of the southern block of countries during the financial crisis, although the total welfare effect for the EMU is negative, though small. Ex ante, a transfer mechanism would be beneficial for both the North and the South in terms of welfare and stabilization purposes.
    Keywords: Two-country DSGE; Fiscal Federalism; Monetary union; fiscal policy
    JEL: E62 E63 F42
    Date: 2016
  27. By: Garbade, Kenneth D. (Federal Reserve Bank of New York)
    Abstract: This paper presents a history of the primary dealer system from the late 1930s to the early 1950s. The paper focuses on two formal programs: the “recognized” dealer program adopted by the Federal Reserve Bank of New York in 1939 and the “qualified” dealer program adopted by the Federal Open Market Committee (FOMC) in 1944 and abandoned in 1953. Following his selection as Manager of the System Open Market Account (SOMA) in 1939, Robert Rouse formalized the New York Fed’s system of “recognized” dealer counterparties. Although the Bank typically dealt with recognized dealers, it also did business from time to time with other dealers; neither the original informal system nor the successor formal system made a sharp distinction between the two. The focus of monetary policy changed from managing reserves to keeping interest rates low following the entry of the United States into World War II. To support the new focus, the FOMC replaced the New York Fed’s recognized dealer program with its own program of “qualified” dealers. The new format limited transactions for the SOMA to qualified dealers and imposed a variety of restrictions on those dealers. Following the Treasury-Federal Reserve Accord of March 1951, the FOMC returned stewardship of the primary dealer system to the New York Fed, with instructions to develop a more open system that contemplated transactions with anyone “actually engaged in the business of dealing in Government securities.”
    Keywords: primary dealer; open market operations; System Open Market Account
    JEL: E5 G2 N1
    Date: 2016–06–01
  28. By: F. Vinas
    Abstract: Most studies analyzing the transmission of financial shocks to the real economy fail to uncover real effects at firm level. Taking into account banks' business models, this article attempts to fix that issue. Two banking models are considered: traditional and universal banks, the latter providing sophisticated financial services (market-making on derivatives, management of large commitments). Relying on a unique database on credits, banks and firms covering more than 5,000 firms over 2004-2009, the paper shows that in period of high liquidity, both models have a similar credit supply, but in liquidity crisis, universal banks had a significantly lower credit supply, contrary to traditional banks, leading to real effects on firm’s investment.
    Keywords: Crisis, Retail Bank, Universal Bank, Firm, Credit, Credit Line, Maturity, Long-Term Credit, Short-Term Credit, Liquidity, Investment.
    JEL: E22 E51 G01 G21 G24
    Date: 2016
  29. By: Maxime Leroux; Rachidi Kotchoni; Dalibor Stevanovic
    Abstract: We evaluate the predictability of the economic activity of Quebec in a data-rich environment. In our framework, the province of Quebec is treated as a regional economy that is exposed to the influence of the Canadian and American economies. Three large information sets are used: data from Quebec, Canada and the US, for a total of 453 macroeconomic variables. We compare a large number of models for the purpose of identifying those that are most efficient at forecasting macroeconomic aggregates of Quebec such as the GDP, employment, inflation, investment, etc. Our results suggest that the best model in terms of mean squared error depends on the variable of interest and on the forecasting horizon. A model that performs well at short horizons does not necessarily perform well at long horizons. Likewise, the model that best predicts the nominal GDP does not necessarily win the race when it comes to predict the real GDP. The ARMA(1,1) is found to be one of the best standard models to predict the nominal GPD and inflation. Models exploiting rich data sets often rank best individually. The most robust performances are obtained by averaging the forecasts delivered by the 5, 10 or 20 best individual models. Nous évaluons la prévisibilité de l’activité économique du Québec dans un environnement riche en données. Notre approche consiste à voir la province du Québec comme une économie régionale soumise aux influences des économies canadienne et américaine. Trois grands ensembles d’information sont utilisés : les données québécoises, canadiennes et américaines, soit un total de 453 variables macroéconomiques. Nous comparons un grand ensemble de modèles dans le but d’identifier ceux qui sont les plus efficaces pour prédire les principaux agrégats de l’économie québécoise tels que le PIB, l’emploi, l’inflation, l’investissement, etc. Nos résultats suggèrent que le meilleur modèle en termes d’erreur quadratique moyenne dépend de la série à prédire et de l’horizon de prévision visé. Un modèle ayant de bonnes performances à court horizon peut devenir moins bon à long horizon. Un modèle bon pour prédire le PIB nominal ne l’est pas forcément pour prédire le PIB réel. Dans la catégorie des modèles standards, le modèle ARMA(1,1) s’est révélé un bon benchmark pour prédire le PIB nominal ou l’inflation. Les modèles riches en données se classent souvent comme les meilleurs individuellement. La moyenne des prévisions fournies par une sélection des 5, 10 ou 20 meilleurs modèles individuels délivre des performances encore plus robustes.
    Keywords: Forecasting, Macroeconomic aggregates, Large data sets, Factor models, Time series models, Prévision, agrégats macroéconomiques, grandes bases de données, modèles à facteurs, modèles de séries chronologiques
    JEL: C22 C32 C53 C55 E17
    Date: 2016–06–08
  30. By: Desbonnet, Audrey; Kankanamge, Sumudu
    Abstract: In this paper, we investigate the importance of aggregate fluctuations for the assessment of the optimal level of public debt in an incomplete markets economy. We start by building a steady state model in which households are only subject to uninsurable idiosyncratic risk and evaluate the optimal level of public debt. We then augment the model to allow for aggregate risk and measure the impact on the optimal level. We show that the cyclical behavior of the economy has a quantitative impact on this level that can be decomposed into the effects of the aggregate productivity shock and the cyclicality of unemployment. Moreover, we find that matching wealth distribution statistics substantially changes the optimal level of public debt.
    Keywords: public debt, aggregate risk, precautionary saving, credit constraints.
    JEL: E32 E60 H30 H60
    Date: 2016–05
  31. By: Chuku Chuku
    Abstract: This study considers the implications of alternative monetary policy regimes to deal with a laissez-faire fiscal policy rule, where the government completely spends resource revenue windfall contemporaneously. A three sector dynamic stochastic general equilibrium model, which features key structural characteristics of resource-rich developing economies, such as; the Dutch disease, limited international capital mobility, credit constrained consumers, and limited labour mobility are core ingredients of the model. The model is calibrated to match the Nigerian economy.Three alternative mainstream monetary policy regimes are considered:i) a flexible exchange rate regime;ii) a crawling peg; andiii) a money growth target.The results show that the macroeconomic responses to these monetary policy regimes, depends on other auxiliary polices of the central bank, such as; sterilization policy, foreign reserve accumulation policy and openmarket operations. In particular, we find that a flexible exchange rate regime with full domestic absorption delivers the highest level of aggregate employment, though with higher volatility for other macroeconomic variables.The other policy rules deliver lower macroeconomic volatility but at the cost of crowding-out the private sector, depending on the mix of open-market operations. In welfare terms, policy regime (i) delivers the best outcome to economic agents.
    Keywords: Monetary policy
    Date: 2016
  32. By: Raju Huidrom (World Bank, Development Prospects Group); M. Ayhan Kose (World Bank, Development Prospects Group; Brookings Institution; CAMA; CEPR); Franziska L. Ohnsorge (World Bank, Development Prospects Group)
    Abstract: This paper presents a systematic analysis of the availability and use of fiscal space in emerging and developing economies. These economies built fiscal space in the run-up to the Great Recession of 2008-09, which was then used for stimulus. This reflects a more general trend over the past three decades, where availability of fiscal space has been associated with increasingly countercyclical (or less procyclical) fiscal policy. However, fiscal space has shrunk since the Great Recession and has not returned to pre-crisis levels. Emerging and developing economies face downside risks to growth and prospects of rising financing costs. In the event that these cause a sharp cyclical slowdown, policymakers may need to employ fiscal policy as a possible tool for stimulus. An important prerequisite for fiscal policy to be effective is that these economies have the necessary fiscal space to employ countercyclical policies. Over the medium-term, credible and well-designed institutional arrangements, such as fiscal rules, stabilization funds, and medium-term expenditure frameworks, can help build fiscal space and strengthen policy outcomes.
    Keywords: Fiscal space, fiscal policy, developing economies, growth slowdown, fiscal rules, stabilization funds, expenditure frameworks
    JEL: E62 H50 H60
    Date: 2016–06
  33. By: Raju Huidrom; M. Ayhan Kose; Franziska L. Ohnsorge
    Abstract: This paper presents a systematic analysis of the availability and use of fiscal space in emerging and developing economies. These economies built fiscal space in the run-up to the Great Recession of 2008-09, which was then used for stimulus. This reflects a more general trend over the past three decades, where availability of fiscal space has been associated with increasingly countercyclical (or less procyclical) fiscal policy. However, fiscal space has shrunk since the Great Recession and has not returned to pre-crisis levels. Emerging and developing economies face downside risks to growth and prospects of rising financing costs. In the event that these cause a sharp cyclical slowdown, policymakers may need to employ fiscal policy as a possible tool for stimulus. An important prerequisite for fiscal policy to be effective is that these economies have the necessary fiscal space to employ countercyclical policies. Over the medium-term, credible and well-designed institutional arrangements, such as fiscal rules, stabilization funds, and medium-term expenditure frameworks, can help build fiscal space and strengthen policy outcomes.
    Keywords: Fiscal space, fiscal policy, developing economies, growth slowdown, fiscal rules, stabilization funds, expenditure frameworks
    JEL: E62 H50 H60
    Date: 2016–06
  34. By: Minoru Watanabe (Faculty of Economics and Business Administration, Kyoto Gakuin University)
    Abstract: We build a simple overlapping generations model with minimum wage. Many eariler papers do not enough consider household fs preference in the context of minimum wage and ecoomic growth under a dynamic framework Therefore our study focus on the household fs preference for consumption. Results show whether an increase in minimum wage promotes economic growth or not depends on the preference for consumption.
    Keywords: Minimum wage: Unemployment: Economic growth
    JEL: E24 J31 O40
    Date: 2016–06
  35. By: Karol Szafranek
    Abstract: Excessive disinflation and the flattening of the Phillips curve are recently popular phenomena in many advanced economies. In the environment of low inflation, the fading relationship between the price dynamics and the adjustments in the domestic real activity is vigorously investigated for highly developed economies. Still little evidence has been presented for emerging, small open economies. In this paper I address this issue by investigating the behavior of the Phillips curve for Poland. In particular, I aim at answering the question whether a Phillips curve flattening or a steepening can be observed during the recent abrupt disinflation. The outstanding problem of considerable uncertainty accompanying the model specification is accounted for by estimating a substantial number of regressions and exploring the cross-section properties of the hybrid Nkpc parameters. The results advocate that a statistically significant relationship between inflation and the domestic real activity developments persists. However, in the recently observed disinflation period the Phillips curve tends to flatten as the inflation’s sensitivity with respect to changes in economic slack diminishes. That notwithstanding, the impact of external factors rises significantly. Conditional ex-post forecasts suggest that while only a limited number of Phillips curve specifications manage to explain the disinflation process in Poland, employing unemployment gap or real Gdp as economic slack proxies delivers the most accurate inflation forecasts.
    Keywords: hybrid Nkpc, inflation, Phillips curve flattening, emerging, small open economy
    JEL: C13 C22 C26 E31
    Date: 2016
  36. By: Feige, Edgar L.
    Abstract: Abstract: Professor Schneider’s “Comment” on my “Reflections” paper does not adequately address the key issues concerning the veracity of his findings, namely issues of documentation, normalization, calibration and replication. Further findings of inadequate documentation, suspicious normalization procedures, unexplained calibration errors and the inability to replicate the results; reinforces the conclusions of my original “Reflections” paper. Schneider’s Shadow Economy results suffer from conceptual flaws, arbitrary data manipulations and insufficient documentation for replication, questioning their place in the academic, policy and popular literature.
    Keywords: Shadow Economy, tax evasion, non-observed economy, unobserved economy, Friedrich Schneider, MIMIC models
    JEL: C51 C82 E41 E6 H26 K42 O17
    Date: 2016–06–09
  37. By: Katherine Moos (Department of Economics, New School for Social Research)
    Abstract: This paper entertains two distinct hypotheses about the meaning and effect of the Lucas critique. The first is that the Lucas critique represents advancement in the theory of economic policy. To accept this interpretation, we will have to find evidence that the Lucas critique is empirically valid, ontologically rigorous, and theoretically sound. In search of such evidence, we will review the writings of economists both within and outside the profession’s mainstream that engage the Lucas critique on these criteria. The alternative hypothesis considered in this paper is that in denouncing the traditional theory of economic policy, Lucas sparked an ideational shift in how macroeconomists understand the meaning and value of policy. By considering macroeconomics as a moral science with a specific ontology, we can understand the philosophical implications of the Lucas critique. This paper entertains the idea that the Lucas critique altered the aspirations of economists and policymakers by undermining belief in the ability of economists to make meaningful interventions in the economy and therefore infusing implicit policy nihilism into macroeconomics.
    Keywords: Lucas critique, macroeconomic policy evaluation, nihilism, theory of economic policy
    JEL: E17 E61 C54
    Date: 2016–05
  38. By: Mike Nyawo and Neil Rankin
    Abstract: This paper documents the price setting behaviour, and the change in this behaviour, amongst retail firms after the introduction of the new currency system in Zimbabwe. We use sample data which covers 291 products to investigate whether prices became more flexible (rigid) and to track the adjustment process as Zimbabwe moved further away from the date the new currency system was introduced. We find evidence that prices became more flexible with time although this change is relatively small compared to the variation in the frequency of price changes between months. Compared to Lesotho and Sierra Leone, prices in Zimbabwe are stickier with more than 75 percent of products in the dataset not changing prices from the previous period. Over half of all absolute price changes are greater than 5 percent indicating that when price changes do occur, they are relatively large. Overall, the findings of the paper fit with the ‘stylised facts’ emerging about the micro aspects of price adjustment.
    Keywords: Pricing conduct, multicurrency, pricing heterogeneity, price rigidity
    JEL: E30 E31 D40 D21
    Date: 2016
  39. By: Marina Azzimonti
    Abstract: I analyze the effects of political uncertainty on foreign direct investment flows to the US using a novel indicator, the partisan conflict index (PCI). Partisan conflict is relevant for the evolution of cross-border capital flows because the expected returns on investment projects are less predictable when the timing, size, and composition of fiscal policy is uncertain. The partisan conflict index tracks the evolution of political disagreement among policymakers as reported by the media. Using aggregate quarterly data from 1985 to 2015, I show that an innovation of the PCI is associated with a significant decline in FDI flows to the US. The magnitude of the effect is similar when disaggregated data from a panel of parent countries is considered instead.
    JEL: E62 F21 F3 H3
    Date: 2016–06
  40. By: Enrique Alberola-Ila; Rocío Gondo; Marco Jacopo Lombardi; Diego Urbina
    Abstract: We provide a measure of the output gap that filters out the impact of the commodity and net capital inflows booms for Latin American countries. These two factors temporarily boost output and so are likely to push up estimates of potential growth in the region to unrealistic levels, thereby resulting in an underestimation of the output gaps during the upswing of the commodity cycle. We also shed light on the interaction between the two components. The results show that commodity prices has been the dominant factor explaining deviation of activity from sustainable levels. The timely consideration of these factors could prevent a procyclical fiscal policy bias in the region.
    Keywords: output gap, commodity prices, capital flows, procyclicality, fiscal policy, Latin America
    Date: 2016–06
  41. By: Stanley Simon Malinowitz
    Abstract: Se analiza la evolución y el papel del sector financiero en la economía estadounidense en la fase del neoliberalismo y la financiarización y en la crisis de esta fase que inició en 2007, con énfasis en las raíces de la inestabilidad y la fragilidad económicas provenientes del sector financiero a partir de las sucesivas desregulaciones y el surgimiento de nuevas instituciones, instrumentos y prácticas en el sector, y las políticas aplicadas como respuestas a la crisis. Las políticas y la reforma financiera de la administración de Obama no han producido cambios estructurales, refuerzan las estructuras y las prácticas que causaron la crisis y exacerban el estancamiento de la economía real, la fragilidad financiera y la desigualdad.
    Keywords: finanzas, crisis, reforma financiera, Estados Unidos, Obama
    JEL: E44 G01 G28 N22 P16
    Date: 2015–12–30
  42. By: Markus Brueckner; Francisco Carneiro
    Abstract: This paper presents estimates of the effects that terms of trade volatility has on real GDP per capita growth. Based on 5-year non-overlapping panel data comprising 175 countries during 1980-2010, the paper finds that terms of trade volatility has significant adverse effects on economic growth in countries with procyclical government spending; in countries where government spending is countercyclical terms of trade volatility has no significant effect on growth. Conditional on the mediating role of government spending cyclicality, the GDP share of domestic credit to the private sector has no significant effect on the relationship between growth and terms of trade volatility.
    Date: 2016–06
  43. By: Markus Brueckner; Francisco Carneiro
    Abstract: This paper presents estimates of the effects that terms of trade volatility has on real GDP per capita growth. Based on 5-year non-overlapping panel data comprising 175 countries during 1980-2010, the paper finds that terms of trade volatility has significant adverse effects on economic growth in countries with procyclical government spending; in countries where government spending is countercyclical terms of trade volatility has no significant effect on growth. Conditional on the mediating role of government spending cyclicality, the GDP share of domestic credit to the private sector has no significant effect on the relationship between growth and terms of trade volatility.
    Date: 2016–06
  44. By: Edouard Challe (Department of Economics, Ecole Polytechnique); Xavier Ragot (OFCE)
    Abstract: We study the macroeconomic implications of time-varying precautionary savings within a general equilibrium model with borrowing constraints, aggregate shocks and uninsurable idiosyncratic unemployment risk. Our framework generates limited cross-sectional household heterogeneity as an equilibrium outcome, thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way. The time-series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand-to-mouth and representative-agent models, and it is comparable to that produced by the Krusell and Smith (1998) model.
    Keywords: Business cycle shocks; Households; Precautionary saving
    Date: 2016–02
  45. By: Anne Laure Delatte (Pôle Finance Responsable - Rouen Business School); Julien Fouquau (NEOMA BUSINESS SCHOOL); Richard Portes (CEPR)
    Abstract: Is the pricing of sovereign risk linear during bearish episodes? Or can initial shocks on economic fundamentals be exacerbated by endogenous factors that create nonlinearities? We test for nonlinearities in the sovereign bond market of European peripheral countries during the debt crisis and explain them. Our estimates based on a panel smooth threshold regression model during January 2006 to September 2012 show four main findings: 1) Peripheral sovereign spreads are subject to significant nonlinear dynamics. 2) The deterioration of market conditions for financial names changes the way investors price risk of the sovereigns. 3) The spreads of European peripheral countries have been priced above their historical values, given fundamentals, because of amplification effects. 4) Two CDS indices on financial names unambiguously stand out as leading drivers of these amplification effects.
    Keywords: European sovereign crisis; Panel Smooth Threshold; Regression Models; CDS indices
    JEL: E44 F34 G12 H63 C23
    Date: 2014–08
  46. By: Tariq, Anam; Masih, Mansur
    Abstract: It has been proven time and again, that Islamic banking performance tends to imitate that of conventional banks, especially since Islamic banks seem to be vulnerable to the same type of risks, whether it is because of monetary policy actions leading to changes in interest rates or other macroeconomic variables. We would like to take a closer look at this verdict and see if it truly holds true if we separate risk-based instruments of financing in Islamic banks and analyze their performance specifically. Our focus is on analyzing the level of impact of interest rates on risk-based deposits in Islamic banks. We use dynamic panel techniques in the form of difference GMM to come to the conclusion that separating risk-based from relatively fixed-rate instruments of financing can provide us with very different results. Our findings suggest that interest rates do not play a significant role in determining the level of deposits that are risk-based in nature and do not depend on a given and guaranteed rate of return. Based on this finding, we see that risk-based deposits and financing can prove to be the antidote that not only Islamic banks but the whole financial industry can think of, to deal with the detrimental effects of an interest-based system.
    Keywords: risk-based deposits, Islamic banks, interest rates, dynamic GMM
    JEL: C58 G21
    Date: 2016–05–31
  47. By: Jeppe Druedahl (Department of Economics, University of Copenhagen); Thomas Høgholm Jørgensen (Department of Economics, University of Copenhagen)
    Abstract: We investigate the effects of assuming a fully permanent income shock in a standard buffer-stock consumption model, when the true income process is only highly persistent. This assumption is computationally very advantageous, and thus often used, but might be problematic due to the implied misspecification. Across most parameterizations, and using the method of simulated moments, we find a relatively large estimation bias in preference parameters. For example, assuming a unit root process when the true AR(1) coefficient is 0.97, leads to an estimation bias of up to 30 percent in the constant relative risk aversion coefficient. If used for calibration, misspecified preferences could, for example, lead to a serious misjudgment in the value of social insurance mechanisms. Economic behavior, such as the marginal propensity to consume (MPC), of households simulated from the estimated (misspecified) model is, on the other hand, rather close to that from the correctly specified model.
    Keywords: Persistent and permanent income shocks, imperfect markets life cycle model, simulated method of moments, marginal propensity to consume
    JEL: D31 D91 E21
    Date: 2016–06–09
  48. By: Ulas Sener
    Abstract: This book examines the relationship between central bank independence and monetary policy in Turkey with a political economic approach. Focusing on the Turkish example, it addresses the theoretical and empirical questions that arise in connection with central bank independence. It analyses the Turkish central bank's institutional statue and its implications for monetary policy since its formal independence in 2001. The main outcome is that Turkey's central bank cannot be regarded as an independent and depoliticized monetary institution, not least due to the high political pressure the ruling Justice and Development Party was able to put on monetary policy decision, especially after the global financial crises 2007-08. The book investigates further domestic and international political economic conditions and developments in regards to the exertion of influence on the Turkish monetary policy. The case of Turkey shows that even a formally independent central bank is unable to detach itself from political interference, in spite of a strong ideology of de-politicized monetary policy. To conceptually grasp this outcome the present title proposes an understanding of the CBRT’s institutional status as one of ‘relative autonomy’.
    Keywords: Turkey, central bank independence, monetary policy, political economy, relative autonomy
    JEL: E52 E58 P16
    Date: 2016–06
  49. By: Rafael Tiecher Cusinato; Francisco Marcos Rodrigues Figueiredo; Vicente da Gama Machado; Euler Pereira Gonçalves de Mello; Leonardo Pio Perez
    Abstract: This paper presents an update of the inflation decomposition procedure based on the projection models used by Banco Central do Brasil. This procedure aims to generate estimates, for a given year, of the contribution of factors directly affecting inflation, such as inertia, exchange rate variation, expectations and supply shocks; and factors whose impact is indirect, operating through their effects on aggregate demand, such as real interest rates, fiscal stimulus and foreign output gap. Regarding inertia, the paper presents the distinct approaches applied to some components of administered prices. The decomposition results for 2012 to 2014 are presented, based on the updated methodology
    Date: 2016–06
  50. By: Markus Brueckner; Tomoo Kikuchi; George Vachadze
    Abstract: We study an overlapping generations model where ex-ante identical agents make an occupational choice under a borrowing constraint. Indivisible investment gives rise to entrepreneurial rents and does not allow everyone to become an entrepreneur. Competition forces entrepreneurs to save more than workers. The model predicts that growth in national income has a positive effect on domestic saving rates in poor countries but a negative effect in rich countries. Borrowing constraints increase domestic saving rates as well as the response of domestic saving to growth in income. These predictions are supported by empirical evidence based on panel data that covers 130 countries during 1960-2007.
    Keywords: overlapping generations, entrepreneurship, occupational choice, saving, borrowing constraints
    JEL: E2 O1
    Date: 2016–06
  51. By: Xu, Kun; Cheng, Jian-hua; Xu, Wenli
    Abstract: Current and future inflation in China are both dominated by inflation expectation and inertia, but dramatic instability of inflation expectation put directly negative impact on effects from inflation management policies. This paper, by applying ARMA and GARCH models, studies dynamics of shocks from inflation and its expectation, and the empirical results indicate that: (1) rational expectation and inertia are separate factors influencing inflation, and disturbance on inflation shows persistent, cyclical and cyclical lag characteristics; (2) shocks from inflation expectation show persistence, and disturbance on inflation strengthens expectation oscillation; (3) the shocks exist asymmetry, which implies that people’s expectation is more sensitive to undervaluation of expectation instability. Policies suggestion from empirical results root that expectation leads are the limited approach for realizing inflation targets and inflation management policies must be prudent.
    Keywords: Inflation Persistence; Rational Expectation; Shocks On Expectation; Error Learning Mechanism
    JEL: E3
    Date: 2016–06
  52. By: Prakash Kumar Shrestha, Ph.D. (Nepal Rastra Bank)
    Abstract: In recent years, many emerging countries have been accumulating substantial amount of international reserves by outpacing traditional benchmark in response to a series of financial crises in the world. In this context, this paper constructs a dynamic macro model with new monetary policy rule to examine the implications of international reserve accumulation for macroeconomic outcomes such as economic growth and inflation. Such a macro model is empirically examined in the data of South Asian countries, namely Bangladesh, India, Nepal, Pakistan and Sri Lanka by using Panel VAR method for the period of 1990-2013. The empirical results show that increase in international reserves tends to cause higher economic growth in these countries but without significant impact on inflation. This implies that these countries can move further utilizing the accumulated international reserves productively which will enhance economic growth and maintain internal and external balances.
    Keywords: International Reserves, Macroeconomic impact, South Asia
    JEL: C23 C61 F31 F41 F43
    Date: 2016–03
  53. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: We analyze the relation between the level of the inflation target and the zero lower bound (ZLB) imposed on the nominal interest rate. We analyze this relation in the framework of a behavioral macroeconomic model in which agents experience cognitive limitations. The model produces endogenous waves of optimism and pessimism (animal spirits) that, because of their self-fulfilling nature, drive the business cycle and in turn are influenced by the business cycle. We find that when the inflation target is too close to zero, the economy can get gripped by "chronic pessimism" that leads to a dominance of negative output gaps and recessions, and in turn feeds back on expectations producing long waves of pessimism. The simulations of our model, using parameter calibrations that are generally found in the literature, suggests that an inflation target of 2% is too low, i.e. produces negative skewness in the distribution of the output gap. We find that an inflation target in the range of 3% to 4% comes closer to producing a symmetric distribution of the output gap and avoids the economy being trapped in a region of chronic pessimism.
    Keywords: behavioral macroeconomics; Inflation targeting; zero lower bound
    Date: 2016–06
  54. By: Tiziana Assenza (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Domenico Delli Gatti (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Jakob Grazzini (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Giorgio Ricchiuti
    Abstract: In his seminal paper, starting from the premise that productivity is heterogeneous across firms, Melitz (2003) nicely accounts for the stylized fact that the level of individual productivity is key in determining the capability of a firm to export. In this paper we build a model along Melitz’s lines to show that also financial capacity, captured by the level of individual net worth, affects the behaviour of firms on international markets. In our framework, in fact, the decision to export depends on both productivity and net worth, and both are heterogeneous across firms. We show that firms with low productivity may still be able to penetrate foreign markets provided they have enough net worth to incur the cost of exporting. However, even a really high net worth may not guarantee the presence in both domestic and foreign markets if the firm does not have a minimum level of productivity. Finally, we explore the effects of changes in transport costs, fixed costs for exporters and the financial constraints.
    Keywords: Productivity; Net Worth; International trade; Heterogeneous firms.
    JEL: E44 F12 F14 F21
    Date: 2016–06
  55. By: Degiannakis, Stavros; Filis, George; Palaiodimos, George
    Abstract: This paper examines the relationship between investments and uncertainty for the US economy, as the latter is approximated by consumer sentiment, purchasing managers’ prospects and economic policy uncertainty. Contrary to the existing literature, we provide evidence that this relationship is time-varying. The time variation is attributed to the observed temporal replacement effect between private and public investments. Furthermore, we show that there are two distinct correlation regimes in this relationship and unless we concentrate on the two regimes, we cannot fully unravel the real link between uncertainty and investments. Finally, we examine whether the use of two correlation regimes provides better forecasts of investments compared to the use of the uncertainty indices alone. The forecasting exercise reveals that the use of correlation regimes provides statistically superior out-of-sample forecasts.
    Keywords: Uncertainty, public investments, private investments, gross fixed capital formation, dynamic correlation, forecast.
    JEL: C32 C51 C53 E22 H50
    Date: 2015–07–01
  56. By: Thesmar, David; Ors, Evren; Derrien, Francois; Boissel, Charles
    Abstract: How do crises affect Central clearing Counterparties (CCPs)? We focus on CCPs that clear and guarantee a large and safe segment of the repo market during the Eurozone sovereign debt crisis. We start by developing a simple framework to infer CCP stress, which can be measured through the sensitivity of repo rates to sovereign CDS spreads. Such sensitivity jointly captures three effects: (1) the effectiveness of the haircut policy, (2) CCP member default risk (conditional on sovereign default) and (3) CCP default risk (conditional on both sovereign and CCP member default). The data show that, during the sovereign debt crisis of 2011, repo rates strongly respond to movements in sovereign risk, in particular for GIIPS countries, indicating significant CCP stress. Our model suggests that repo investors behaved as if the conditional probability of CCP default was very large.
    Keywords: repurchase agreement; sovereign debt crisis; LTRO; secured money market lending
    JEL: E43 E58 G01 G21
    Date: 2015–07–27
  57. By: Hashmat U. Khan (Department of Economics, Carleton University); Pythagoras Petratos (Saïd Business School, Oxford University)
    Abstract: We consider US Venture Capital (VC) activity as a measure of entrepreneurship and study its relationship with the business cycle. This measure addresses some biases in alternative measures such as self-employment and business ownership that have been considered in previous literature. Despite the well-known volatility in VC activity, it remains an important source of funding for entrepreneurs engaging in innovative business creation. We document key stylized facts for VC entry (seed and start-up stage) and VC exit (late stage) at the aggregate and sectoral level. VC entry is more strongly correlated and is contemporaneous with the business cycle while VC exit lags the cycle by two quarters. There is strong evidence for a bi-directional causality between entrepreneurship and economic activity. A positive shock to VC activity has a positive effect on real GDP. Our findings can help inform policies designed to support entrepreneurship.
    Keywords: Entrepreneurship, Venture Capital, Business Cycles
    JEL: E32 G24 L26
    Date: 2016–06
  58. By: Huidrom,Raju; Kose,Ayhan; Lim,Jamus Jerome; Ohnsorge,Franziska Lieselotte
    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 data-set of advanced and developing economies. The methodology permits tracing the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. The paper reports 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 the 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: Currencies and Exchange Rates,Debt Markets,Economic Theory&Research,Economic Stabilization,Emerging Markets
    Date: 2016–06–22
  59. By: S. Heravi; J. Easaw; R. Golinelli
    Abstract: The main purpose of this paper is to develop generalized ‘State Dependent Models’ (SDM) in a multivariate framework for empirical analysis. This significantly extends the existing SDM which only allow univariate analysis following a simple AR process. The extended model enables greater possibility for empirical analysis of economic relationships. The principle advantage of SDM is that it allows for a general form of non-linearity and can be fitted without any specific prior assumption about the form of non-linearity. We describe the general structure of the SDM and the problem of its identification is also considered. Finally, we apply the algorithm to show the impact of sentiment and income when modelling US consumption.
    JEL: C32 C51 E32
    Date: 2016–05
  60. By: JIN SEO CHO (Yonsei University); MYUNG-HO PARK (Korea Institute of Public Finance)
    Abstract: We study Kolmogorov-Smirnov goodness of fit tests for evaluating distributional hypotheses where unknown parameters need to be fitted. Following work of Pollard (1980), our approach uses a Cram¢¥ervon Mises minimum distance estimator for parameter estimation. The asymptotic null distribution of the resulting test statistic is represented by invariance principle arguments as a functional of a Brownian bridge in a simple regression format for which asymptotic critical values are readily delivered by simulations. Asymptotic power is examined under fixed and local alternatives and finite sample performance of the test is evaluated in simulations. The test is applied to measure top income shares using Korean income tax return data over 2007 to 2012. When the data relate to estimating the upper 0.1% or higher income shares, the conventional assumption of a Pareto tail distribution cannot be rejected. But the Pareto tail hypothesis is rejected for estimating the top 1.0% or 0.5% income shares at the 5% significance level. A Supplement containing proofs and data descriptions is available online. Key Words: Distribution-free asymptotics, null distribution, minimum distance estimator, Cr¢¥amer-von Mises distance, top income shares, Pareto interpolation.
    JEL: C12 C13 D31 E01 O15
    Date: 2016–06
  61. By: Annarosa Pesole (European Commission – JRC - IPTS)
    Abstract: This report presents an update of the ICT Innovation Output Indicator based on the latest available data, and provides a measure of the performance of the European Union (EU) and its Member States in ICT innovation. The ICT Innovation Output Indicator is the contribution of Information and Communication Technologies (ICT) to the Innovation Output Indicator elaborated by the European Commission in 2013. The contribution of ICT has been computed for each underlying component of the Innovation Output Indicator for all EU Member States. Depending on the indicator component analysed and data availability, the ICT contribution to innovation can refer either to innovation in the ICT sector as defined by the classification of economic activities, or to ICT use as a general purpose technology in the rest of the economy. The up-to-date ICT contributions for the EU aggregate are: 1. 28% in technological innovation as measured by patents; 2. 19% in absorption of skills as measured by employment in knowledge intensive activities; 3. 27% in competitiveness of knowledge goods as measured by exports of medium-high tech goods; 4. 20% in competitiveness of knowledge services as measured by exports of knowledge intensive services; 5. 23% in innovative firms’ dynamics as measured by employment of innovative fast-growing firms. All data refer to 2013 with the exception of data on patents which refer to 2011. The methodology to compute the ICT Innovation Output Indicator follows the one presented in "How much does ICT contribute to innovation output? An analysis of the ICT component in the innovation output indicator" (Pesole, 2015 ). The reader is referred to this report for more detail on the methodology. The 2013 EU aggregate ICT contributions are very similar to those in 2012 reported by Pesole (2015). The technological innovation component (i.e. ICT PCT patent) increased by two percentage points in 2011 (from 26% to 28%). Similarly, competitiveness of knowledge goods increased from 25% to 27% in 2013. The other contributions remain unchanged. The ICT Innovation Output Indicator delivers a measure of output-oriented ICT innovation that captures both the technological and non-technological aspects of innovation in ICT and ranks Member States' performance. The three top performing countries remain the same as in Pesole 2015: Finland, Ireland and Sweden.
    Keywords: ICT innovation output indicator, measurement of ICT innovation
    Date: 2016–06
  62. By: Michael Tompkins; Ariel Olivares
    Abstract: As Canada continues to engage in a dialogue to develop the approach to modernizing its core payment systems, we analyze the core payment systems that exist in countries around the world. We study payment systems in 27 jurisdictions, encompassing a broad range of geographic regions, through three levels of analysis. First, we identify and discuss the different types of core systems, and the prevalence of each of them. At a high level, we find that most jurisdictions have added a new real-time retail system, all have a batch retail payment system, and the vast majority have made upgrades to their large-value payment systems. Second, we evaluate what core system upgrades have resulted in improved access, functionality, interoperability, timeliness and risk management. Finally, we analyze the overarching design found in multiple core payment systems across jurisdictions and identify four distinct core payment system configurations. These main core system configurations reflect the different approaches taken to modernize, depending on jurisdictional factors, including public policy objectives, drivers, needs, payment instruments and gaps resulting from legacy systems. We conclude that it is necessary to have a complete understanding of modernization objectives, based on each country’s unique jurisdictional factors. A comprehensive set of modernization objectives can then be used to develop a holistic multi-system plan, designed to modernize each core payment system in a complementary manner.
    Keywords: Financial services, Financial system regulation and policies, Payment clearing and settlement systems
    JEL: E42 L14 L15 L52
    Date: 2016
  63. By: Heni Boubaker (IPAG LAB, IPAG Business School, France); Giorgio Canarella (University of Nevada, Las Vegas, USA); Rangan Gupta (Department of Economics, University of Pretoria); Stephen M. Miller (University of Nevada, Las Vegas, USA)
    Abstract: We propose a new long-memory model with a time-varying fractional integration parameter, evolving non-linearly according to a Logistic Smooth Transition Autoregressive (LSTAR) specification. To estimate the time-varying fractional integration parameter, we implement a method based on the wavelet approach, using the instantaneous least squares estimator (ILSE). The empirical results show the relevance of the modeling approach and provide evidence of regime change in inflation persistence that contributes to a better understanding of the inflationary process in the US. Most importantly, these empirical findings remind us that a "one-size-fits-all" monetary policy is unlikely to work in all circumstances.
    Keywords: Time-varying long-memory, LSTAR model, MODWT algorithm, ILSE estimator
    JEL: C13 C22 C32 C54 E31
    Date: 2016–06
  64. By: Akanbi, Olusegun A
    Abstract: This study examines the determinants of domestic investment in sub-Saharan African (SSA) countries with explicit focus on the role of governance/institutions. The literature has emphases more on the macroeconomic factors that explain investment, neglecting the non-economic causes that could be more important. A panel of 45 selected sub-Saharan African countries and the period 1996???2013 were considered in the estimations using the two-stage least-squares estimation techniques. The results are in line with the findings of existing literature. The study expands on the analysis that governance/institutions play an important role in explaining the long-term pattern of domestic investment in the region. In addition, the study identify that a sustainable level of domestic investment could be attained at a particular governance rating. Therefore, countries with better governance ratings will achieve higher investment levels and domestic investment tends to converge as poor governance is attained.
    Keywords: convergence, domestic investment, GDP, governance and institutions, sub-Saharan Africa
    Date: 2016–05
  65. By: Maira Caño-Guiral (Banco Central del Uruguay)
    Abstract: In this paper, a methodological procedure is introduced based on employment variables and a legal criterion for measuring the Non-Observed Economy (NOE) covering the lack of its estimation for a series of years. This procedure is applied for Uruguay and NOE size is estimated for 2001-2010 characterizing it both, through its contribution to gross domestic product and in the principal economic activities in which it is centered. In addition, at the light of the 2008 SNA handbook, a new empirical analytical framework of the NOE is discussed in terms of two big areas that shape it, the informal and the underground, and results of their size in jobs and value added are presented.
    Keywords: Non-Observed Economy, Informal, Underground, Measurement, National Accounts, Uruguay; Economía No Observada, Informal, Subterránea, Medición, Cuentas Nacionales
    JEL: O10 E23 E26 J21 J31
    Date: 2015
  66. By: Cabral,Rene; Carneiro,Francisco Galrao; Mollick,Andre Varella
    Abstract: The paper investigates the relevance of the exchange rate on the reaction function of the central banks of 24 emerging market economies for the period 2000Q1 to 2015Q2. This is done by first employing fixed-effects ordinary least squares and then system generalized method of the moments techniques. Under fixed effects, the exchange rate is found to be an important determinant in the reaction function of emerging market economies. Allowing for the endogeneityof inflation, output gap, and exchange rate, the exchange rate remains a positive and significant determinant, but less quantitatively relevant across inflation-targeting countries. When the sample is partitioned into targeting and nontargeting countries, the exchange rate remains relevant in the reaction function of the latter group. The results remain robust to splitting the sample at the time of the financial crisis of 2007?09 and suggest that, after the crisis, the central banks of emerging market economies responded only to inflation movements in the interest rate reaction function.
    Keywords: Currencies and Exchange Rates,Debt Markets,Economic Theory&Research,Economic Stabilization,Emerging Markets
    Date: 2016–06–20
  67. By: Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Luca Correani (Dipartimento di Economia e Impresa, Università degli Studi della Tuscia); Fabio Di Dio (Sogei S.p.a. - IT Economia)
    Abstract: This paper presents a simple dynamic general equilibrium model with supply-side strategic interactions to study the economic effects of mitigating greenhouse gas emissions in an economy with an emission cap and oligopolistic firms competing on prices. With such endogenous market structure a gradual decarbonization policy is likely to induce higher markups, while the number of active firms displays a U-shaped behavior, first decreasing and then increasing. In the long run more firms are active, but they transfer a part of the compliance cost to households by charging a higher markup. The negative effects on the level of economic activity of this anti-competitive outcome are strongly mitigated by recycling policies.
    Keywords: Environmental Policy, Dynamic General Equilibrium Model, Endogenous Market Structure.
    JEL: E32 Q54 Q58
    Date: 2016–06–22
  68. By: GUERRON-QUINTANA, Pablo; INOUE, Atsushi; KILIAN, Lutz
    Abstract: One of the leading methods of estimating the structural parameters of DSGE models is the VAR-based impulse response matching estimator. The existing asymptotic theory for this estimator does not cover situations in which the number of impulse response parameters exceeds the number of VAR model parameters. Situations in which this order condition is violated arise routinely in applied work. We establish the consistency of the impulse response matching estimator in this situation, we derive its asymptotic distribution, and we show how this distribution can be approximated by bootstrap methods. Our analysis sheds new light on the choice of the weighting matrix and covers both weakly and strongly identified DSGE model parameters. We also show that under our assumptions special care is needed to ensure the asymptotic validity of Bayesian methods of inference. A simulation study suggests that the interval estimators we propose are reasonably accurate in practice. We also show that using these methods may affect the substantive conclusions in empirical work.
    Keywords: Structural estimation, DSGE, VAR, impulse response, nonstandard asymptotics, bootstrap, weak identification, robust inference.
    JEL: C32 C52 E30 E50
    Date: 2016–05–30
  69. By: Pandey, Ashish
    Abstract: This is a perspective paper on the long-term impact of Non-Performing Assets of the public sector banks in India how the process of further deterioration in the scenario can be reversed. The author first tries to unfold the root causes of the burgeoning crisis arising out of Non-Performing Assets and then suggest appropriate measure, which if adopted, can help the nation protect itself from the looming catastrophe which can shake not only the erring banks but also the entire economy of the country. The crisis of non-perming assets can be ignored only at nation’s peril. Hence, it is imperative for the government as well as the Reserve Bank of India to take urgent measures in order to diffuse the proverbial time bomb which is almost ready to burst. Any further delay in managing Non-Performing Assets in an effective manner is bound to devastate the financial stability of the country.
    Keywords: Public Sector Banks, Non-Performing Assets, India
    JEL: E58 H32
    Date: 2016–05–13
  70. By: Luca Lambertini (Department of Economics, University of Bologna, Italy; The Rimini Centre for Economic Analysis, Italy); Luigi Marattin (Department of Economics, University of Bologna, Italy)
    Abstract: We revisit the discussion about the relationship between price's cyclical features, implicit collusion and the demand level in an oligopoly supergame where a positive shock may hit demand and disrupt collusion. The novel feature of our model consists in characterising the post-shock noncooperative price and comparing it against the cartel price played in the last period of the collusive path, to single out the conditions for procyclicality to arise both in the short and in the long-run.
    Keywords: demand shocks, cyclical pricing, implicit collusion
    JEL: C73 E60 L13
    Date: 2016–06
  71. By: Zubarev, Andrey (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Nesterova, K.V. (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This model works for six regions / countries. The immediate objective of this work is the construction and calibration of general economic equilibrium model based on Russia, in particular, changes in fiscal policy modeling. The resulting model will simulate the effect of fiscal policy on the economy of Russia and other countries / regions included in the model, as well as to understand how changes in fiscal policy will affect the growth of real wages, interest rates, and economic growth in the country over time.
    Keywords: general economic equilibrium model, fiscal policy, real wages, interest rates, economic growth
    Date: 2016–04–20
  72. By: Sven Schreiber; Miriam Beblo
    Abstract: We revisit the alleged retirement consumption puzzle. According to the life-cycle theory, foreseeable income reductions such as those around retirement should not affect consumption. However, we first recall that given higher leisure endowments after retirement, the theory does predict a fall of total market consumption expenditures. In order not to mistake this predicted drop for a puzzle we focus on housing consumption which can be plausibly regarded as complementary to leisure, and we control for the leisure change in our empirical specifications, using micro data for Germany (SOEP), where housing expenditures are observable as rents for the majority (60%), as well as dwelling relocations. We still find significant negative impacts of the retirement status on housing consumption, which is hard to reconcile with the life-cycle theory. For retirees we also find significant effects of the income reduction at retirement on housing. However, the effects are small in quantitative terms, given the lock-in nature of past housing decisions.
    Keywords: consumption smoothing, retirement-consumption puzzle, SOEP
    JEL: D91 E21
    Date: 2016
  73. By: Frank Milne (Queen's University)
    Abstract: The conventional discussion of the international financial crisis that erupted in the summer of 2007 is that few professional economists saw it coming, nor anticipated its ferocity in devastating the US and European economies and financial systems, leading to civil unrest and fears of greater violence in the EU. Why weren’t the authorities and public warned before mid-2007? At the time, a tiny number of vocal Cassandras who delivered warnings in the media were roundly ridiculed. Now these prophets are lauded in the media. What is not widely appreciated is that there were far more professionals who gave private warnings to the large financial institutions, government regulators and central banks. These people tender their analysis in private because professional analyses of dangerous economic risks are subtle, and potentially incendiary in the hands of political populists, irresponsible media pundits and corrupt vested interests. The last thing any prudent professional would wish is to precipitate a panic. It is a tragedy that many of those who gave private warnings, were ignored, ridiculed, or in some cases, lost their jobs for challenging the financial and economic conventional wisdom. It may have been conventional, but it was far from wisdom. Because the economic crisis is continuing and imposing large costs on Western societies, it is crucial to listen again to the Cassandras. More importantly, there is not one, but three separate crises - International Private Debt, International Productivity and Income Distribution, and Western Fiscal Policy. These three crises appear to be quite separate in origin and have been brewing for decades, but the economic stresses they impose have interacted, greatly increasing their impact. The consequences of these crises for the Australian economy could be severe. Although many in the Australian establishment have boasted that Australia is relatively immune: it is a “Lucky Country†, and has avoided the crises through wise policy, this is at best a partial truth. Professionals within and outside Australia have been warning for years that the country is not immune: downside risks have been increasing. Complacency is really dangerous.
    Keywords: Australia, Financial Crisis, Productivity, Fiscal Policy
    JEL: G18 G28 E66
    Date: 2016–06
  74. By: Gulnara Abdrakhmanova (National Research University Higher School of Economics); Galina Gennadievna Kovaleva (National Research University Higher School of Economics); Sergey M. Plaksin (National Research University Higher School of Economics)
    Abstract: Our study object is the Russian Internet economy, i.e. economic activities of companies relying on the Russian-language segment of the World Wide Web. The purpose of this study is to classify businesses engaged in the national Internet economy and measure its size (as a share of GDP) using official statistics. The analysis of international approaches used for such studies allowed us to classify these according to the following criteria: the direct impact of the Internet on the economy, indirect economic impact of the Internet, and its indirect impact on the social sphere. To assess the size of the Russian Internet economy we used the approaches applied by international organizations (OECD, BCG, McKinsey) for the analysis of the direct impact of the Internet on the economy [BCG (2014), McKinsey (2011), OECD (2014), etc.]. The authors singled out three sectors within the Internet economy: the sector of ICT infrastructure and its maintenance; the sector of companies doing business purely on the Internet, and the sector of companies combining an online and offline business. To assess the share of the Internet economy in GDP using the production approach we first defined the above sectors in accordance with All-Russian Classification of Economic Activities (OKVED) Rev. 1.1 and subsequently calculated gross value added (GVA) for each sector. For this purpose, the GVA data calculated by Federal Service of State Statistics (Rosstat) was disaggregated while the share of the GVA contributed by the third sector companies (i.e. combining an online and offline business) was assessed using the results of special surveys and Rosstat data. To measure the size of the Internet economy using the expenditure approach we focused on consumer spending on goods bought through the Internet, ICT equipment and Internet access as well as institutions’ expenditure for ICT equipment, fixed capital investment of enterprises engaged in Internet activities, public sector ICT spending, net exports of ICT goods and services. According to our estimates obtained by two methods such as the production approach and expenditure approach, the share of the Internet economy in GDP in 2014 amounted to 2.7 and 2.6%, respectively. Future studies would require a more detailed definition and description of the Internet-related economic activities on the basis of OKVED2 with subsequent calculation of GVA for appropriate companies as well as development of statistical tools for collecting data on household spending
    Keywords: Internet economy, online and offline business, Internet, System of National Accounts
    JEL: C80 F62 E01 L16 L81 M21 O14
    Date: 2016
  75. By: Adriano A. Rampini
    Abstract: This paper studies the effect of durability on the financing of durable assets. We show that more durable assets require larger down payments of internal funds per unit of capital making them harder to finance, because durability affects the price of an asset and hence the overall financing need more than its collateral value. This insight has implications for the choice between new and used capital, technology adoption, and the rent versus buy decision. Constrained borrowers purchase used assets which are less durable than new assets and adopt less durable, low quality assets, that are otherwise dominated technologies. More durable assets are more likely to be rented given their larger financing need. Legal enforcement affects trade and technology adoption; weak legal enforcement economies are net importers of used assets and invest a larger fraction in less durable, low quality assets. There is a critical distinction between the pledgeability and durability of assets: pledgeability facilitates financing whereas the net effect of durability is to impede financing.
    JEL: D24 D91 D92 E22 G32 O16
    Date: 2016–06
  76. By: Kazakova, Maria (Gaidar Institute for Economic Policy; Russian Presidential Academy of National Economy and Public Administration); Trunin, Pavel (Gaidar Institute for Economic Policy; Russian Presidential Academy of National Economy and Public Administration)
    Abstract: This paper deals with the long-term (up to 2100) prediction of the demographic (population, including labor) and macroeconomic (GDP and labor productivity) parameters in the Russian Federation. Based on the economic outlook mayor and population projections to 2030 Rosstat authors calculated the trajectory of GDP and constructed demographic scenario forecast; further results are used in calculating the dynamics of each of the components of the costs and revenues of the budgetary system of the Russian Federation until 2100.
    Keywords: forecasting, macroeconomic parameters, demographic prediction, Russia, long-term prognosis
    Date: 2015–03–12
  77. By: Kartika, Dwintha Maya
    Abstract: This study examines whether Indonesian national health insurance system promotes health equity in favour of informal economy workers. It first lays out the theoretical justification on the need of social protection, particularly health protection for informal workers. The paper argues that the absence of health protection for vulnerable informal workers in Indonesia has reinforced health inequity between formal and informal workers, thus provides a justification on extending health protection to this segment. It then boils down its analysis on existing BPJS Health scheme, a government-run national health insurance, and to what extent this scheme serves the needs of informal workers in Indonesia. The finding suggests that several factors (contributory premium, access to healthcare services and politicisation of national healthcare) are responsible for adversely incorporating informal workers; hence fail to promote health equity in favour of vulnerable workers in informal economy.
    Keywords: National Health Insurance; Informal Economy; Universal Health Coverage; Indonesia; Informal workers; Health financing; Social Security; Social Protection; WHO; ILO; BPJS;
    JEL: E26 I1 I13 I14 I15 I18 J46 O17 O29 Y40
    Date: 2015–08
  78. By: Anna Kormilitsina (Southern Methodist University)
    Abstract: This paper investigates a propagation mechanism of the energy price shock in a model where capital utilization is associated with costly energy consumption. Endogenous depreciation is an important element of the model, as it has been shown to produce a significant negative effect of energy prices on output. I show that the amplifying effect of endogenous depreciation is determined by the choice of the functional form and calibration strategy for the energy cost function. My estimates of the energy cost function allow to conclude that the energy price shock has only a moderate effect on output in this model, while endogenous depreciation mitigates rather than amplifies the effect of the energy price shock.
    Keywords: energy price, oil price shock, RBC model, endogenous depreciation
    JEL: E32 Q43
    Date: 2015–11
  79. By: Nixon, Chris (New Zealand Institute of Economic Research)
    Abstract: NZIER, as part of its public good programme, explores important policy issues that have emerged from our economic analysis and advice. In the course of a consulting assignment, the notion emerged of ‘durable policies’. Developing durable policy approaches is the holy grail of policy advice. We defined durable policies as the sweet spot between what is politically feasible, effective policy and administratively feasible.
    Keywords: policy formulation; policy durability; policy
    JEL: D04 D78 E61
    Date: 2016–06–09
  80. By: Kaixing Huang (School of Economics, University of Adelaide)
    Abstract: Idea-based growth models usually predict that economic growth rates are increasing with the level or growth rate of the population. This scale effect prediction is intuitive and derived directly from the nonrivalry of ideas. However, time-series data over the last century generally did not support this scale effect prediction. This article illustrates why scale effects were unobservable. A modified idea-based model shows that economic growth rates increase with investments in human capital accumulation and population growth rates. The offsetting movements of these two factors during the demographic transition of the last century obscured the scale effects.
    Keywords: Economic growth, scale effects, human capital, population, demographic transition
    JEL: E27 O40
    Date: 2016–06
  81. By: Makochekanwa, Albert
    Abstract: The study analysed the reactions and perceptions of Zimbabwean economic agents following the announcement of the impending introduction of the Zimbabwe Bond Notes. The analysis was done through primary data collection in which a structured questionnaire was administered to 145 economic agents within the first seven days after the announcement. The following are the major findings: majority of the surveyed Zimbabwean economic agents, totalling 109 representing 75% of the sample said they were frightened by the announcement. A total of 95 respondents (which accounted for 66% of the total sample) indicated that the introduction of the Zimbabwe Bond Notes will negatively impact on their business operations and/or economic activities. To minimise the possible negative impacts of Zimbabwe Bond Notes on their economic activities, economic agents were going to (i) withdraw all the US dollars from their local (Zimbabwean) bank accounts, (ii) keep all their US dollars safely in their homes or even under the pillow and (iii) do nothing! Given free choice and without any coercion to choose between US dollars and the Zimbabwe Bond Notes as the medium of exchange, majority of respondents totally 136 (representing 94% of the sample) said they will prefer and demand US dollars, while only two respondents (representing 1% of the sample) said they will demand the Bond Notes. A total of seven respondents (representing 5% of the sample) said they will demand both US dollars and Zimbabwe Bond Notes. The major disadvantages of the introduction of Bond Notes into the economy includes (i) not convertible, (ii) discourages imports, (iii) discourages investments, (iv) inflationary, (v) erodes confidence in the financial system, (vi) promotes black (parallel) market in foreign currency. The introduction of the the Zimbabwe Bond Notes will have a negative and severe impact on the economic activities of Zimbabwe as represented by declines in exports, manufacturing activities, investment and deposit banking; and an increase in inflation. Majority of respondents amounting to 135 out of the 145 interviewees (representing 93% of the sample) said that if the authorities are determined to continue and implement the policy contrary to the views by the general business community and ordinary Zimbabwean citizens, then the best they can do is to inject the US$200 million into the economy as United States of America dollars (US$).
    Keywords: Zimbabwe Bond Notes, Reserve Bank of Zimbabwe, Fear
    JEL: E41 E51 E52
    Date: 2016–05–30
  82. By: Roberto Astolfi; Michela Gamba; Emmanuelle Guidetti; Pierre-Alain Pionnier
    Abstract: After reviewing the main features of the statistics available in the MEI to inform policy makers, this paper discusses the performance of the CLIs during the Great Recession. This performance is assessed using both ex-post and real-time analyses. The analyses evaluate the ability of the OECD CLIs to anticipate the peak and the subsequent trough of the Great Recession in G7 countries, and the extent to which the initial signal has been maintained over time. Après un examen des principales caractéristiques des statistiques disponibles dans les PIE, ce document évalue la performance des Indicateurs Composites Avancés de l’OCDE pendant la Grande Récession. Des analyses ex-post et en temps réel sont menées pour apprécier la capacité de ces indicateurs à anticiper le pic et le creux de la Grande Récession dans les pays du G7, ainsi que la stabilité dans le temps des points de retournement détectés.
    Date: 2016–05–25
  83. By: Forssbaeck, Jens (School of Economics and Management, Lund University); Nielsen, Caren Yinxia (Department of Economics, Lund University)
    Abstract: We examine the moral hazard effects of bank recapitalizations by assessing the impact of the U.S. TARP program on market discipline exerted by subordinated debt-holders using a sample of 123 bank holding companies over the period 2004-2013. Predicted distress risk has a consistently positive and significant effect on sub-debt spreads, suggesting the presence of market discipline. A higher bailout probability significantly reduces the risk-sensitivity of spreads for the full sample, indicating a moral hazard effect of recapitalizations. This appears to be a too-big-to-fail effect, as it is absent when the largest banks are dropped from the sample. Results indicate that it is transitory. We also find a large effect of the crisis, appearing both as a uniform rise in, and a heightened risk sensitivity of, sub-debt spreads during the crisis.
    Keywords: Bank bailouts; moral hazard; distress risk; capital injections; TARP; CPP; market discipline; financial crisis
    JEL: E50 G01 G21 G28 H12
    Date: 2016–06–13

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